Historically, it was well established at common law that the sale of a business severed the employment relationship between the business that was being sold and the employee. The rationale behind this common law principle was the protection of an individual's autonomy. The courts rejected the idea that workers could be bought and sold. However, while the intent of the courts was to protect the rights of individual employees, the doctrine also exposed workers to potentially prejudicial consequences. For example, if a worker is subsequently dismissed by the purchasing company, the common law does not recognize that employee's service under the original employer for the purpose of calculating reasonable notice. These concerns prompted a strong legislative reaction in Ontario and around Canada.
In Ontario, there are provisions in the Employment Standards Act, 2000 ("ESA" or the "Act") that protect employees notwithstanding the traditional common law approach to the severance of the employment relationship in a sale of business context. Most importantly for these purposes, section 9 of the ESA states that when a business is purchased "as a going concern", the employment of the employee shall be "deemed not to have been terminated or severed for the purposes of [the] Act and his or her employment with the seller shall be deemed to have been employment with the purchases for the purpose of any subsequent calculation of the employee's length or period of employment."
Employers, especially when purchasing businesses, should be aware of this statutory regime that recognizes prior service for the purposes of the Act. There is also authority that indicates, in specific circumstances, that courts have imported the rationale behind provisions like section 9 of the ESA into their common law analysis and held, at common law, that continuous service should be recognized notwithstanding the sale of a business. In light of the statutory and jurisprudential protection afforded to employees of businesses sold as a going concern, a prudent employer should carefully consider the employment implications of purchasing a new business. For example, specific attention should be paid to the documents and language used if employees are hired by the purchasing business. Employers cannot contract out of statutory regimes but is possible that exposure to significant common law notice periods can be minimized if the appropriate steps are taken.
Written with the assistance of Andrew Nicholl, articling student.
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