What termination clauses in staff contracts does a buyer inherit?

Ask for every employment contract and read the termination clauses before closing. What you inherit depends on the deal structure and on the employment standards law of the province, and each province has its own. The examples here are from Ontario’s Employment Standards Act, 2000 (ESA) and a British Columbia government guide. For service credit alone, see whether a buyer inherits years of service.

The sale itself

Under ESA s.9(1), 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 employment with the seller counts as employment with the purchaser in calculating length of employment. Subsection 9(2) says that does not apply if the purchaser hires the employee more than 13 weeks after the earlier of the employee’s last day with the seller and the day of the sale. The British Columbia Employment Standards Branch guide sets out s.97 of that province’s Act: if all or part of a business is disposed of, an employee’s employment is deemed, for the purposes of the Act, continuous and uninterrupted by the disposition. The guide says this turns on whether the employee was currently employed when the business was disposed of.

What a clause cannot do

ESA s.5(1) says no employer or employee, or agent of either, shall contract out of or waive an employment standard, and that any such contracting out or waiver is void. Section 5(2) adds that if a contract provision directly relating to the same subject matter as a standard gives the employee a greater benefit, the provision applies and the standard does not. So under the ESA a clause giving more than the standard applies in its place, while a clause that contracts out of a standard is void. The Ministry’s guide also says some employees may have common-law rights greater than the ESA’s notice, termination pay and severance pay.

What to ask for and check

• Every written contract, with the termination, notice and severance wording, and any bonus or retention promise tied to a sale.
• The date each person started, since where s.9 applies, employment with the seller counts in calculating length of employment.
• Whether any employee has been promised terms that are not in writing.
• A seller statement, backed by an indemnity, that the contracts supplied are complete.