Do Employees Get Severance When a Business Is Sold in Ontario?

If you work for a business that is being sold, or you own one, the first worry is usually the same: does the sale count as losing the job, and what happens to years of service? The answer depends on whether the buyer takes the employee on.

This article explains in general terms how Ontario treats service in a sale, when termination pay and severance pay arise, and when payment is due.

Is a sale the same as being terminated?

Under the Employment Standards Act, if an employer sells a business or part of it and the purchaser employs an employee of the seller, the employment is deemed not terminated or severed for the purposes of the Act. Ontario's guide says prior service flows through to the new owner when the business is sold or transferred and the employee keeps working in it.

The word "sells" includes leasing, transferring or disposing of a business in any other way. The label on the deal does not decide it; what matters is whether a business or part of one was actually sold.

How years of service carry over

The employee gets credit for past employment for every right based on length of employment. Examples:

• Vacation: five or more years of combined service means three weeks and 6% vacation pay, and the employee does not need five more years with the buyer.
• Notice, termination pay and severance pay use total service with seller and buyer combined. A 10-year employee whose service is attributed to the new owner gets the maximum notice period.
• Leaves that need a minimum period of employment can count service with the seller.

Vacation pay accrued and due before the sale stays with the seller, while vacation pay accrued but only due after the sale passes to the buyer.

When carried-over service does not apply

There are exceptions worth knowing.

• If the buyer rehires the employee more than 13 weeks after the earlier of the last day with the seller or the day of the sale, prior service does not carry over.
• An employee does not have to accept the buyer's offer, and refusing does not reduce notice or severance entitlements.
• A buyer is not required to hire the seller's employees, and employees not hired within 13 weeks are the seller's responsibility.

A buyer cannot avoid continuity by offering new terms, running a selection process, or asking the employee to sign an acknowledgment that seniority is not carried forward. If the buyer knowingly lets employees keep working after the sale, that can amount to employment by the buyer.

Separately, at common law the original contract ends when the employer's legal identity changes, and a new contract arises if the employee accepts the new employer's offer. The Act's continuity applies only for the purposes of the Act and does not require the same terms. If your terms are being changed, speak to a lawyer.

Notice, termination pay and severance pay amounts

For an employee employed at least three months, notice runs from one week for under one year of service, two weeks for one to under three years, three weeks at three years, rising one week per year to eight weeks for eight years or more. The employer can give written notice, termination pay or a combination.

Severance pay applies where the employee has five or more years of service and 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. It is one week of regular wages per completed year, plus months over 12, to a maximum of 26 weeks.

Severance can be paid in instalments of up to three years only with the employee's written or electronic agreement or Director approval. Some situations bring no notice or termination pay, such as wilful misconduct that is not trivial and not condoned, or refusing reasonable alternative employment.

What to do next

An employee cannot both sue for wrongful dismissal and file an Employment Standards Act claim for the same termination, so the choice matters. If the buyer ends employment later, it owes notice or pay on combined service and gets no credit for notice the seller gave at the time of sale.

• Write down your start date, pay and vacation balance.
• Ask in writing whether the buyer will employ you and from what date.
• Keep any offer, termination letter and pay records.
• Owners: set out in the purchase agreement who covers vacation, notice and severance.
• Get legal advice before signing a release or a new employment agreement.

Frequently asked questions