Employment standards when a business is sold in Manitoba

Manitoba’s Employment Standards Code puts its rule for business sales in section 5, headed continuity of employment, and the section is narrower in one respect than its heading suggests. It applies for the purpose of Divisions 2 to 5, 9 and 10 of Part 2 of the Code, not the Code as a whole. Within those divisions, when the business of an employer or a part of the business is sold, leased, transferred, merged or otherwise disposed of whereby the control, direction or management of the business is given to another person, or the business continues to operate under a receiver, the employment of an employee is deemed continuous and uninterrupted. This guide covers what that means in Manitoba. For the general picture, see what happens to employees when I sell my business.

What triggers the section

The test in section 5 is about control. The business, or part of it, is sold, leased, transferred, merged or otherwise disposed of, and the effect is that control, direction or management of the business is given to another person. The Code defines business broadly. It includes any kind of industry, calling, trade, profession, work, occupation, operation, activity, undertaking or service, whether or not for profit, and includes a part of a business. A business exempted by regulation is outside the definition. Section 5 does not name shares, so ask counsel how it applies if the deal is a purchase of shares.

Which parts of the Code it reaches

Part 2 of the Code sets the minimum standards, and its divisions are separate topics. Those named in section 5 are standard hours of work, overtime, general holidays, annual vacations and vacation allowances, leaves of absence, and termination of employment. Division 1, minimum wage, is not among them, and neither is Part 3 on payment of wages. Section 5 does not say what happens to unpaid wages at closing. Raise that in the purchase agreement instead of relying on an inference.

Notice, vacation and leave after a sale

The named divisions are where a buyer feels the section. Under section 61, subject to section 62, an employer who terminates an employee’s employment must give notice, or pay a wage in lieu of notice, and the notice period in the table in subsection 61(2) depends on the employee’s period of employment with the employer. Section 60.1 adds that, for that Division, a period of employment is determined in accordance with the regulations and rules that include treating consecutive periods of employment as a continuous period of employment. Vacation entitlement grows with years of employment. Section 34 of The Employment Standards Code gives at least two weeks after each of the first four years of employment, and at least three weeks after five consecutive years and each year after that. Leaves of absence are in the same group. If section 5 applies, ask how the seller’s service counts toward each entitlement.

A notice exception that mentions sales

Section 62 lists circumstances in which the notice requirement in section 61 does not apply. One of them is a sale. Paragraph 62(1)(j) covers the case where the employer’s business, or the part of it in which the employee works, is sold or transferred, and the employee is immediately re-employed in the same business on terms and conditions that, as a whole, are equivalent to or better for the employee than those that applied before the sale or transfer. Read the paragraph’s conditions in full. A buyer who changes the terms or does not re-employ the person immediately is not described by it, and counsel should check which side of the line your offer sits on.

Civil remedies are not displaced

Section 3(1) of the Code says that nothing in it affects a civil remedy of an employee or an employer, or an enactment, agreement, right at common law or custom that gives an employee wages equal to or greater than the Code provides, or imposes a greater obligation on an employer. A buyer should therefore not treat the Code’s minimums as the whole of what an employee may be owed. An employment contract and the law outside the Code may add to it.

Workers Compensation Board of Manitoba

The WCB is separate from Employment Standards. Its changes-to-a-business page has sections headed closing or selling a business and buying, merging or amalgamating a business, and it says business changes can affect your coverage, rate and WCB premiums. Check what the WCB asks of buyer and seller, and when, before closing. The Manitoba government’s Employment Standards page says its staff help employees and employers learn about their rights and responsibilities. A business within federal jurisdiction is under the Canada Labour Code, whose Part III covers standard hours, wages, vacations and holidays.

• Confirm that control, direction or management of the business is actually changing hands, since that is the section 5 test.
• Ask counsel how section 5 applies if the transaction is a purchase of shares.
• Record each employee’s start date with the seller, because notice and vacation depend on period of employment.
• Put responsibility for wages owing at closing in the agreement, since section 5 is silent on it.
• Check the WCB’s guidance for buying a business and for selling one before closing.