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Sale of Business - Act Part 11, Section 97

Last updated on January 15, 2024

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 is disposed of, or the business continues to operate under a receiver or receiver-manager, the employment of an employee of the business is deemed, for the purposes of this Act, to be continuous and uninterrupted by the disposition or receivership, as applicable.

Policy Interpretation

When an employer sells or otherwise disposes of 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. 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 part 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.

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 was disposed of.

Where there is continuous employment:

If employees are employed at the time the business is disposed of and are subsequently terminated, the purchaser is responsible for any compensation for length of service, 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' length of service and entitlements under the Act are 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 for length of service.

Where 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. and the date of disposition is May 5. 123 Ltd. owes the 5 weeks outstanding compensation as it was the employer when Lee was terminated. Lee was not an employee 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, they are deemed to have "quit". Neither the seller nor the 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 date of disposition of the business, the seller is responsible for all outstanding wages.

If the seller does not terminate an employee before the date of disposition, an employee's employment continues with the new employer, and 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 are owed to employees on the basis of their start dates with the employer(s).

When employment is continuous, the seller is not required to pay vacation pay to the employees upon the disposition of the business. Rather, the purchasing employer assumes liability for accrued vacation pay at the time it takes on the employees and accrued vacation pay becomes payable when employees take their next vacation.

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. Their employment continues with the new employer. The seller employer 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 disposal of the business are still considered to be employees. They must be treated in the same way as employees who are working. If the seller employer is terminating employees before the date of disposition, employees on leave cannot be given written notice, as they are unable to work a notice period. Instead they must be paid compensation for length of service.

Purchased assets subject to lien

When a purchaser buys a business or part of a business from an employer who owes wages, one of the terms of the sale may be that the seller employer terminates the employees or pays all outstanding wages. Regardless of any agreement between the seller and the purchaser, if the seller does not fulfill the agreement regarding the employees, the purchaser takes over assets with a lien attached to them. The purchaser may have recourse against the seller under the contract, but that is separate from its obligations under the Employment Standards Act..

Receivership

When a business goes into receivership, the employment of the employees is deemed to be continuous and uninterrupted.

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.

Bankruptcy

Normally the mere fact of a bankruptcy has the effect of terminating employment.

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

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.).