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Purchasing a business in Canada often meansbecoming an employer of Canadian employees.Given the real potential of becoming liable for sev-erance payments after acquiring a business in Canada,potential buyers would be prudent to consider the waysby which they can mitigate their exposure to such costs.

CONTINUOUS EMPLOYMENT The first thing potential buyers need to be awareof is the deemed continuous employment provisionscontained in provincial employment standards leg-islation (or federal legislation for certain industriessuch as inter-provincial transportation and telecom-munications). Pursuant to that legislation, if an em-ployer sells the whole or a part of a business andthe buyer employs an employee of the seller, thenthe legislation imposes two important conse-quences. First, the employee’s employ-ment is deemed not to have beenterminated. Second, the law deemsthe employee’s employment historyand obligations with the seller to betransferred with the purchase whichwill impact any subsequent calculationof the employee’s length or period ofemployment. These legal conse-quences are important because it cansignificantly increase the amount ofseverance pay to which an employeecan become entitled to upon dismissal, as dis-cussed below.

INHERITING SEVERANCE OBLIGATIONS Unlike the United States, Canada does not have‘at will’ employment. Because the concept of at will employment isforeign to Canadian employment law, businesses with Canadian em-ployees must not include at will employment concepts intoCanadian employment agreements. In Canada, all employment con-

ditions must comply with at least the minimumrequirements provided in employment stan-

dard legislation. Some contracts will provide forseverance entitlements which exceed the mini-

mum obligations, to provide something closer tocommon law notice (discussed below). As a successor

employer, the buyer should ensure that individual em-ployment contracts are carefully reviewed well prior to

closing in order to be aware of the obligations that itwill assume, particularly the obligations related toany future terminations of employment.

REASONABLE NOTICEWhere, however, the seller’s employees have no

written contracts containing severance provisions(or written contracts which are void or unenforce-able for any of a number of reasons), employees inCanada (other than in the province of Quebec, as

discussed below) are considered to have ‘commonlaw’ entitlements. Canadian common law presumesthat employment can only be terminated with ‘justcause’ (which is a high standard to meet, but a topicfor another day) or upon the provision of ‘reasonablenotice’ (or pay in lieu of reasonable notice).Reasonable notice is invariably greater than applicableprovincial statutory minimums. What is reasonable is inthe eyes of the judge, based on: the specific employee’s

age; length of service; nature of employment (i.e.skill level, managerial responsibilities, if any, andcompensation); availability of alternative employ-ment given existing market conditions; and any

other factor the Court considers relevant (such asrestrictive covenants which may hinder the employee’s ability

to readily secure comparable employment). Unfortunately thereis no formula for determining reasonable notice; as the judiciaryputs it, determining reasonable notice “is an art, not a science.” Butmore often than not, the Courts consider notice in terms of months,rather than weeks as used in minimum standards legislation. It has

PURCHASING A BUSINESS IN CANADA?UNDERSTAND THE KEY ASSETS:

YOUR NEW EMPLOYEES Andrea Raso Clark Wilson LLP • Sean Bawden Kelly Santini LLP

Veronique Poirier Therrien Couture lawyers LLP

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not been unheard of for employees to beawarded 24 or more months of reasonablenotice or pay in lieu thereof. In the province of Quebec, the law isbased on civil law principles (similar to theState of Louisiana) rather than the commonlaw. Pursuant to the Civil Code of Quebec,with or without written contracts, the reason-able notice obligation applies. Even if a pe-riod of notice is provided in a contract, acivil court could decide otherwise if it con-siders the notice to be “unreasonable” or in-sufficient in the circumstances. In the rest of Canada, for buyers look-ing to limit this potential significant expo-sure, the positive news is that thepresumption of reasonable notice can be re-butted if the transferred employees signcontracts which may address the issue of no-tice. That said, a buyer must be carefulwhen taking on the seller’s employees tonot alter their existing terms and conditionsof employment; otherwise, the buyer risksconstructive dismissal claims.

CHANGING EMPLOYEES’ TERMS OFEMPLOYMENT A buyer must exercise care when plan-ning to change any of the employment con-ditions that employees enjoyed at the timeof purchase, including common law entitle-ments such as reasonable notice. The no-tion of constructive dismissal preventsemployers from imposing unilateral funda-mental changes to terms of employment insuch matters as salary, benefits, workinghours or relocation, without sufficient no-tice. For example, a reduction of 10% to20% of the annual compensation an em-ployee is entitled to will usually be consid-ered as a fundamental change compliant inconstructive dismissal. The buyer needs to provide adequatenotice for imposing a fundamental changeto the terms of employment of those em-ployees it takes over, or provide adequateconsideration (such as a signing bonus) be-fore instituting a change to a fundamentalterm or condition of employment.

OTHER OBLIGATIONS So far we have largely focused on thepurchaser’s obligations as they relate to no-tice or severance. Some other key obliga-tions that purchasers should consider are:1. Workers’ Compensation: Almost all

Canadian employers are obligated to payinto provincial government workers’ com-pensation schemes, regardless of whetherthey offer a similar private benefit;

2. Overtime pay: All employees are statuto-rily entitled to overtime pay, regardlessof whether they are paid hourly or by

salary (except in the province of Quebecwhere salaried employees are exempt),unless they fall into a specifically legis-lated exemption (such as the managerialexclusion);

3. Privacy rights: British Columbia, Albertaand Quebec have private-sector privacylegislation which protects the collection,use and disclosure of employees’ personalinformation, and which allow employeesto access any employer document whichcontains their personal information;

4. Leaves of Absence: Canadian mothers areentitled to job-protected pregnancy leavefor up to 17 weeks and both mothers andfathers are entitled to up to 37 weeks ofjob-protected parental leave. Provinciallegislation also mandates other leaves,such as compassionate care leave, emer-gency leave and family responsibilityleave, to name a few.

5. Drug and Alcohol Testing: Employees aregenerally free from pre-employment test-ing and random testing, even in safety-sensitive work environments, unless theemployee or the workplace has a knowndrug or alcohol problem.

AVOIDING THE BAGGAGE For purchasers wary about the prospectof becoming an employer in Canada andbeing bound by the terms and conditions ofemployment enjoyed by employees with theseller, the buyer may try to insist that theseller either terminate the employment ofits existing staff pre-closing or agree to as-sume those costs associated with future ter-mination. This is easier said than done:most sellers will be reluctant to incur thecosts of terminating employees pre-closingonly to have the buyer immediately re-hirethem upon closing, particularly when thosecosts are contingent on terminations thatmay or may not happen at some time in thefuture.

BUYING A UNIONIZED WORK FORCE The rules are somewhat similar whenthe seller’s employees are unionized. Aprospective buyer must realize that in addi-tion to purchasing the assets or equity of thecompany, they will also inherit any union al-ready in place, as well as the existing certifi-cate giving recognition to the representativerights of the union, any proceedings beingundertaken by a union to become certified,any unfair labour practice complaints inprogress, and collective bargaining agree-ments in force between the parties. InCanada, this principle is known as the ‘suc-cessor rights provisions’ of the labour codesof every Canadian province. The purpose ofthese legislative rights is to prevent a buyer

from refusing to recognize a union alreadyin place or a union in the process of apply-ing to become recognized. Often, working conditions stipulated ina collective bargaining agreement are over-looked during the negotiation process lead-ing up to the purchase of the business. Timeand again, a buyer only pays attention to in-herited working conditions of the collectiveagreement when it comes to starting to runthe acquired business. The buyer may thenbe in a for a number of surprises regardingthe costs attached to wage rates and upcom-ing adjustments, benefit costs, or outstand-ing grievances that will have an impact onlabour costs and the running of the business.These unwelcome surprises can be avoidedby the prospective buyer taking steps duringthe due diligence process to become fullyaware of the current situation. The time todo so is before closure of the sale.

Sean Bawden is a labourand employment lawyerpracticing with KellySantini LLP in Ottawa,Ontario, Canada. He pro-vides advice to both employ-ers and employees on abroad range of employment

law issues. He is also the editor of the firm’s em-ployment law blog “Labour Pains.”

Veronique Poirier is a lawgraduate from McGillUniversity. She is part of theLabor and EmploymentLaw team at TherrienCouture lawyers LLP. Sheprovides advice and servicesto employers from different

sectors with respect to labor standards, healthand safety issues, employment contracts, inter-nal policies and employee manuals and inter-pretation of laws, regulations and collectivebargaining agreements.She represents employersbefore civil and administrative tribunals inQuebec.

Andrea Raso is Chair of theLabour & EmploymentGroup of Clark Wilson LLPin Vancouver, B.C.,Canada. Andrea acts foremployers in defence of civilclaims and tribunal pro-ceedings, and has appeared

at every level of Court including the SupremeCourt of Canada. Andrea routinely assists cor-porate counsel in managing employee issues inbusiness transactions.