Transfer of undertakings in Canada

Employees’ Rights in Case of a Transfer of Undertaking

Employers cannot defeat legitimate bargaining rights held by a union either by organising their affairs in an attempt to change their legal identity or by selling the affected business to a third party (whether or not that third party has any relationship with the vendor). Labour boards take a wide, remedial approach in these circumstances insofar as their primary objective is to preserve acquired bargaining rights. As such, two or more legally distinguishable entities may be considered to be one employer for labour relations purposes and bind a third party to a pre-existing collective bargaining relationship.

Also, a purchaser may be bound to the collective bargaining relationship of the vendor. The term “sale” and related terms are given an expansive interpretation, so that various kinds of commercial transactions that transfer control of the core of a business as a going concern may be captured in such a way that bargaining rights continue to attach to the transferred business.

Similar considerations apply under provincial employment standards legislation, which generally contain a “deemed continuity” provision. Therefore, where a purchaser retains or hires the employees of a vendor company, the service of those employees may be deemed to be continuous for the purpose of calculating notice and severance, as well as other benefits linked to length of service under the applicable legislation.

As noted above, employees of the vendor who are not employed by the purchaser are entitled to, at minimum, notice of termination under the applicable employment standards legislation. However, if the employee is offered employment by the purchaser, employment will be deemed to be continuous for the purposes of employment standards legislation. Therefore, employees will be given credit for their past service, which may impact on their entitlements upon termination, which generally increase according to an employee’s length of service. In some cases, employment standards legislation may contain “deemed continuity” provisions where a building service provider takes over from another.

Requirements for Predecessor and Successor Parties

The liabilities of the vendor and purchaser depend on whether the transaction was a share purchase or an asset purchase. In a share purchase, the legal identity of the employer does not change, so there will be no change in the obligations and liabilities attached to the business. The purchaser will therefore acquire all obligations owed to employees, unless the parties have agreed otherwise under the agreement of purchase and sale.

In an asset purchase, the legal identity of the employer changes, such that the employment relationship will be severed. The vendor employer will be liable for any notice of termination payable to severed employees. However, if an employee of the vendor is employed by the purchaser, his or her employment will be deemed to be continuous for the purposes of employment standards legislation in most provinces.