What a Business Sale Means for Employees in Ontario (Share Sale vs. Asset Sale)

Business owners are under real pressure right now. Restructuring, mergers, and outright sales are happening more often—and one of the first questions people ask is: what happens to the employees?

If an employee is let go without cause, the employer generally must provide reasonable notice (working notice, pay in lieu, or a mix). When a sale is on the table, employees often worry that their notice and severance rights will disappear—or that their years of service will “reset.”

Let’s break down what typically happens in Ontario when a business is sold, how share sales and asset sales differ, and why getting legal advice before signing anything can matter.

Are employees automatically terminated when a business is sold? Not always.

Whether employees keep their jobs—or are technically terminated and rehired—often depends on how the transaction is structured.

In most cases, a sale falls into one of two categories:

• Share sale (the buyer purchases shares of the corporation)

• Asset sale (the buyer purchases the assets of the business)

Those two structures can lead to very different outcomes for employees.

Share sale: the employer usually stays the same

In a share sale, the purchaser buys the controlling shares of the corporation. The key point: the corporation itself usually remains the same legal entity.

Because the legal employer typically doesn’t change, employees are generally presumed to continue working as usual—unless the transaction documents or the purchaser clearly sets out changes to the employment relationship.

What this can mean for severance later: If an employee continues working after a share sale and is later terminated, their full length of service with the corporation is typically counted when assessing entitlements.

Asset sale: employment can be treated as ending (and restarting)

An asset sale is often more complicated for employees.

Historically, when a vendor sells the assets of a business, the vendor’s employees may be treated as terminated at the time of sale. One reason is that, in Ontario, employment contracts generally can’t simply be “assigned” to a new employer without proper legal steps.

In many asset deals, the purchaser will offer some (or many) of the vendor’s employees new jobs—sometimes immediately, sometimes with changed terms.

What this can mean in real life:

• An employee may be terminated by the vendor and owed severance

• The purchaser may offer re-employment, but on a new contract

• The employee’s prior service may or may not be recognized—depending on the agreement and the legal framework that applies

In Ontario, years of service are a major factor in calculating termination-related entitlements.

A sale can affect whether service is treated as continuous, especially in an asset sale.

Under Section 9 of the Ontario Employment Standards Act, 2000 (ESA), a sale of a business (or part of one) does not necessarily end employment if the purchaser agrees to hire the employees.

When Section 9 applies, the employee’s service may be treated as continuous for ESA purposes, and certain length-of-service-based entitlements can carry over, including:

• Statutory notice (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 of the situation. When an employee is terminated without cause, notice can be provided as:

• Working notice

• Pay in lieu of notice

• A combination

The ESA sets minimum standards, including:

• Notice: up to one week per year of service, to a maximum of 8 weeks

• Severance pay (in some cases): up to one week per year of service, to a maximum of 26 weeks

If an employment contract does not validly limit termination entitlements to ESA minimums, an employee may be entitled to common law reasonable notice, which can be significantly higher (in some cases up to 24 months, depending on the circumstances).

After an asset sale: can prior service still count?

Even where an asset sale creates a “new employer” on paper, Ontario courts may still consider the employee’s prior service in certain situations—particularly where the purchaser benefited from that employee’s experience and continuity.

A court is more likely to recognize prior service where the post-sale employment agreement clearly acknowledges it.

A business sale can create risk on both sides.

For employers (vendors and purchasers)

An employment lawyer can help by:

• Clarifying post-sale obligations to employees

• Reducing the chance of accidentally taking on unwanted liabilities

• Drafting or reviewing the purchase agreement so responsibilities are clearly allocated

• Reviewing employment agreements and termination provisions for enforceability

For employees

Employees should be cautious about signing new agreements or releases during a sale. A lawyer can:

• Assess whether you’re being asked to give up rights

• Evaluate notice and severance entitlements based on your situation

• Advise on mitigation obligations (e.g., job search efforts or whether a comparable offer should be accepted)

Because outcomes depend heavily on the deal structure and the specific employment terms, getting advice before signing anything can help protect your rights—or reduce liability if you’re the employer.

Until next time,