United States: Taking Over Or Letting Go: The Legal Ins And Outs O The Ontario ESA's Building Services Provisions

Last Updated: May 12 2017
Article by Stephen Shore
Most Read Contributor in United States, April 2017

Although it is common for building and property managers to rely on third parties for on-site services, familiarity with the building services provisions of Ontario's Employment Standards Act, 2000 (ESA) is critical. These provisions alter the ordinary legal liabilities for businesses performing defined "building services" at a property. 

Which Businesses Are Impacted?

The building service provider provisions are of significant interest to those that manage or participate in the provision of food, security, cleaning, parking, concession stands, and/or property management services for a building.

The common thread among these business activities is that the contracts for these services are periodically retendered by the building owner—and the companies that bid for and obtain these contracts often employ people for the singular purpose of carrying out individual contracts. When the contract is retendered and a new provider takes over, the replaced provider often has no work for the employees at other sites and the employment relationship is put at risk.

What Is the Impact of the Provisions?

On the view that the constant risk of change in providers makes building services providers' employees "vulnerable," the law shifts the legal liability for these employees from the replaced provider to the incoming provider. In these situations, the incoming provider is responsible for the ESA termination pay and severance pay owed to the employees of the replaced provider. This is a unique result since the incoming provider never employed the employees of the replaced provider, yet the incoming provider bears the burden of paying the termination and severance pay costs.

In this way, the law incentivizes the incoming provider to continue to employ the employees working at the site, rather than bring in its own crew. Where an employee of the replaced provider continues to work at the site for the incoming provider, the ESA deems the employee's service to be treated as if he or she worked for the incoming provider throughout his or her entire employment at the new worksite.

Do the Provisions Apply to Building Owners or Just Contractors?

Although these provisions are of most significance to companies in the business of providing services to building owners (e.g., cleaning companies and parking services companies), the building services provisions apply equally to building and property owners that bring these services in-house. If a property owner ceases to use a third-party provider for building services and hires its own employees instead, it could find itself on the hook for the termination and severance costs of displaced employees.

Because of the unique and counterintuitive operation of the ESA's building services provider provisions, a company contemplating a bid on such a contact is entitled to obtain information relating to the employees of the incumbent provider. This would include the name, status, length of service, and terms and conditions of employment that exist between the employee(s) and the incumbent provider. This information can be used for the purpose of considering a bid and potential offers of employment, but it cannot be used for any other purpose and it cannot be disclosed to any third party.

If the incoming provider utilizes this information to make a "reasonable" offer of employment to an employee of the replaced provider, then the incoming provider is off the hook for the employee's termination and severance pay—even if the employee does not accept the offer. This is one of a few exceptions to liability for incoming providers. Another key exception arises if there is a break of 13 weeks or more between the replaced provider's leaving the site and the incoming provider's taking over.

What Can Employers Do?

In order to minimize financial and legal risks to the business, property and building management firms may want to consider the following:

  • Cost Projections. When tendering contracts, account for the impact of termination and severance costs that may arise on the changeover of building services providers. Consider how these costs may impact the attractiveness of the contract to preferred bidders.
  • Information Gathering. Maintain accurate and up-to-date employment-related information on the employees of building services providers in order to facilitate a timely exchange of information and ensure compliance with the ESA.
  • Contract Management. Property and business management firms may want to ensure that their contracts with third parties are clear as to which business is the "true employer" of the employees and which business bears the responsibility for any employment-related liabilities, including termination and severance costs. Establishing clear lines between contractors, owners, and managers is perhaps more important than ever given potential legislative changes that will make joint-employer declarations easier to obtain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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