- When all or part of a business is sold, an employee's employment is deemed continuous and uninterrupted by the sale.
- The purchaser generally pays outstanding wages and takes on accrued vacation pay, while the seller pays if employment ends before the sale.
- Different rules apply if the employee declines the buyer's offer, if the seller is bankrupt, or if the deal is a share sale.
Selling or buying a business raises an immediate question for the people who work there: what happens to their jobs, their accrued vacation and any pay owed if they are let go? Sellers worry about leftover bills, buyers worry about inheriting them, and employees want to know their service still counts.
In British Columbia, the Employment Standards Act answers much of this. The answer depends on how the deal is structured and on whether employment continues or ends around closing. This article explains the general rules and where a purchase agreement fits in.
This article covers the law of British Columbia.
Employment carries over when a business is sold
Under section 97 of the Employment Standards Act, if all or part of a business is disposed of, the employment of an employee is deemed continuous and uninterrupted by the disposition. The same applies if the business continues under a receiver or receiver-manager.
In practice, the purchaser takes on the employer role and must honour the employee's length of service with the seller. If the purchaser ends the employment after the sale, compensation for length of service is counted from the original hire date.
Wages and vacation pay at closing
Where employment continues through the sale, the purchaser pays outstanding wages, including wages that were due before the sale. The purchaser also assumes accrued vacation pay, which is payable when the employee next takes vacation.
If employment ends before the sale, the seller pays all outstanding wages and compensation. That is why the timing of any layoffs relative to closing matters.
- Employment continues through closing: the purchaser pays outstanding wages and assumes accrued vacation pay.
- Employment ends before closing: the seller pays all outstanding wages and compensation.
What compensation for length of service looks like
What many people call severance is called compensation for length of service in the Act. Section 63 sets the amounts, and they can be met by written notice, by pay in lieu, or by a combination of the two.
| Length of service | Compensation |
|---|---|
| 3 consecutive months | 1 week's wages |
| 12 months | 2 weeks' wages |
| 3 years | 3 weeks, plus 1 more week per additional year, to a maximum of 8 weeks |
Because service is counted from the original hire date, a buyer who plans to reduce staff after closing should expect the seller's years of service to count toward the amount.
Exceptions and special situations
If an employee declines the purchaser's offer and the conditions are not substantially changed, the employee is deemed to have quit, and no notice or compensation is owed. If the purchaser's changes are substantial and adverse, the director may treat it as a termination under section 66, and the purchaser would pay compensation.
A bankruptcy is different. A trustee's sale can end the employees' rights under the Act, and the purchaser is not liable for wages owed before the bankruptcy. In a receivership, employment is still deemed continuous.
A share sale is also different in structure. The guidance on section 97 covers a disposal of a business by any method but does not specifically address share sales. Because the employer corporation does not change in a share sale, employment generally continues with the same employer, but whether any other issue arises depends on the facts and is worth confirming with a lawyer.
How the purchase agreement fits in, and what to do next
A purchase agreement is where the buyer and seller usually deal with these costs between themselves, for example through a price adjustment, a holdback or an indemnity. How those terms are written is a matter of negotiation. An agreement between buyer and seller is a separate question from what an employee is entitled to under the Act, so it helps to understand the Act's rules before you negotiate.
- List each employee with their hire date, wages owing and accrued vacation pay.
- Decide whether the deal is an asset sale or a share sale, since the employment analysis differs.
- Decide which employees the buyer will keep, and whether the offered conditions are substantially the same.
- Work out any compensation for length of service from the original hire date.
- Have the agreement say clearly who bears wages, vacation pay and compensation for each situation.
- Ask a lawyer to review the wording before you sign, especially in a bankruptcy or receivership.
Frequently asked questions
Does an employee lose their years of service when the business is sold?
Generally no. Employment is deemed continuous and uninterrupted by the sale, and the purchaser must honour the employee's length of service with the seller. If the purchaser later ends the employment, compensation is counted from the original hire date.
Who pays accrued vacation pay after a sale?
When employment continues, the purchaser assumes accrued vacation pay, which is payable when the employee next takes vacation. If employment ends before the sale, the seller pays all outstanding wages and compensation.
Can an employee get compensation if they turn down the buyer's job offer?
Not if the conditions are not substantially changed, because the employee is then deemed to have quit and no notice or compensation is owed. If the changes are substantial and adverse, the director may treat it as a termination and the purchaser would pay compensation.
Does a share sale change who the employer is?
In a share sale the employer corporation does not change, so employment generally continues with the same employer. The guidance does not specifically address share sales, so it is sensible to confirm your situation with a lawyer.
Sources
- Employment Standards Act, RSBC 1996, c. 113 — bclaws.gov.bc.ca
- BC Employment Standards Branch – Interpretation Guidelines, s. 97 — www2.gov.bc.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,358.88, tax included. Third-party fees are extra.