How does key employee flight risk affect a business sale?

Key employee flight risk is the chance that someone the business depends on leaves around the time of a sale. It matters to a seller whose business depends on a few people for customer relationships, know-how or day-to-day running: be ready to say who those people are and whether they are likely to stay, in case a buyer asks. A sale does not keep anyone in place. The employment-standards rules below deal with continuity of service, not with holding a person to the job.

What the law carries over, and what it does not

Under Ontario’s Employment Standards Act, 2000, s.9, if 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 for the purposes of the Act, and service with the seller counts toward the employee’s length of employment. The rule attaches only to employees the purchaser actually employs. It does not apply if the purchaser hires the person more than 13 weeks after the earlier of the employee’s last day with the seller and the day of the sale. Alberta’s Employment Standards Code, s.5, and BC’s Employment Standards Act, s.97, have their own continuity rules.

Where flight risk actually shows up

The BC Employment Standards Branch’s interpretation of s.97 says that employees who choose not to go to work for the purchaser, where their conditions of employment have not substantially changed because of the sale, are deemed to have quit. It adds that neither the seller nor the purchaser is required to provide working written notice, or to pay compensation, to employees who quit. In BC, a key person who declines to move across on unchanged terms may therefore leave without either side owing that notice or pay. Other provinces run their own rules, so confirm which one governs each employee.

What a seller can raise early

• Ask the buyer which roles it treats as essential, and plan who will be told first. The order of announcement is worth settling before anyone is approached.
• Write down what each key person knows and does, so that the knowledge is not held only in their head.
• Check each key person’s written contract, if any, for notice and restrictive terms.
• Ask whether the buyer wants offer letters or a retention agreement signed before closing.

Keep the terms of the move steady

The BC deemed-quit rule is stated for employees whose conditions of employment have not substantially changed as a result of the sale. If the buyer plans to change a key person’s pay, role or location at the time of the sale, ask a lawyer how the rules in the relevant province treat that change before the offer is made.