- If the buyer employs a seller's employee, past service carries over for the purposes of the ESA.
- A buyer is not required to hire the seller's employees, and an employee need not accept a job with the buyer.
- Prior service does not carry over if the employee is rehired more than 13 weeks after the earlier of the last day with the seller or the sale date.
If you own a business that is being sold, or work for one, the first question is usually whether the jobs continue. The next is what happens to years of service already built up.
Ontario's Employment Standards Act (ESA) has specific rules for this. They protect employment standards, but they do not decide every part of the deal. This article covers the main points.
Service carries over to the buyer
Under ESA s. 9(1), if an employer sells a business or part of a business and the purchaser employs an employee of the seller, the employment is deemed not terminated or severed for the purposes of the Act, and it is treated as employment with the purchaser for any later calculation of length of employment. The employee gets credit for past employment for every right based on length of employment.
The word sells includes leasing, transferring or disposing of a business in any other way. The Ministry looks at the substance, so calling a deal an asset sale does not prevent s. 9 applying if a business or part of one was in fact sold.
What carried-over service affects
- Vacation: an employee with five or more years of combined service gets three weeks and 6% vacation pay, compared with two weeks and 4% under five years, and does not need to work another five years for the buyer.
- Notice, termination pay and severance pay are based on total service with seller and buyer combined.
- Leave eligibility can count seller service, such as the 13 weeks needed for parental leave.
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.
Limits and exceptions
A buyer is not required under the ESA to hire the seller's employees, and an employee is under no obligation to accept employment with the buyer; refusing does not reduce notice or severance entitlements.
Prior service does not carry over if the employee is rehired by the buyer more than 13 weeks after the earlier of the last day with the seller or the day of the sale. Employees not hired by the buyer within 13 weeks are the seller's responsibility, including ESA notice or pay in lieu, and severance pay where applicable.
Continuity cannot be avoided by offering new terms, running a selection process, or having the employee 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.
The ESA continuity rule is not the whole picture. At common law, a change in the employer's legal identity ends the original contract, and if the employee accepts the new employer's offer a new contract arises; s. 9(1) deems continuity only for the purposes of the Act and does not require the same terms.
Notice and severance after the sale
A buyer who later ends the employment owes notice or pay in lieu on combined service and gets no credit for notice the seller gave at the time of sale. If the seller already paid severance, the buyer may offset it against its later obligations under ESA s. 65(8), para. 3.
ESA notice for employees employed at least three months runs from 1 week for under one year of service to a maximum of 8 weeks for 8 years or more. ESA severance pay applies to employees 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, and is one week of regular wages per completed year to a maximum of 26 weeks.
Who bears these costs between seller and buyer is mainly set by the purchase agreement, through terms like indemnities or price adjustments. ESA entitlements themselves cannot be contracted out of.
What to do next
In a share sale, the company that employs the staff usually stays the same, so questions about a new employer may not arise in the same way. A lawyer can confirm how your deal is structured.
- Get a list of employees with their start dates.
- Confirm whether the buyer will offer jobs and on what terms.
- Check how notice, severance and vacation pay are handled in the agreement.
- Keep track of the 13-week window.
- Get advice before accepting or refusing an offer.
Frequently asked questions
Do employees automatically keep their jobs when a business is sold?
No. A buyer is not required under the ESA to hire the seller's employees, and employees need not accept an offer. If the buyer does employ them, their past service carries over.
Can the buyer reset my years of service?
Not under the ESA. Continuity cannot be avoided by offering new terms, a selection process or an acknowledgment that seniority is not carried forward.
What if I am not hired by the buyer?
Employees not hired by the buyer within 13 weeks are the seller's responsibility, including notice or pay in lieu, and severance pay where it applies.
Does refusing the buyer's offer cost me my entitlements?
Refusing does not reduce notice or severance entitlements under the ESA. Your particular situation may still be worth reviewing with a lawyer.
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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