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Employment Considerations in the Sale of a Business

The liabilities of vendor and purchaser for employee entitlements upon termination can become a major issue in negotiating the sale of a business.

Section 64 governs statutory severance pay, which is payable only to an employee severed without cause, as defined, who has five or more years’ service and is either employed by an employer which has a payroll of $2.5 million or more or where there is a permanent discontinuance of all or part of the employer’s business at an establishment which results in 50 or more employees having their employment terminated within a six month period. Statutory severance pay is equal to one-week per completed and partial year of service, up to a maximum of 26 weeks.

Share Purchase Agreement

There is no termination of employment upon the sale of shares of a company.

Asset Purchase Agreement

Where a purchaser expressly recognizes past service in its new employment contract with the employee, no issue arises. An employer may make the choice to recognize past service in consideration for the valuable skills and experience it is receiving with a long-service employee. In the case of such an explicit recognition by the purchaser, the vendor would normally have no further liability at common law.

A purchaser can avoid liability for the employees’ prior service by requiring the vendor to provide common law reasonable notice of termination or pay in lieu thereof before the purchaser hires the employees.  Therefore, a purchaser wishing to try to insulate itself from employee termination liabilities should include a provision in the purchase and sale agreement requiring the vendor to provide reasonable notice of termination at common law, as well as require the vendor to indemnify it for any future termination payments for those employees, or at least for that portion of future termination payments attributable to the employees’ pre-sale service. Of course, if the purchaser declines to offer employment to the employees of the vendor, the vendor remains liable to the employees for common law reasonable notice.

Negotiating Business Purchase and Sale

As legal counsel for a purchaser, it is important to ensure that the vendor is contractually obliged to disclose as much information as possible about the employment aspects of the business and the age, tenure, compensation terms and character of employment of the employees. Potential common law and statutory employment liabilities must be considered in full and financially accounted for, through payment and/or indemnities, in any purchase and sale negotiation by both parties.

Terminating Older Employees

With our aging workforce, there is an increasing need to terminate more senior employees in order to make room for younger, new entrants to the workforce. As has been discussed in other posts, whether an employee has been wrongfully dismissed is dependent on the amount of notice of termination or payment in lieu thereof that was provided. One of the key factors during a terminated employees severance entitlement is their age and seniority. As a general rule, an employee of more advanced age is typically entitled to enhanced severance as compared to younger employees.

The reason for this is that advanced age employees are likely to have substantial difficulty in obtaining alternate employment, especially if they are approaching retirement age. Accordingly, the severance package is intended to bridge the gap for the period of time the terminated employee is off work. In many recent cases, Courts have awarded payments up to 30 months of severance to a senior employee that was terminated without cause in Ontario

In Ozorio v. Canadian Hearing Society, the Plaintiff was a non-executive level employee that terminated at the age of 60 years old. The Court awarded 24 months of severance given the disadvantage she would have in locating alternate employment.

In order to avoid massive severance obligations to senior, advanced age, long-term employees, employers can ensure that well-written employment agreements are drafted to restrict an employees entitlements on termination and/or they are at liberty to provide advanced working notice of termination rather than payment in lieu thereof. In other words, if an employer intends to terminate an employee in the future, they can provide several months advanced notice, in order to avoid the obligation to make a lump sum severance payout.

If you have any questions about a recent termination from employment in Ontario, feel free to contact Goldstein Law Firm today.

Temporary Layoffs in Ontario

Temporary laying off an employee in Ontario often occurs in the context of seasonal businesses that required a reduced headcount during slow times of year or businesses that are in general decline. Rather than paying our full severance obligations to an employee, as required on the termination of employment, as discussed here and here, a temporary layoff affords the employer the opportunity to take an employee off of payroll for a defined period of time.

In employment law in Ontario, termination and a layoff have two very distinct meanings. A termination is a complete end to an employment agreement, which, if implemented on a without cause basis, gives rise to severance obligations. A layoff, on the other hand, is when an employer temporarily cuts off an employees employment, with the expectation that they will return back to work within a defined time period. Should the layoff exceed the maximum amount of time permitted to layoff an employee in accordance with the employment standards legislation in the province, the layoff will transform into a termination.

Under the Employment Standards Act in Ontario, employers are permitted to temporarily layoff an employee for a period of up to 13 weeks in a 20-week period. There are also rights to extend the layoffs under certain conditions. Under the Employment Standards Act, section 56 governs the layoff of employees working in Ontario.

A key issue with layoffs that an employer must be aware of is that despite the right to issue a temporary layoff as contained in Section 56 of the Employment Standards Act, an employer does not have the unilateral right to temporarily lay off an employee without a contractual right to do so. In other words, an employment agreement must be signed between the employer and employee that expressly authorizes a temporary layoff. Absent an agreement authorizing the layoff, the employer is not permitted to layoff the employee for any period of time. As such, the layoff will constitute a constructive dismissal at law, if the employer does not agree to bring the employee back to work immediately.

If you are an employee that has been temporarily laid off in Ontario, it is best to consult with an employment lawyer to determine whether the employer has complied with their obligations. It is imperative that you seek legal advice before agreeing to a layoff to ensure that you understand your legal rights.

Lowes Closing Stores – Employment Terminations in Ontario

A report has been recently published in the National Post that Lowes, a large home improvement retailer will be closing up to 31 stores in Ontario. Employment terminations are sure to result from these store closures.

Before signing a Release, ensure you consult with an employment lawyer to determine whether the employer has provided you with a fair severance package.