Employment standards when a business is sold in Newfoundland and Labrador

In Newfoundland and Labrador the rule on employees in a business sale is in section 6 of the Labour Standards Act, headed continuation of employment. It applies where an employer transfers, assigns or conveys the undertaking of that employer to another person or firm, and that person or firm continues the undertaking so transferred, assigned or conveyed. When both things are true, the continued and uninterrupted employment of the employee by the person who acquired the undertaking is considered continuous with the employment with the first named employer. This guide goes through the conditions and the consequences. For the general picture, see what happens to employees when I sell my business.

The two conditions in section 6

The section is conditional. The first condition is a transfer, assignment or conveyance of the employer’s undertaking to another person or firm. The second is that the acquirer continues the undertaking. The employee’s employment with the acquirer must also be continued and uninterrupted. If the acquirer does not continue the undertaking, the words of section 6 are not met, and that is a question to put to counsel for your facts rather than something to assume away.

What “undertaking” includes

The Act’s definitions say that undertaking includes a trade, industry, occupation or business carried on by an employer. A trade, an industry, an occupation or a business carried on by an employer can each be an undertaking. The section does not use the words sold, leased or merged, and it does not mention shares or receivers. So the match between those routes and the words “transfers, assigns or conveys” is something to confirm with a lawyer, especially on a share purchase or a lease.

What the continuity does

Section 6 says the earlier period counts as against the new employer for the regulation of the rights, benefits and privileges of the employee under the Act. The practical effect is that the acquirer inherits the length of service for the Act’s purposes. Section 52 requires written notice of termination within the period required by section 55 (subject to the exceptions in section 53), and section 55 sets that period by how long the employee has been continuously employed by the employer. Under the Labour Standards Act, it begins at one week for three months or more but less than two years, and increases at stated service milestones, reaching six weeks at fifteen years or more. Section 57 of the Labour Standards Act adds a separate written notice of intention where an employer intends to terminate the contracts of service of a group of employees at or above the number the section sets, within a four week period. A buyer planning a reduction in staff after closing should read that section before signing.

Contract terms cannot undercut the Act

Section 3 says a term or condition in a contract of service that gives an employee conditions less favourable than the rights, benefits or privileges under the Act is void and of no effect. Section 4 adds that nothing in the Act prevents a contract from giving more favourable terms. A buyer may therefore offer better terms than the Act sets, but section 3 voids a term that gives conditions less favourable than the Act. Be careful with any clause that resets service or waives notice. Section 51 separately provides that where a collective agreement or written contract of service sets a notice period that differs from the Act’s, the period in that agreement or contract is the one required, and an agreement on notice is effective only if the period is the same for the employer and the employee. Ask counsel how sections 3 and 51 fit together for any contract you inherit. Staff on leave at closing raise a further point. The Act’s leave Parts say that, unless the employer and the employee otherwise agree, a period of leave does not count toward the rights, benefits and privileges under the Act, but the period worked after the employee resumes is considered continuous with the period worked before the leave. Ask counsel how that sits alongside section 6 for anyone on leave when the undertaking changes hands.

Who deals with the rules

The province’s Labour Standards Division page lists the division for non-unionized employees and workplaces, with a separate Labour Relations Division for unionized workplaces. A business within federal jurisdiction is under the Canada Labour Code, whose Part III covers standard hours, wages, vacations and holidays. WorkplaceNL’s clearance page is written for employers who hire contractors, so ask WorkplaceNL directly whether anything is needed from the seller’s account on a purchase.

• Identify what exactly is being transferred, assigned or conveyed, and use those words in the agreement.
• Decide with counsel whether the acquirer will continue the undertaking, since that is a condition of section 6.
• Get the seller’s start dates for every employee, because the notice period under section 55 depends on continuous service.
• Check any new contract against section 3 before employees sign it at closing.
• Ask WorkplaceNL what it requires of a buyer on a purchase.