Interpretation Guidelines Manual British Columbia Employment Standards Act and Regulations

EMPLOYMENT STANDARDS ACT - PART 11 - ENFORCEMENT

ESA Section 97 – Sale of business or assets


Contents:

Summary
Text of Legislation
Policy Interpretation
Related Information


Summary

This section explains the status of an employee’s employment when all or part of a business is being disposed of. 


Text of Legislation

97. If all or part of a business or a substantial part of the entire assets of a business is disposed of, the employment of an employee of the business is deemed, for the purposes of this Act, to be continuous and uninterrupted by the disposition.


Policy Interpretation

When an employer sells a business ("seller"), the new employer ("purchaser") must treat the employees as though their employment is continuous, and undisturbed by the sale. The purchaser assumes the role of employer and is required to honour the employee's past service with the seller and assume all of the seller's liabilities and obligations under the Act toward the employees.

The wording of s.97 is very broad. It refers not only to the sale of a business, but to the disposal of all or part of a business or a business' assets. Disposal is defined in the Interpretation Act as:

- transfer by any method and includes assign, give, sell, grant, charge, convey, bequeath, devise, lease, divest, release and agree to do any of those things.

Examples

  • A company sells one of its divisions, and the new owner takes on the employees of that division. As a substantial portion of the assets of the business has been sold, s.97 applies.
  • The owner of a franchise sells the franchise to another person. If the new franchisee continues to operate in the same location with some or all of the previous franchisee's employees, this section applies. The business has been granted to the franchise, which has also taken over the goodwill of the business. (Goodwill may be recognized as an asset of a business.)
  • A restaurant is sold. When the new owner takes over, the restaurant is closed for a few days to redecorate. The employees are then called in to work and continue working as before.

Effects of s.97 pursuant to s.63 Liability resulting from length of service; and s.64 Group terminations:

In determining whether there is or is not continuous employment it must be determined whether the employee or employees were currently employed when the business transferred to the purchaser.

WHERE THERE IS CONTINUOUS EMPLOYMENT:

If employees are employed at the time the business is transferred and are subsequently terminated, the purchaser is responsible for any compensation or termination pay, or notice in lieu, calculated from the date they were hired by the original seller, and any other outstanding wages including annual vacation pay.

Examples

  • JKL Company operates a retail store and has a work force of 50 employees. The business is sold to TUV Ltd. All employees continue to be employed by the purchaser and work in their usual jobs. The employees' entitlement to the Act is the same after the sale of the business as before the sale.

  • Sam, a 4 year employee of JKL Company, is terminated without notice one month after TUV Ltd. takes possession of the business. Sam is entitled to 4 weeks compensation or termination pay.

WHEN THERE IS NOT CONTINUOUS EMPLOYMENT:

When the seller terminates an employee prior to the sale of the business, any outstanding wages or compensation pay is the seller's responsibility. The employee cannot obtain any outstanding wages or compensation from the purchaser.

Example

  • Lee has worked for 123 Ltd for 5 years. 123 Ltd. terminates Lee without written notice or compensation on May 1. Under the Act Lee is entitled to 5 weeks written notice, compensation pay, or combination of the two. ABC Co. buys 123 Ltd. on June 5. It is 123 Ltd. that owes the 5 weeks outstanding compensation as Lee was not employed by 123 Ltd. when ABC Co. bought the business.

The sale of a business may result in alterations in conditions of employment for the employees. If these alterations are substantial, and adverse, the director may determine that they constitute a termination and, as a result, the employee is entitled to compensation under s.66 of the Act. The purchaser would be responsible for paying any subsequent compensation. (This could also apply if the changes occurred when there was no sale of the business.).

When employees choose NOT to accept employment with the Purchaser:

Employees are not entitled to:

  • compensation or notice under s.63; as applicable
  • termination pay, or notice under s.64; as applicable

When employees choose not to go to work for the purchaser, and their conditions of employment have not substantially been changed as a result of the sale, it is deemed that they have "quit". Neither the seller or purchaser is required to provide working written notice, or to pay compensation to employees who quit.

Effects of Section 97 on:

Wages

If an employee's employment ends before the sale of the business, the seller is responsible for all outstanding wages.

If an employee's employment continues with the new employer, the purchaser is responsible for all outstanding wages, including those that fell due prior to the sale of the business.

Statutory Holidays

An employee's entitlement to statutory holidays is based on the number of days worked and wages earned while working for both the previous and current employers when their employment is continuous.

Vacation Pay

Vacations and vacation pay must be granted to employees on the basis of their starting dates with the employer(s).

For employees whose employment continues with the purchaser, vacation pay is not payable until they take their next vacation. When continuous, the seller is not required to pay vacation pay to the employees on the transfer or sale of the business. Rather, the purchasing employer assumes liability for accrued vacation pay at the time it takes on the employees.

Example

Sandy has been employed for 2 years and is entitled to 2 weeks' vacation. Sandy has taken 2 paid days of vacation before the business was sold. His employment continues with the new employer. The employer who sold the business did not pay Sandy the balance of the vacation pay when the business changed hands. The new employer now becomes responsible for the balance of the vacation time and pay, subject to ss.57 and 58 of the Act.

Benefit Plans

Any benefit plans that are continued become part of the employees' conditions of employment with the new employer.

Employees on Leave

Employees who are on leave (paid or unpaid), at the time of the sale, transfer, or disposal of the business are still considered to be employees. They must be treated in the same way as employees who are working.

Purchased assets subject to lien

When a purchaser buys assets from an employer who owes wages, the purchaser takes over assets with a lien attached to them. This does not necessarily make the purchaser liable for unpaid wages; however, should the vendor not satisfy the wage debt, there may be action to recover the assets that have a lien on them.

Receivership

When a business goes into receivership, either a Receiver or Receiver Manager will become the manager of the business in place of the previous managers. (The difference between a Receiver and a Receiver Manager is that the former cannot operate a business for more than 14 days, while the latter can operate a business indefinitely.) Neither typically becomes the employer. The Receiver or Receiver Manager are retained by the creditors of the business. There is no disposition of the business.

When a business operated by a Receiver or a Receiver Manager ceases operation, the employees must be given notice based on the length of their employment with the business.

If the business is transferred or sold without ceasing operation, the employees who continue to work become employees of the new employer, and Section 97 applies in the normal manner.

A Receiver or a Receiver Manager may continue the employment of employees for a short period in order to help finalize the business' affairs. These employees usually become employees of the Receiver or Receiver Manager at the point the business stops operating. This is not considered to be a transfer of employment under s.97 because the business is not continuing. The employment with the Receiver is considered to be a new period of employment which falls under Part 8, Section 65 (1) (c):

"an employee employed for specific work to be completed in a period not exceeding 12 months".

These employees are therefore entitled to compensation or notice of termination if the business ceases operation. If the Receiver sells the business and the employees continue their employment, the employees' rights under the Act are deemed to be continuous and uninterrupted for the purposes of the Act.

There may be a period during which the business does not operate while the Receiver is seeking a purchaser. The employees are considered to be on layoff from the business during this period. If the Receiver employs them during this period, this is considered to be separate employment. The obligations of the Receiver in this situation, or in a situation where the Receiver engages employees to wind down the business, are the same as any employer under the Act.

Bankruptcy

While usually it is the mere fact of the bankruptcy that is the terminating employment event, in certain circumstances the Trustee in Bankruptcy will terminate the employment of all employees of the business.

As with a receivership, the Trustee in Bankruptcy will often continue to employ those individuals necessary to carry on the business and try to sell the business as a "going concern".

If the Trustee sells the business and the employees continue their employment, the employees' rights under the Act are extinguished and their employment is deemed not to be continuous and uninterrupted for the purposes of the Act. The purchaser of a bankrupt business is not liable for the unpaid wages owed prior to the date of bankruptcy.


Related Information

Employment Standards Tribunal Decisions

Carolyn Anne Macdonald operating as Budkowski's Restaurant, BC EST #193/05
Tekmo Industrial Design Ltd. dba Budget Brake & Muffler, BC EST#170/03

Related sections of the Act or Regulation

ESA

ESR

Other

Court Decisions

Helping Hands Agency Ltd. v. Director of Employment Standards (1995), 15 B.C.L.R. (3d) 27 (C.A.).

Lari Mitchell, et al., v. Director of Employment Standards (1988), 62 B.C.L.R. (3d) 79 (S.C.).