What Happens to Employees When a Business Is Sold in Alberta

A sale of a business can be unsettling for the people who work there. Employees want to know whether they still have a job. Owners want to know what they must say, and buyers want to know whom they are taking on.

The answer depends first on how the deal is structured. This article explains the difference between a share sale and an asset sale in plain terms, and what to ask before anyone is told anything.

This article covers the law of Alberta.

Share sale versus asset sale

In a share sale, the buyer purchases the owners' shares in the company. How that affects the people the company employs depends on the facts and the employment contracts, so it is worth confirming with a lawyer before anyone relies on an assumption.

In an asset sale, the buyer purchases the business or parts of it, not the company. Under the GST rules, the business-assets rule applies where a seller sells a business or part of one and the buyer gets all or substantially all of the property reasonably necessary to carry on that business. Because the seller's company is not the one being bought, the question of who employs the staff needs to be dealt with deliberately.

Who the employer becomes

How a sale affects employment status, years of service and notice depends on Alberta employment law and on the employment contracts. These points should be confirmed with a lawyer before the deal is finalized or employees are told.

Notice, pay and what employees may ask

Employees often ask whether their service counts, whether pay and benefits stay the same, and what happens if they are let go. The answers depend on the structure, the contracts, and the legal rules on termination. Because these rules are specific, it is risky to guess or to promise anything to staff.

• Ask whether the buyer will offer jobs to all employees, some, or none.
• Ask whether the terms offered match the current ones.
• Ask who is responsible for pay owing up to closing.
• Ask how vacation, benefits and any bonuses are handled.
• Ask how the agreement deals with employees who do not accept an offer.

Points for buyers and sellers to settle in the agreement

The purchase agreement is where the parties decide who takes on which obligations. A buyer will usually want a list of employees, their roles, pay, and written contracts. A seller will want clarity on what happens to staff who are not retained.

If the buyer plans to finance the purchase through the Canada Small Business Financing Program, note that the program does not finance share purchases. That can push a deal toward an asset structure, which in turn changes the employee picture. Raise structure and financing together, not separately.

Tax is part of the same conversation. Without an election, each property and service in a business sale is treated as a separate supply, so GST at 5% in Alberta can apply to the taxable parts. The going-concern exemption works through a joint election by the supplier and the buyer, made on the CRA form GST44. The election is not available where the supplier is a registrant and the buyer is not. Even with a valid election, tax is still payable on some items, such as a taxable service the supplier will render or a taxable lease or licence of property. An accountant or lawyer can confirm how this applies to your deal.

Buyers also tend to check who they are dealing with before closing. Corporate Registry searches, requested through a registry agent, can show the registration date, owners, directors and legal addresses of an Alberta corporation. Personal Property Registry searches are requested on a Search Request form at a registry agent office, and the search types include business debtor name and serial number, for items such as vehicles. A search returns an exact match, an inexact match, no match, or both exact and inexact matches. What a result means for your deal is worth confirming with a lawyer.

What to do next

• If you are an employee, keep a copy of your employment contract, pay records and any letters about the sale.
• If you are a seller, decide how and when to tell staff, and get advice before you do.
• If you are a buyer, collect employee details early in due diligence.
• If you are a buyer, ask a registry agent about Corporate Registry and Personal Property Registry searches on the seller.
• Confirm with a lawyer how Alberta employment law applies to your structure.
• Make sure the purchase agreement spells out who is responsible for each employee obligation.

Frequently asked questions