What happens to an employee on leave when the business is sold?

An employee on leave when a business is sold is still an employee. What that means for the buyer, the seller and the employee depends on the province, on whether shares or assets change hands, and on the kind of leave. Two provincial examples show the pattern.

British Columbia: treated like working staff

British Columbia’s Employment Standards Branch says employees on leave, paid or unpaid, at the time a business is disposed of are still considered employees and must be treated in the same way as employees who are working. If the seller is ending employment before the sale, it cannot give an employee on leave written notice, because the employee cannot work a notice period, and must pay compensation for length of service instead.

Ontario: past service and reinstatement

In Ontario, if a purchaser employs a seller’s employee, the Employment Standards Act deems the employment not to have been terminated, and the employee’s time with the seller counts as time with the purchaser. For leaves under the Act, the period of leave is included in calculating length of employment, service and seniority for rights under the employment contract, and when the leave ends the employer must reinstate the employee to the position most recently held, if it still exists, or to a comparable one. A buyer who hires the employee should expect to step into those obligations.

Asset sale versus share sale

In an asset sale, Ontario’s continuity rule applies to employees the purchaser employs, and British Columbia’s guide treats employment as continuing for employees the seller has not terminated before the sale. That guide also notes that a sale can change conditions of employment, and substantial, adverse changes may amount to termination. In a share sale the corporation remains the same legal person and the same employer, so the leave carries on as before.

What to document before closing

Buyers should ask for a list of everyone on leave, the type of leave and the expected return date, and sellers should be ready to supply it. Agree in the purchase agreement who handles any notice or pay and who bears the cost of covering the role. The wider picture is in what happens to employees when you sell a business in Canada.