- A buyer is not required under the ESA to hire the seller's employees, and an employee need not accept a job with the buyer.
- Employees the buyer does hire carry their seller service with them, so a later dismissal is priced on combined service.
- Employees not hired within 13 weeks are the seller's responsibility for ESA notice or pay in lieu, and severance pay where it applies.
When you buy a business's assets rather than its shares, you often want to take on only some of the people. Perhaps the buyer has its own managers, or part of the operation is being closed.
Ontario law gives buyers real freedom to choose, but the choices have consequences for both sides. This article explains how the Employment Standards Act (ESA) treats those you hire and those you do not, and where wrongful dismissal claims can come in.
You do not have to hire everyone
A purchaser is not required under the ESA to hire the seller's employees, and an employee is under no obligation under the ESA to accept employment with the purchaser. An employee who refuses an offer does not lose notice or severance entitlements as a result.
At common law, a sale that changes the employer's legal identity ends the employee's original contract, and if the employee accepts the new employer's offer, a new contract arises. The ESA deems continuity only for the purposes of that Act, so it does not bind the purchaser to the old contract or require the same terms, although service credit under the ESA still follows the employee.
The people you hire bring their service
If the purchaser employs an employee of the seller, the employment is deemed not terminated or severed for ESA purposes, and the seller's time counts as time with the purchaser. Notice, termination pay and severance pay are based on total service with seller and purchaser combined. For vacation, carried-over service counts toward the entitlement: five or more years of combined service means three weeks' vacation and 6% vacation pay, while under five years means two weeks and 4%. Vacation pay that was accrued and due before the sale stays with the seller, while vacation pay accrued but only due after the sale passes to the purchaser.
Buyers cannot get around this by offering new terms, running a selection process, or having employees sign an acknowledgment that seniority does not carry forward. If you knowingly let employees keep working after the sale, that can amount to employment by you.
If you later end that employment, you owe notice or pay in lieu on the combined service and get no credit for notice the seller gave at the time of sale. Where the seller already paid severance, you may be able to offset it against your later obligations under ESA section 65(8), paragraph 3.
The people you do not hire
Employees the purchaser does not hire within 13 weeks are the seller's responsibility. The seller must give ESA notice or pay in lieu, and severance pay where applicable. Service also does not carry over if someone is rehired by the purchaser more than 13 weeks after the earlier of their last day with the seller or the day of the sale.
That ESA rule does not end the story for a buyer. The purchase agreement usually decides who bears the cost between buyer and seller, through indemnities or a price adjustment, so raise it before signing. Employees may also have claims at common law, and an employee cannot both sue for wrongful dismissal and file an ESA claim for the same termination. How large a common law claim could be depends on the individual's circumstances, so a lawyer can assess it.
What ESA notice and severance look like
| Item | Rule |
|---|---|
| Notice (employed at least three months) | Under 1 year: 1 week; 1 to under 3 years: 2 weeks; 3 years: 3 weeks, rising one week per year to 8 weeks for 8 years or more. |
| Severance pay | Applies with 5 or more years of service where the employer has a global payroll of $2.5 million or more, or severed 50 or more employees in six months because of a permanent closure; one week of regular wages per completed year (plus months/12), to a maximum of 26 weeks. |
| Mass termination | 50 or more employees at one establishment within four weeks needs 8 weeks' notice (50 to 199), 12 weeks (200 to 499) or 16 weeks (500 or more). |
Employers may give written notice, termination pay, or a combination. Termination pay is due on the later of seven days after termination or the next regular pay date.
Watch for constructive dismissal
If you hire someone and then make a significant unilateral change to a fundamental term, that can count as termination if the employee resigns within a reasonable time. A new offer that the employee accepts creates a new contract, so whether a particular change amounts to constructive dismissal depends on the facts and is worth confirming with a lawyer.
What to do next
- Get a list of employees with start dates, pay, vacation balances and any written contracts.
- Decide early who will receive offers, and keep the 13-week window in mind.
- Ask whether the business meets the payroll or closure thresholds for severance pay.
- Put an employee-cost allocation in the purchase agreement, covering indemnities and price adjustments.
- Speak with a lawyer before sending offers or termination letters.
Frequently asked questions
Can I refuse to hire an employee of the business I am buying?
Yes. A purchaser is not required under the ESA to hire the seller's employees. What matters is who is then responsible for notice or pay in lieu and severance, which is generally the seller for those not hired within 13 weeks.
If I hire someone, do I start their seniority from zero?
No. Their time with the seller counts toward notice, termination pay and severance pay. A signed acknowledgment that seniority does not carry forward does not avoid this.
Can an employee sue and also file an ESA claim?
Not for the same termination. An employee cannot both sue for wrongful dismissal and file an ESA claim.
Who bears the cost between buyer and seller?
The ESA sets the employee's entitlements, but the purchase agreement is where buyer and seller usually allocate the cost between themselves. A lawyer can help you draft or review those terms.
Sources
- Court of Appeal for Ontario, Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA 873 (quoting ESA s. 9(1)) — ontariocourts.ca
- Your guide to the Employment Standards Act – Continuity of employment — ontario.ca
- ESA Policy and Interpretation Manual – Part IV Continuity of employment — ontario.ca
- Your guide to the Employment Standards Act – Termination of employment — ontario.ca
- Your guide to the Employment Standards Act – Severance pay — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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