In a share purchase, what is the new employer’s duty regarding maintaining employees’ contracts on the same terms as before the sale?
When a purchaser acquires the shares of a target corporation, the change in ownership of share equity does not change the identity of the employer. Despite change in ownership, the acquired corporation continues to be the employer without any break in service or seniority of the employees. Therefore the new employer assumes existing payroll, benefits, pension plans, and workers’ compensation premiums.
In an asset purchase, what is the new employers’ duty regarding maintaining employees’ contracts on the same terms as before the sale?
In an asset purchase, all employees are technically terminated at the moment of sale and the purchaser assumes the position of employer who then rehires the employees. While the purchaser as new employer may seek to contract out the new hires past service, statutory rights of the employees must be honoured according to employment standards legislation, which protects employees’ past service.
In what way is due diligence important prior to a share acquisition with respect to employment and labour matters?
The potential buyer should assess all outstanding issues related to employment and labour matters when conducting due diligence. Some areas to look at are human rights complaints, workers compensation penalties, wrongful dismissal lawsuits, complaints under employment standards legislation, or occupational health and safety charges. A potential buyer should review employment agreements, severance agreements and change in control agreements, particularly if the purchaser plans to downsize the workforce in the future. It is also wise to ascertain how payroll, benefits, pension plans, and workers’ compensation premiums.
Do severance cost fall upon the purchaser or the seller in an asset acquisition?
Severance costs fall upon seller unless the asset purchase agreement allocates liabilities otherwise. That is why it is in the best interest of the seller to require the purchaser to rehire all of the employees on terms and conditions that are substantially similar to those that were in effect before the sale. The asset purchase agreement normally should provide that all employee costs and claims that arose before the closing date are to the account of the seller, and all costs arising after the closing date are the responsibility of the purchaser.