When a Business Sells, What Happens to the Employees? (Ontario)

In a shaky economy, more owners are weighing restructures, mergers, and outright sales.

For employees, the biggest question is rarely about the brand name on the door—it’s about job security, severance, and whether years of service still “count” after the transaction.

This post breaks down what typically happens to employees when a business is sold in Ontario, how share sales differ from asset sales, and why the details of the deal (and the paperwork you’re asked to sign) matter.

If an employee is terminated without cause, the employer must provide:

• Working notice (the employee keeps working during the notice period), or

• Pay in lieu of notice (the employee is paid instead of working), or

• A combination of both.

How much notice is required depends on the situation and may include minimum standards under Ontario’s Employment Standards Act, 2000 (ESA), plus potentially additional “common law” notice if the employment contract doesn’t validly limit entitlements.

Most business sales fall into one of two categories:

1. Share sale: the purchaser buys the shares of the corporation.

2. Asset sale: the purchaser buys the assets of the business.

These structures can look similar from the outside, but they often lead to very different outcomes for employees.

Share sale: the employer usually stays the same

In a share sale, the corporation typically remains the same legal employer—it just has new owners. In many cases, employees continue working as usual unless the purchaser clearly changes the employment relationship or the deal terms require staffing changes.

Because the employer’s legal identity generally doesn’t change, an employee’s length of service usually continues uninterrupted. If the employee is later terminated, their full service history is often used when assessing entitlements.

Asset sale: employment may technically end and restart

An asset sale can be more complicated. Historically, when the vendor sells the business assets, the vendor’s employees are often treated as terminated at the time of sale, because employment contracts generally can’t be “assigned” in Ontario in the same way other contracts can.

In many asset deals, the purchaser offers some or all employees new jobs—sometimes on new terms. That can create a practical “continuation” of work, but legally it may be treated as a new employment relationship unless the agreement says otherwise.

Length of service is a major factor in severance and notice calculations.

Share sale: service typically carries over.

Because the employer is usually unchanged in a share sale, employees commonly keep accruing service as though nothing happened.

Asset sale: service may be negotiable (and sometimes deemed continuous)

In an asset sale, if the purchaser hires the employees, there are two key concepts to understand:

• Contract terms: Employees can sometimes negotiate for the purchaser to recognize prior service with the vendor (for example, for vacation, benefits, or termination entitlements).

• ESA continuity rules: Section 9 of the ESA can treat employment as continuous for certain ESA purposes when a business (or part of it) is sold and the purchaser hires the employee.

If section 9 applies, certain ESA entitlements tied to service can carry over, including:

• Statutory notice of termination (or pay in lieu)

• Vacation pay and vacation time

• Statutory severance pay (where applicable)

• Pregnancy and parental leave entitlements

Whether section 9 applies depends on the facts, and it doesn’t automatically answer every question about common law notice.

The ESA sets minimum termination notice requirements (often described as up to one week per year of service, to a maximum of eight weeks). In some cases, employees may also qualify for statutory severance pay (up to one week per year of service, to a maximum of twenty-six weeks) plus other ESA-related amounts.

An employment contract can sometimes limit termination entitlements to ESA minimums—but only if the termination clause is enforceable.

If the contract doesn’t validly limit entitlements, employees may be owed common law reasonable notice, which can be significantly higher (and in some cases can approach up to 24 months, depending on the circumstances).

After an asset sale, employees often assume their severance will be lower because they “started over” with the purchaser. That isn’t always true.

• For ESA minimums, section 9 can require the purchaser to count prior service when calculating ESA notice and other ESA entitlements.

• For common law notice, courts may still consider the employee’s prior years with the vendor—especially where the purchaser benefits from the employee’s experience and the transition is effectively seamless.

Courts are more likely to count prior service where the post-sale employment agreement explicitly recognizes the employee’s earlier service.

A sale can shift risk and liability in ways that aren’t obvious from the job offer or the announcement email.

For employers (vendors and purchasers)

An employment lawyer can help:

• Identify termination and severance exposure before closing

• Clarify which party is responsible for which employee liabilities

• Draft or review purchase agreements to avoid unintended obligations

• Structure offers and employment agreements to reduce disputes

For employees

Employees should be cautious about signing new agreements during a sale without understanding the tradeoffs. A lawyer can help:

• Assess whether you’re being asked to waive rights

• Evaluate whether prior service should be recognized

• Review termination clauses and compensation packages

• Explain the duty to mitigate (making reasonable efforts to find comparable work, and documenting those efforts)

In some situations, accepting a comparable role with the purchaser may be part of mitigation—refusing it without good reason can reduce damages.

Conclusion

In Ontario, a share sale usually means the employer remains the same and employees typically continue as before, with service carrying on.

In an asset sale, the legal employer changes. Employees may be terminated by the vendor and then offered new employment by the purchaser—sometimes with service recognized, sometimes not.

The impact on notice and severance depends heavily on the transaction structure, the documents signed at closing, and the specific facts. Getting advice early can prevent expensive mistakes on both sides.

Until next time,