How does the timing of layoffs around closing affect a business sale?

Sellers often ask whether to let staff go before closing so the buyer starts clean. The answer is a legal one, set by employment standards in the province where the employees work, and it moves cost between seller and buyer, which can show up in the price. Two questions drive it: who ends the employment, and whether the sale has already happened when they do.

Ending jobs before the sale

British Columbia’s Employment Standards Branch says that when a seller ends an employee’s employment before the sale, any outstanding wages or compensation are the seller’s responsibility. In British Columbia, a reduction before closing is therefore a cost the seller carries. Quebec’s CNESST adds that labour standards claims not settled before a change of owner are not cancelled, and the former and new owners are liable together for them.

Ending jobs after the sale

If employees are still employed when the business is disposed of and are terminated later, British Columbia’s guide says the purchaser is responsible for compensation for length of service, or notice in lieu, calculated from the date the original seller hired them, plus any outstanding wages and vacation pay. In Quebec, the former owner may not be held liable for claims arising from events that occurred after the sale.

Changes that can count as a termination

A sale can change the terms of employment without anyone being laid off. British Columbia’s guide says that if the alterations are substantial and adverse, the director may determine that they amount to a termination, and the employee is then entitled to compensation. A change at closing can therefore create termination costs even though no one received a layoff notice.

The paperwork that follows

Layoffs also set off administrative steps. Before closing a payroll account, the CRA says a business must remit all payroll source deductions, file final information returns and give T4 slips to former employees. Saskatchewan’s WCB asks to be told right away when a business is sold, and it may treat share and asset sales differently. Each filing has its own date, so it helps to line them up with the closing date.