Selling A Unionized Shop: The Union Came With The Business

The situation

Paulo had run his precision machine shop in Ottawa for close to thirty years, building it from a two-person operation into a 45-employee plant with long-standing contracts supplying parts to the aerospace and defence sector. The shop floor had been unionized for over a decade, with a collective agreement covering wages, seniority, and shift scheduling. At 68, and with his wife Fernanda, a specialist physician, encouraging him to finally retire, Paulo had agreed in principle to sell the business to Rosa, an operations executive with two decades of manufacturing management experience who was buying through her own holding company.

The parties had settled on a purchase price of roughly $6,000,000 for the business, structured as an asset sale rather than a sale of the shares in Paulo's corporation. Asset sales are common when a buyer wants to choose which contracts, equipment, and liabilities to take on, and to leave old corporate history behind. Rosa's advisors had recommended the structure for exactly that reason: it let her cherry-pick the assets she wanted and, she believed, start fresh with her own hires. Paulo and Fernanda came to Treadstone Law to review the draft asset purchase agreement before signing, mainly expecting a conversation about tax treatment of the sale proceeds. The employee question turned out to be the harder one.

The legal problem

The draft agreement, as written, treated the plant's workforce the way many asset deals treat employees: Rosa would be free to make offers of employment to whichever staff she chose, on whatever terms she chose, and anyone not offered a job would simply be left behind with Paulo's corporation to deal with. That is often a fair description of how an asset sale works for a non-union workplace. It is not how it works when the workforce is unionized.

Under Ontario's Labour Relations Act, 1995, when a business is sold, leased, transferred, or otherwise disposed of, the purchaser can become a successor employer — bound by the union's existing certification and the existing collective agreement, as if the purchaser had signed it. This applies whether the sale is structured as a share deal or an asset deal, and it does not depend on what the purchase agreement says about employment. A clause telling the buyer she is free to hire a non-union workforce does not override the statute; if the transaction amounts to a sale of the business in substance, the union and the collective agreement can follow the operation to its new owner.

Rosa's team had not accounted for this. Her plan had been to bring in her own supervisors, renegotiate wage rates plant-wide, and treat the purchase as a chance to reset labour costs. Left uncorrected, that plan carried real risk on both sides. If Rosa proceeded on the assumption she owed the union nothing and it turned out she was a successor employer, she could face an unfair labour practice complaint before the Ontario Labour Relations Board, an order to bargain or reinstate terms, and a workforce that arrived at her new ownership already distrustful. For Paulo and Fernanda, the risk was different but just as real: a deal that closed on a false premise about employee treatment could unravel post-closing, exposing them to claims from employees or the union, and dragging out disputes over indemnities in an agreement they thought was behind them.

There was also a quieter issue buried in the numbers. The plant's 45 employees had, between them, accumulated meaningful accrued vacation pay, banked overtime, and seniority-linked entitlements under the collective agreement — obligations that had been building on Paulo's balance sheet for years but had never been reflected in how the $6,000,000 price was set.

What we did

1. Reviewed the collective agreement and flagged successor employer exposure early. Before Paulo and Fernanda signed anything, our team read the certification and collective agreement against the structure of the proposed asset deal and confirmed that Rosa's plan to hire a fresh non-union workforce was not a safe assumption. We raised this directly with Rosa's counsel rather than letting it surface after closing, when it would have been far more expensive to fix.
2. Quantified the accrued employee liabilities. Working with Paulo's bookkeeper, we had the accrued vacation pay, banked overtime, and other collective-agreement entitlements calculated as of the proposed closing date. That figure came to roughly $210,000 — money owed to employees for time already worked, regardless of who owned the plant going forward.
3. Negotiated a price adjustment tied to those liabilities. Because Rosa, as successor employer, would inherit responsibility for honouring seniority and the existing collective agreement terms, we argued the purchase price needed to reflect the accrued obligations she was effectively taking on. This became a direct negotiating point rather than a dispute to litigate later.
4. Addressed continuity of employment under the Employment Standards Act, 2000. Separately from the union question, we confirmed how the sale would affect employees' length of service. Under the Employment Standards Act, when a business is sold and the new employer offers a job to an employee of the old employer within the required window and the employee accepts, that employee's service is generally treated as continuous for entitlements like notice and severance — it does not reset to zero. We made sure the transition letters to staff reflected this correctly, so nobody's seniority-based entitlements were understated.
5. Structured a holdback to bridge the disagreement over transition risk. Rosa remained concerned about labour disruption in the first year under new ownership — a strike, a grievance wave, or a mass departure of skilled machinists. Rather than let that concern stall the deal, we negotiated a holdback: a portion of the purchase price withheld and paid out to Paulo and Fernanda in twelve months, conditional on there being no material labour disruption during that period.
6. Built a clear employee and union notification plan. We coordinated the timing and content of communications to the union local and the workforce so that the transition was announced consistently by both sides, reducing the chance that uncertainty about job security triggered exactly the kind of disruption everyone was trying to avoid.

The outcome

The deal closed, but not on the terms either side had originally imagined. The purchase price was reduced by roughly $210,000 to account for the accrued vacation pay, overtime, and seniority entitlements Rosa was taking on as successor employer, bringing the adjusted price to about $5,790,000. A further $400,000 of that amount was structured as a twelve-month holdback, released to Paulo and Fernanda only if the plant avoided a material labour disruption in its first year under Rosa's ownership.

Rosa gave up her plan to reset the workforce on her own terms; the union and the existing collective agreement carried over, as the law required, and she inherited the seniority list along with the plant. Paulo and Fernanda accepted a lower net purchase price than the number they had first agreed to, and accepted that a meaningful slice of their proceeds would sit in a holdback for a year rather than arrive at closing. Neither side got the deal they walked in wanting. What they got instead was a transaction that reflected the legal and financial reality of what was actually being sold — a business with a union attached to it, not a blank slate — and one that closed without a labour board complaint or a post-closing dispute hanging over it.

Eighteen months after closing, the plant was still operating, still unionized, and the holdback had been released in full: the transition had gone smoothly enough that the condition was met.

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