Does buying assets instead of shares avoid severance obligations?

Buyers choose an asset purchase to leave the seller’s liabilities behind, and many expect employee severance to stay behind too. Employment standards law does not cooperate. The entitlement attaches to the employee’s period of employment, and several provinces deliberately keep that period running when a business changes hands.

What Ontario and British Columbia provide

Ontario’s Employment Standards Act says that when an employer sells a business or part of one and the purchaser employs an employee of the seller, the employment is deemed not to have been terminated or severed, and the time with the seller counts as time with the purchaser. British Columbia’s section 97 treats employment as continuous, and the Employment Standards Branch’s guide says that a purchaser who later dismisses an employee is responsible for compensation calculated from the date the seller hired the employee.

Why severance follows the employee

Ontario’s guide says the length of notice, termination pay and severance pay depends on how long the person has been employed, and that severance also turns on the employer’s payroll or on how many employees lose their jobs. A long-serving employee you keep on arrives with the full history, and letting that person go soon after closing is priced as a long-serving dismissal.

What an asset deal can change

The structure does shift who answers for some people. British Columbia says wages and compensation for an employee the seller terminates before the sale stay with the seller, and that employees who decline the purchaser’s job on substantially unchanged terms are treated as having quit. Ontario’s continuity rule also falls away if the buyer hires someone only after a long enough gap, a limit the statute sets in weeks. Quebec’s Act respecting labour standards binds the former and new employer solidarily for claims unpaid at the time of the sale.

Where buyers deal with the cost

Severance is a pricing and drafting question rather than something the structure removes. Collect start dates, ask the seller to confirm that no termination claims are outstanding, and say in the agreement who pays if a kept employee is let go. For the share-sale side, see who pays severance when a business is sold.