Employment standards when a business is sold — Quebec

Quebec handles a business sale through several layers rather than one clause. The Act respecting labour standards has two sections aimed at a sale, sections 96 and 97. The Civil Code of Québec has its own rule on the contract of employment in article 2097, and the Labour Code has one for certified unions. Under section 5 of the Act, the implementation and application of labour standards is supervised by the Commission des normes, de l’équité, de la santé et de la sécurité du travail, known as the CNESST. This guide covers what a buyer or seller should know about continuity, claims that were unpaid at closing, notice of termination, pay equity and unions, as the sources state them.

Continuity under section 97 and article 2097

Section 97 of the Act respecting labour standards provides that the alienation or concession of the whole or part of the undertaking, or the modification of its juridical structure, namely by amalgamation, division or otherwise, does not affect the continuity of the application of the labour standards. Article 2097 of the Civil Code says a contract of employment is not terminated by alienation of the enterprise or any change in its legal structure, and that the contract is binding on the successor of the employer. The CNESST puts it as the employment relationship being maintained as if no change had occurred, and says the new owner must demonstrate the continuity of the company’s operation for that principle to apply.

Unpaid claims stay with the undertaking

Section 96 says the alienation or concession of the whole or a part of an undertaking does not invalidate a civil claim arising from the Act or a regulation which is not paid at the time. It adds that the former employer and the new employer are bound solidarily in respect of that claim. The CNESST says the former owner may not be held liable for claims arising from events after the sale. For a buyer, the practical question is what is owing at closing. Under section 98 the Commission can claim an unpaid wage on an employee’s behalf, and under section 101 any settlement of a claim between an employer and an employee which involves a reduction of the amount claimed is absolutely null. Ask counsel what solidary liability means for recovery between the two employers.

Notice of termination and uninterrupted service

Section 82 of the Act respecting labour standards requires an employer to give written notice before terminating an employee’s contract or laying the employee off for six months or more. Under section 82 of the Act respecting labour standards, the notice is one week for less than one year of uninterrupted service, two weeks for one to five years, four weeks for five to ten years and eight weeks for ten years or more. Section 82.1 of the Act respecting labour standards lists exceptions, including less than three months of uninterrupted service and serious fault, and section 83 provides a compensatory indemnity if notice is not given or is insufficient. A collective dismissal is separate: under section 84.0.1 of the Act respecting labour standards the termination of employment, including a layoff of six months or more, of at least the number of employees that section sets, at the same establishment in two consecutive months, is governed by its own division of the Act. Section 1(12) defines uninterrupted service as the uninterrupted period during which the employee is bound to the employer by a contract of employment, which is a reason to ask the seller for every employee’s service record.

Pay equity and the CNESST’s due diligence request

The CNESST says pay equity obligations are generally transferred to the new employer, which must respect the former employer’s obligations whether for an initial pay equity exercise or for the audit. It also says an employer may make a due diligence request to the CNESST to verify whether pay equity remedies have taken place in the company it wants to acquire, and it publishes an authorization form for access to files for that purpose. The page notes that the employer must report a sale, merger or acquisition to the CNESST. Check with counsel who files that report, and when.

The rule for certified unions

Section 45 of the Labour Code provides that the alienation or operation by another of an undertaking, in whole or in part, does not invalidate a certification or collective agreement. The new employer is bound by the certification or agreement as if named in it. The third paragraph carves out the transfer of part of the operation where it does not entail the transfer, in addition to functions or the right to operate, of most of the elements that characterize that part, and section 45.2 sets rules for partial transfers. If the workplace is unionized, have counsel read both before the deal is priced.

• Ask the seller for a list of wages, vacation and indemnities owing at closing, since section 96 keeps unpaid claims alive.
• Ask for each employee’s service record, because notice is measured by uninterrupted service.
• Ask whether a union holds a certification or collective agreement.
• Ask counsel whether to send a due diligence request to the CNESST on pay equity.