The continuity of employment provisions in Part IV provide that where there is a sale of a business and an employee of the seller is hired by the purchaser, or where there has been a change of contractors for building services and an employee of the replaced provider is hired by the new provider, the employee’s length or period of employment with their previous employer is treated as if it had been employment with the new employer with respect to rights under the Employment Standards Act, 2000 that are determined by length or period of employment, i.e., vacation, pregnancy and parental leave, domestic or sexual violence leave, critical illness leave, crime-related child disappearance leave, child death leave, notice of termination or pay in lieu, severance pay, organ donor leave and reservist leave.

Section 9 – Sale, etc., of business

Sale, etc., of business – s. 9(1)

Section 9(1) provides for continuity of employment for an employee when there is a sale of a business if the purchaser employs an employee of the seller, subject to the s. 9(2) rules regarding a gap between employment with the purchaser and the earlier of: (1) the last day of employment with the seller and (2) the date of the sale. In that case, the employee is deemed not to have had their employment terminated or severed for the purposes of the ESA 2000 and employment with the seller is included in any subsequent calculation of length or period of employment with the purchaser for entitlements to:

  1. Vacation – Employees whose period of employment is less than five years are entitled to two weeks of vacation with pay upon completion of each 12-month vacation entitlement year: s. 33(1)(a) and employees whose period of employment is five years or more are entitled to three weeks of vacation with pay upon completion of each 12-month vacation entitlement year;
  2. Pregnancy leave – Employees may be entitled to pregnancy leave if they have been employed for at least 13 weeks preceding the expected date of birth: s. 46(1);
  3. Parental leave – Employees may be entitled to parental leave if they have been employed at least 13 weeks prior to commencing the leave: s. 48(1);
  4. Organ Donor Leave – Employees may be entitled to organ donor leave if they have been employed at least 13 weeks prior to commencing the leave: s. 49.2(3);
  5. Reservist Leave – Employees may be entitled to reservist leave if they have been employed at least six consecutive months prior to commencing the leave: s. 50.2(3);
  6. Critical Illness Leave – Employees may be entitled to critical illness leave if they have been employed for at least six consecutive months prior to commencing the leave: s. 49.4(2) and (5);
  7. Domestic or Sexual Violence Leave – Employees may be entitled to domestic or sexual violence leave if they have been employed for at least 13 consecutive weeks prior to commencing the leave: s. 49.7(2);
  8. Crime-Related Child Disappearance Leave – Employees may be entitled to crime-related child disappearance leave if they have been employed for at least six consecutive months prior to commencing the leave: s. 49.6(2);
  9. Child Death Leave – Employees may be entitled to child death leave if they have been employed for at least six consecutive months prior to commencing the leave: s. 49.5(2);
  10. Written notice of termination or pay in lieu:
    • Employees may be entitled to notice or pay in lieu (including mass notice, s. 58) if they have been continuously employed for at least three months: s. 54;
    • Entitlement to one to eight weeks of notice or pay in lieu depends on length of employment: s. 57;
  11. Severance pay:
    • Employees may be entitled to severance pay if they have been employed for at least five years: s. 64;
    • Entitlement to up to 26 weeks of severance pay depends on length of employment: s. 65.

Vacation

Under the former Employment Standards Act, it was the Program’s position that the effect of s. 13 was to transfer the liability for employees' vacation pay accrued but not yet due at the time of the sale to a purchaser. This position was consistent with several referee decisions which found that, based on the language of s. 13 and based on the clear link between vacation time and vacation pay, a purchaser was liable for accrued vacation pay. Although the language in s. 9(1) is different from the wording in the former provision, the Program’s position is that the policy intent remains the same. The Program is of the view that had the Legislature intended to change the rules regarding vacation pay in the context of the sale of a business, it would have dealt with vacation pay explicitly - for example, under s. 76(1) a building service provider is required to pay accrued vacation pay upon ceasing to provide services at a premises and ceasing to employ an employee, there is no similar provision in s. 9.

The Program’s policy is that both the employee’s length of service and the vacation pay liability flow through the sale to the purchaser. However, the vacation pay liability only flows through the sale with respect to the accrued vacation pay that did not become due until after the sale. In other words, the seller is liable only for the vacation pay that was both accrued and due to the employee prior to the sale.

An exception to the flow-through rule occurs if the purchaser hires an employee of the seller more than 13 weeks after the earlier of the last day of the employee’s employment with the seller and the date of the sale. In this situation, there is no continuity of employment under s. 9 and, therefore, the seller is liable for all vacation pay accrued by the employee to their last day of employment with the seller. In addition, the purchaser is not required to recognize the employee’s length of service with the seller for the purposes of determining the employee’s entitlements to vacation time under Part XI.

Part XIV leaves of absence

Section 9 does not require a purchaser to hire employees of the seller. As a result, the purchaser has no obligation to hire an employee of the seller who is on a statutory leave at the time of the sale. See Gonzalez v IBM Canada Limited, 2014 CanLII 14188 (ON LRB). Where the purchaser does hire the employee, it is the Program’s position that the offer of employment may be made on whatever terms and conditions the purchaser chooses and so there is no statutory right to the balance of the leave commenced when the employee was employed by the seller, nor is there any obligation with respect to reinstating the employee to the same or a comparable job to the one held with the seller. For more information on Part XIV leaves of absence and reinstatement, see ESA Part XIV.

Termination unrelated to sale

Where an employee’s employment is terminated and severed prior to the sale and for reasons unrelated to the sale, the question may arise as to whether s. 9 would apply.

Because the purpose of s. 9 is to undo a common law termination that would otherwise be triggered by the sale, it is the position of the Program that s. 9(1) does not apply where the termination or severance is not related in any way to the sale. For example, if an employee’s employment was terminated by the seller for wilful misconduct and the employee was hired by the purchaser, s. 9(1) would not apply.

Inter-jurisdictional sale

It is the Program’s position that there is no continuity of employment under s. 9 where there is an inter-jurisdictional sale, e.g., where there is a sale of a business from an employer that falls under provincial jurisdiction to an employer that falls under federal jurisdiction and vice versa. For additional information see the discussion at Part III, s. 3 on the sale of a business across jurisdictions.

For information on the Program’s policy related to public holiday pay and a sale of business, refer to Part X, s. 24.

Definitions

Section 9(1) applies to a sale of all or part of a business. These terms are broadly defined in s. 9(3) and s. 1(1) respectively as follows:

Section 9(1) applies to provide continuity of employment if:

  1. An employer sells a business or part of a business; and
  2. The purchaser of the business employs an employee of the seller, subject to the rules regarding a hiatus or gap in s. 9(2).

Determining whether a sale of a business has occurred

Sale of a business vs. sale of assets

It is sometimes difficult to determine whether a transaction involves a sale of a business or just a sale of assets. In a sale of assets, an employer sells items of property that it used in its business, but it does not transfer the actual business to the purchaser, even though it may discontinue its business following the sale. A sale of a business is sometimes described as a sale of a going concern or a functional economic vehicle, but these are imprecise terms which may not provide much help in distinguishing a sale of a business from a sale of assets in practice.

The Ontario Court of Appeal in Abbott v Bombardier Inc., 2007 ONCA 233 (CanLII) considered the application of the going concern test and rejected its use on the basis that it did not accord with the purpose of section 9. The case involved a contracting out of information technology services where there was a significant transfer of assets and the purchaser agreed to make an offer of employment to each of the employees who performed the transferred functions and to recognize the past service of each employee who accepted the offer as if it had been employment with the purchaser. The Court found that the transaction constituted a sale of a part of a business under section 9 on the basis that the outsourced function was an activity for purposes of the definition of business in s. 1(1).

The Court held that a sale of a business arises . . . where there was the transfer of a specific bundle of tasks and functions performed by an identifiable group of employees. While this appears to suggest that a mere contracting out transaction or outsourcing of a specific function may constitute a sale of a business, the decision must be considered in the particular context of the case. First, there was another indicator of a sale of a business, a transfer of significant assets - a substantial amount of computer equipment. Secondly, there was an obligation on the part of the purchaser to make offers of employment to the affected employees. Third, the employees were in fact transferred to the purchaser in accordance with the terms and conditions respecting their future employment with the purchaser as provided for in the agreement governing the transaction.

However, the presence of any of the following indicators generally points to a sale of a business:

  • The seller has agreed not to compete with the purchaser (in some cases for a specified time or within a specific geographic area);
  • The seller has agreed to give up use of its trade or corporate name or the purchaser plans to use or is using the name;
  • The seller has given the purchaser client/supplier lists and other records used in its business;
  • The purchaser has taken over the seller’s outstanding contracts or customer accounts;
  • The purchaser is marketing the same products or service as the seller did before the sale;
  • The sale agreement specifically assigns the seller’s goodwill to the purchaser.

While the existence of any of the above-mentioned factors points to a sale of a business, the absence of any of them does not mean that there was only a sale of assets. Further, the fact that the seller or purchaser calls the transaction a sale of assets does not make it one if, in actual fact, a sale of a business has occurred. Often, a seller and a purchaser will call the transaction a sale of assets for tax purposes when, in fact, it is a sale of a business for purposes of s. 9.

The issue as to whether a particular sales transaction involved the sale of a business or a part of a business (in either case, s. 9 would apply) or a sale of assets that may or may not be used in the operation of another employer’s business (in which case s. 9 would not apply) has been the focus of many hearings under the former Employment Standards Act.

Referee Gorsky in McLaughlin Chevrolet-Oldsmobile Ltd. v Coombs (May 9, 1980), ESC 780 (Gorsky)cited the following test of what constitutes a sale of a business:

The above is an excerpt from Kenmin v Frizzell et al, [1968] 1 All ER 414 (Eng QB) which appeared in an Ontario Labour Relations Board decision, Canadian Union of Public Employees v Metropolitan Parking Inc., 1979 CanLII 815 (ON LRB), from which Referee Gorsky cited at length.

In Mobile Mix Concrete Products (1971) Ltd. v McClain (October 29, 1974), ESC 206 (McNish), Referee McNish concluded that a sale of a business had occurred in light of the fact that the agreement of sale contained covenants by the vendor not to compete with the purchaser after the sale, and to give up the use of its corporate name and to deliver to the purchaser customer lists, salesmen’s reports and production records.

Similarly, in 477286 Ontario Food c.o.b. as Vitto Brand Foods v Gilbank (September 18, 1981), ESC 1068 (Davis), Referee Davis ruled the transaction to be a transfer of a going concern and not a mere sale of discrete items of property because the purchaser used the vendor’s trade name and packaging materials.

As previously noted, the lack of certain indicia of a sale of a business will not in itself take a transaction out of s. 9 where other indicia of such a sale are present. In Ontario Film Laboratories Ltd. v Pharand et al (July 8, 1980), ESC 814 (Aggarwal) the purchaser operated the same type of business as the vendor in the same premises with the same employees and with some of the vendor’s assets. Referee Aggarwal concluded that s. 13(2), which corresponds to s. 9(1) in the ESA 2000, applied, notwithstanding the fact that the purchaser did not adopt the vendor’s trade name.

In McLaughlin Chevrolet-Oldsmobile Ltd. v Coombs, the vendor’s failure to assign outstanding contracts and to deliver up customer lists did not preclude a finding that a sale of a business had taken place where the purchaser had taken over the vendor’s premises, employees, equipment and automobile dealer’s franchise.

In Cambridge Stampings Inc. v Harth and Barradell (November 6, 1980), ESC 909 (Egan) Referee Egan held that the mere fact that the purchase made some post-sale alterations to both the machinery and the product of the vendor’s metal stamping business did not prevent the application of s. 13(2) in the former Employment Standards Act, which corresponds to s. 9(1) in the ESA 2000.

In Nathan Hennick & Co. Ltd. v Masci (September 25, 1978), ESC 550 (Davis), where a purchased factory ceased operations for a three-week period following its acquisition, Referee Davis nevertheless determined that a sale of a business had occurred, since the evidence showed that there had been no severance of customer relations after the transaction and since the vendor’s past practice had been to close the plant for a similar period for annual vacation purposes.

In Cambridge Stampings Inc. v Harth and Barradell, Referee Egan found that that while the fact that an agreement of purchase and sale which specifically provides for a transfer of goodwill is often cited as evidence that a business has been sold, . . . the absence of goodwill is not conclusive of the contrary.

In 446816 Ontario Inc. c.o.b. Centreside Dairy v Popplewell (September 23, 1982), ESC 1286 (Fraser), Referee Fraser found that a lack of an express assignment of goodwill does not prevent a determination that there was a de facto transfer. In that case, the vendor had given a 10-year non-competition covenant and the purchaser had assumed all of the vendor’s regular customers.

In Revin v Lamantia Garcia Products Ltd., 2008 CanLII 790 (ON LRB), the Board concluded that there had been a sale of a business even though there was no goodwill or even purchaser loyalty that could be transferred. In that case, the vendor assigned the lease of its stall at the Ontario Food Terminal and sold about $80,000 worth of fruit and vegetable inventory in it to the purchaser. The Board cited Abbott v Bombardier Inc. in taking the position that a sale of a business for the purposes of s. 9 of the ESA 2000 did not require the transfer of a going concern. Rather, the Board found that the purchaser had bought a very valuable business asset in the form of the lease of the stall and had purchased all of the vendor’s fruit and vegetable inventory pursuant to the Bulk Sales Act. It had effectively purchased all that could be purchased of the vendor’s business and then expanded its own business into an area previously carried on by the vendor. As such, it amounted to a sale of a business for the purposes of s. 9.

A purchaser who acquires assets such as premises and equipment from a vendor and who employs the vendor’s employees does not remove itself from the ambit of s. 9(1) merely because it makes changes in the nature of the business formerly carried on by the vendor; if the purchaser continues on with a part of the vendor’s undertaking, s. 9(1) will apply. For example, in Centreside Dairy v Popplewell, the vendor had operated a dairy primarily to process and to distribute milk, but had also manufactured and distributed ice cream. The purchaser of the dairy ceased milk processing altogether to devote the purchased facilities exclusively to the manufacture of ice cream, but it did arrange for the distribution by its delivery men of milk processed by another dairy. The referee held that because the sales operation of the business (as opposed to its production operation) continued unchanged after the purchase, the transaction could be characterized as the acquisition of a part of an activity, trade or undertaking, which fell within the definition of business – note that definition is similar to the one now contained in ESA Part I, s. 1(1).

Somewhat similar in effect is Lakehead Rent-Alls Limited v Estate of Karl Kuzik (October 17, 1981), ESC 1048 (Davis), where the purchaser and vendor had both carried on the business of renting and selling equipment from the same premises with the same employees. Referee Davis held that s. 13, which corresponds to s. 9 in the ESA 2000, was applicable despite the fact that the purchaser’s marketing strategy was to concentrate on consumer rentals whereas the vendor had emphasized industrial sales.

Sale of a business vs. sale of shares

In law, a corporation is regarded as having a separate existence from the person or persons who own it. Note that ownership of a business corporation is represented by shares. A person who owns more than 50 per cent of the shares is said to have a controlling interest in the corporation.

Therefore, where employees are employed by a corporation and the shares of the corporation change hands, the corporation and hence, the employer, is regarded as being unchanged, notwithstanding that the corporation now has new owners. In other words, the sale of a company’s shares will not in itself give rise to a new employment relationship, given that the company, as a legal entity, is not changed by the transfer of its share capital to a new owner. Accordingly, s. 9 has no application to a sale of shares in a corporation. It is not necessary to give the protection of s. 9 in such a case because the accrued length or period of employment of the corporation’s employees remains unaffected by a change in the corporation’s owners.

Where an employee is employed by Corporation A, the shares of which are subsequently purchased by Corporation B, the employee who moves from A to B is considered to continue to be employed by the same employer, and their accrued length or period of employment with A is recognized without the application of s. 9.

An exception to this principle would occur, however, if the purchaser subsequently moved to wind up the seller corporation, or amalgamate it with another, with the result that the employees of the seller are now employed by another entity. In such cases, a sale transaction would likely be found to have occurred, either at the time of the transfer from the seller or subsequent winding up or amalgamation. In that case, s. 9 would apply. Each case however must be assessed on its own facts.

Receiverships

Where a receiver, acting on the instructions of a secured creditor of a debtor employer, is appointed to assume control of the employer’s business, the end result will be either that the business is wound up or that it is sold as a going concern to a purchaser.

If the receiver opts for a wind-up, it may liquidate the assets of the business immediately following its appointment. Sometimes, however, the business will be wound up gradually, so as to maximize recovery for the secured creditor. Typically, loan agreements signed by debtors authorize the secured lender to appoint a receiver if default occurs. Such agreements usually provide that if a receiver is appointed, the receiver will be considered as agent for the debtor in carrying out the wind-up.

Secured creditors can also apply to the court for an order appointing a receiver. In such cases the receiver is acting as an officer of the Court. Any proceeds collected by a court appointed receiver are distributed through court orders.

Obviously, the appointment of a receiver raises many potential issues concerning the application of s. 9. If the debtor employer’s employees continue working for the receiver for a time following its assumption of control over the business, the question might arise whether s. 9(1) applies so as to result in continuity of employment following the receiver’s appointment. And if the receiver, instead of liquidating the business, sells it as a going concern, and the purchaser retains the employees of the business, the issue of whether the purchaser inherits the employees' accrued seniority would come into play.

Referees have consistently held that the involuntary nature of a disposition does not prevent it from being characterized as a sale within the meaning of s. 13(2), which corresponds to s. 9(1) in the ESA 2000. In Hotel Esquire (St. Catharines) Ltd. v Hands et al (May 31, 1982), ESC 1233 (Roberts) the referee held that the business of mortgagor assumed by mortgagee upon foreclosure. In Nathan Hennick & Co. Ltd. v Masciand Hentschell Clocks Canada (1977) Ltd. v Clarke (April 23, 1981), ESC 987 (Howe), the referees found that the sale of a business as a going concern by receiver. Accordingly, the fact that a business changed hands as a result of the appointment of a receiver does not preclude the application of s. 9(1). However, the appointment of a receiver will not generally constitute a sale such that that a receiver will be considered a purchaser for the purposes of s. 9 - see Armstrong et al v Coopers & Lybrand Ltd. et al, 1986 CanLII 2621 (ON SC). Rather, where the receiver sells the business, it is the purchaser of the business who may be subject to the continuity of employment provisions. As noted inBrandwood v Renfrew Inn Holdings Ltd. (November 15, 1994), ESC 94-212 (Genge), the receiver in such a case is acting as a conduit between the insolvent business and the purchaser. Employees who resign their employment between the time when the receiver is appointed and when the final sale to a purchaser is completed will not be entitled to termination and severance pay – see Brandwood v Renfrew Inn Holdings Ltd..

It follows from the foregoing that:

  1. Where the receiver does not operate or sell the business but rather liquidates the assets, no s. 9(1) issue arises because there has been no sale of a business. It is the Program’s position that the debtor employer is liable for any termination and severance pay owing in respect of the employees' service with the employer.
  2. Where the receiver operates the business for a time for the purpose of maximizing realization but eventually liquidates the assets instead of selling the business, no s. 9(1) issue arises because there has been no sale of a business. In such a situation, ownership of the business was not transferred, but rather rested legally with the debtor employer to the date the assets were sold. It is the Program’s position that the debtor employer will therefore be responsible for any termination pay or severance pay with respect to the employees' employment before the wind-up was finally effected, and that the receiver will not have any personal liability in this respect.
  3. Where the receiver sells the debtor employer’s business as a going concern and the purchaser hires the debtor’s employees, s. 9(1) does apply, subject to the rules concerning a hiatus or gap, s. 9(2). The employees' service with the debtor, including service during the period of the receivership, is regarded as service with the purchaser for the purposes of any subsequent calculation of the employees' length or period of employment, regardless of whether, prior to the sale, the debtor-employer or the receiver gave termination notice or pay in lieu.
Bankruptcies
Trustee sells business

Where the employer becomes bankrupt, a trustee is appointed under the Bankruptcy and Insolvency Act. If the trustee then sells all or part of the business to a purchaser, who employs employees of the bankrupt employer, s. 9 will apply, subject to the rules concerning a hiatus or gap in s. 9(2). Employees will not be considered to be automatically terminated by the appointment of the trustee if the trustee sells all or part of the business. Furthermore, the purchaser, upon subsequently terminating any of the employees, will have to recognize their length or period employment with the purchaser, plus that with the bankrupt company which includes employment for the period the company’s estate was under the trustee’s administration.

See for example:

Example

  • Employee hired by A Co. - June 30, 1995
  • Trustee in bankruptcy appointed for A Co. - June 30, 2002 (Trustee retains employee)
  • Trustee sells business of A Co. to B Co. - December 31, 2002 (B Co. hires employee)
  • B Co. terminates employee - June 30, 2003

The employee would not be entitled to termination and severance pay until their termination by B Co. At that time, the employee’s length of service for purposes of termination and severance pay would be eight years.

Trustee does not sell business

In a situation such as the above, but with the difference that there is no sale of the business and the employee is terminated/severed (including a deemed termination/severance resulting from a lay-off), the employee is entitled to termination and severance pay based upon their length of employment with the bankrupt employer (which includes employment with the trustee in bankruptcy). The claim is against the estate of the company, and is made by filing a proof of claim.

Vacation pay liabilities in 1 and 2 above

Where the trustee does not sell the business, a proof of claim for the vacation pay relating to the employee’s employment with the insolvent employer (both accrued and due) would be filed with the trustee if an employee in such a situation worked for the trustee, any vacation pay relating to the period of employment with the trustee would be paid out of the bankrupt company’s estate. Note that these expenses are not, in general, a personal liability of the trustee.

Where the trustee sells the business and s. 9 provides continuity of employment, an employer that purchases a bankrupt business from a trustee will be liable for the vacation pay that accrued while the employee was working for the bankrupt employer provided that the vacation pay has not already have become due under the bankrupt employer. Therefore, the officer may issue an order to pay against the purchaser of the business for vacation pay that accrued during employment with the bankrupt company (including employment with the trustee) but did not become due until sometime after the employee had commenced employment with the purchaser.

Example

  • Employee’s vacation pay is due 10 months after completion of each 12 months of employment.
  • Employee hired by A Co. (vacation year is based on anniversary date) – June 30, 1998
  • Trustee in bankruptcy appointed for A Co. (trustee retains employee) – June 30, 2002*
    • * $2400 in V.P. accrued June 30, 2000, to June 2001 - due on April 30, 2002, but unpaid, plus $2400 in V.P. accrued June 30, 2001, to June 30, 2002, accrued but not due until April 30, 2003
  • Trustee sells business of A Co. to B. Co. (Proof of claim filed for $2400 in V.P. for period June 30, 2000 to June 30, 2001) – December 31, 2002
  • B Co. hires employee – December 31, 2002
  • $2400 V.P. accrued June 2001 to June 2002 is due (10 months after June 30, 2002) – April 30, 2003

In the above-noted example, a proof of claim could be filed with the trustee for $2,400 in vacation pay that had accrued in the period June 30, 2000, to June 30, 2001, and was due April 30, 2002 (i.e., due prior to the appointment of the trustee). On April 30, 2003, the officer could issue an order to pay to B. Co. for the $2400 in vacation pay that accrued while the employee was employed by A. Co. from June 30, 2001, to June 30, 2002, but which came due after the employee commenced employment with B. Co. (The purchaser of the business would also be liable for vacation pay accrued between the date the trustee was appointed (June 30, 2002) and the date of the sale December 31, 2002) but only when that vacation pay came due.

In support of Program policy in this regard, see Sis Cronin, a division of Urus Industrial Corporation v Hurdis (March 21, 1994), ESC 94-69 (Randall).

Foreclosures

Occasionally, a secured creditor will exercise whatever rights they have to foreclose on a debtor employer’s business. This typically means that the secured creditor takes the business in satisfaction of the debt rather than hiring a receiver to sell the business. Where this occurs, and the creditor continues to operate the business and retains the debtor’s employees, s. 9(1) applies – see Hotel Esquire (St. Catharines) Ltd. v Hands et al. In this case, the secured creditor’s position is, for the purposes of s. 9(1), tantamount to that of a purchaser of the business.

Landlord’s right of distraint

When a landlord exercises a right of distraint on the assets of a tenant/employer to recover arrears of rent, it generally does so by securing control of the equipment, inventory and other assets located in the leased premises. This is done with a view to selling the assets to recover arrears of rent. In such cases, s. 9 will typically have no application. However, if the landlord enters the premises and carries on the operation of the business and retains its previous tenant’s employees, it may be considered to be a purchaser of the business as per the discussion on secured creditors above.

Franchise situations

Generally speaking, s. 9(1) will not apply in the franchise or concession type of situation. Such situations by and large do not involve a transfer of a business directly between the old franchisee and the new franchisee, but rather involve two separate transactions in which the franchise rights held by the old franchisee first revert to the franchisor and then are reconveyed by the franchisor to a new franchisee. There may, in a sense, be a transfer of a business from the original franchisee to the franchisor, followed by a second transfer of a business from the franchisor to the new franchisee, but s. 9(1) cannot apply to these transfers individually unless they are accompanied by a parallel movement of employees. Since the franchisor himself does not usually enter into an employment relationship with the original franchisee’s employees in the course of the transactions, there is no basis on which s. 9(1) can be applied, even though those employees may ultimately end up working for the new franchisee.

While the treatment of franchises and concessions in labour law is a rather complicated and difficult matter, the following rule should be of assistance in dealing with these kinds of transactions:

Where employer X has a franchise or some other key contract from franchisor Y, and it gives it up or loses it and a third party Z then acquires the franchise or other key contract and hires X's employees, s. 9(1) will not apply, unless:

  • X transferred the franchise directly to Z (as opposed to Y taking back the franchise and the reassigning it to Z); or
  • Y, when taking back the franchise from X, hired X's employees before reassigning the franchise to Z (who hired the employees in turn).

A typical example of a franchise operation is a service station; the station operator (X) acquires from an oil company (Y) the right to sell its product and to display its name. The oil companies usually will not permit station operators to sell the franchise; instead, the operator will have to give it up, and the oil company itself will sell the franchise to a new franchisee (Z). Generally, the oil company will not enter into an employment relationship with X's employees, and while usually there would be no need for them to do so (since Z will probably take over from X with virtually no interruption in the activity of the service station), the fact that the oil company does not hire X's employees means that there is no basis on which s. 9(1) can be applied.

The opinion of most referees has been that where there is no direct assignment of the contract (franchise) from the original contractor (old franchisee) to the third party (new franchisee), there is no sale of a business to which s. 9(1) can apply, and hence, there is no continuity of employment.

In Burbank Automotive Ltd. v Wilson (March 21, 1978), ESC 493 (Davis), X had carried on business as a service station operator, but retired, terminating both his lease of the station premises from Shell Oil and his product supply and exclusive marketing contracts, also with Shell. Immediately upon termination, Shell gave a new lease to Z and entered into similar supply and marketing agreements with Z, who employed all of X's former employees. The only transaction directly between X and Z was the sale of a truck and some stock in trade. Referee Davis held that this small isolated transaction could not be viewed as a sale of a business between X and Z, and went on to conclude that the business must be seen as having first been transferred from X to Shell and then from Shell to Z. Shell was the owner of the business for a notional instant in time, and the transfer of the business from X to Shell (not having been accompanied by a corresponding transfer of employees to Shell) effected a termination, even if there was, practically speaking, no interruption in employment.

Results similar to those in Burbank Automotive Ltd. v Wilson were obtained in Phil Coutu Limited v Talbot (September 30, 1982), ESC 1294 (Davis) and Cecil B. Carter o/a Shell Service Centre v Walker (February 28, 1981) ESC 957 (Saltman). The only ruling by a referee in which s. 13(2), which corresponds to s. 9(1) in the ESA 2000, was held to be applicable in these circumstances was Joe Hinschberger c.o.b. Joe’s Gulf v Spicer (March 4, 1982), ESC 1161 (Hunter), which, for a number of reasons, is not considered by the Branch to be convincing counter-authority to the Burbank Automotive decision.

In conclusion, it is difficult to see how, in its present wording, s. 9(1) can be interpreted to apply to a supposed sale which is actually a two-stage transfer (from X to Y to Z), and in which Y does not employ X's employees, even though they are employed by Z. Accordingly, the current policy of the Program in such cases is that there is no continuity of employment, and when X discontinues its operation of the business, a termination of employment occurs. Note, however, that s. 9(1) will apply where Y does hire X's employees, or where X assigns the key contract directly to Z.

Determining whether employees of the seller are employed by the purchaser

In addition to the requirement that there be a sale of a business in order for s. 9(1) to operate, there must also be a purchaser who employs an employee of the seller. Subsection 9(1) does not have the effect of obligating the purchaser of a business to hire the seller’s employees. If the purchaser does not hire the employees, s. 9(1) has no application.

It should also be noted that if the purchaser opts to hire the seller’s employees, s. 9(1) does not require that the purchaser hire the employees on the same terms and conditions of employment as the seller had offered. Subsection 9(1) would apply to provide the employees with continuity of employment even though the purchaser hired the seller’s employees at a wage rate lower than that which they had been earning in the seller’s employ.

There are several referee and adjudicator decisions which state that s. 13 of the former Employment Standards Act (now s. 9) does not apply where the purchaser employs the employees on terms that are radically different from those which the employees had with the vendor, e.g., Berdan et al v Dunlop Construction Products Inc. (June 18, 1993) ES 93-117 (Muir). However, these are contrary to Program policy and should not be followed on this particular point.

Program policy is that if the purchaser does employ the employees of the seller, it cannot avoid the application of s. 9(1) by relying on any of the following:

  1. The employee signed an application for employment and went through a selection process, including an interview.
  2. The employee is working under entirely new terms and conditions of employment.
  3. The employee has acknowledged, in writing or otherwise, that this is a new contract of employment with no seniority carried forward.

The provision of continuity of employment for certain purposes of the ESA 2000, and the purchaser’s obligation to honour it, is an employment standard which cannot be contracted out of or waived by either the employee or employer or their representatives.

As previously mentioned, the fact that an employee is employed by the purchaser in a different position than they held with the vendor does not prevent s. 9(1) from operating. In T.A.S. Investments Limited v Kleinert (April 20, 1978), ESC 508 (Springate), continuity was held to flow through regardless of the fact that the employee was employed by the vendor as a store manager but was only employed by the purchaser to maintain the store’s financial and payroll records. Likewise, if the purchaser employed the employee on a term or task basis, there will still be continuity of employment under s. 9(1). Note that there is one adjudicator’s decision to the contrary on that point – see Penrose et al v Maher Inc. in Bankruptcy c/o Ernst & Young Inc. (August 24, 1994), ESC 94-155 (Wacyk).

On the other hand, there is nothing that obliges the employee to accept employment with the purchaser, even if that employment is exactly the same position with identical terms and conditions of employment. The employee always has the option of rejecting the purchaser’s offer of employment, and treating the vendor’s sale of the business as a termination and severance of employment.

Referee Davis in Galante c.o.b. as Fredy’s Barber Shop v Shaw (January 13, 1982) ESC 1125 (Davis) upheld this option, although with no express reference to s. 13(2) of the former Employment Standards Act,which corresponds to s. 9 in the ESA 2000. In that case, the owner of a business had decided to sell it but did not inform his employees of the impending sale. He planned to announce it to them at the closing, at which time he was going to give them termination pay. As he was about to make the announcement, one of the employees, who had heard that there was to be a sale and felt that the purchaser of the business would be unlikely to hire him, lamented that there would be no work for him and announced that he was leaving. The employer argued that he was not liable for termination pay because the employee had quit, but the referee held that the employee lacked this intention and had left because he had concluded that his employment was being terminated by the sale. The employer’s contention that he should not be ordered to pay termination pay, because the employee’s abrupt departure had precluded him from putting forward employment alternatives (such as employment by the purchaser or by the vendor at a different location) for the employee’s consideration, was rejected on the grounds that these alternatives represented not a continuation of the existing employment relationship, but the formation of a new employment relationship.

In order for there to have been employment by the purchaser, it is not necessary for the purchaser of a business to make an express statement offering employment to the seller’s employees. It is enough that the purchaser knowingly allows the employees to continue working in the business following the sale. However, this rule should not be applied too narrowly. Where, for example, a sale of a business occurs during an employee’s shift, the purchaser will not be considered to have employed the employee for the purposes of s. 9(1) merely because the employee works through to the end of his shift, if the business is such that termination at the precise moment of the sale would be impractical and if the employee never enters into any agreement with the purchaser and performs no further work for them. See the decision of Agincourt Motor Hotel Limited v Flannigan et al (August 19, 1982), ESC 1272 (Davis).

Other issues

Purported termination by seller

In Ontario (Employment Standards Officer) v Equitable Management Ltd. (Div Ct), 1990 CanLII 6973 (ON SC) the Divisional Court held that s. 13(2) of the former Employment Standards Act, which corresponds to s. 9 in the ESA 2000,applied even if the seller gave notice of termination. This decision accords with the intent of the continuity provisions, which is to ensure that credit for an employees' past employment with the seller is not lost when they are hired by the purchaser, subject to the rules regarding a gap between employment with the seller and employment with the purchaser in s. 9(2). It is Program policy that the employee also retains credit of their past employment with the seller where the seller, instead of giving notice of termination, gives pay in lieu of notice.

Termination and severance liabilities where purchaser does not employ employee of seller

In the case of a sale of a business where an employee terminated by the seller is not hired by the purchaser within the 13-week period set out in s. 9(2), the seller must comply with Part XV, that is, must provide proper notice of termination or pay in lieu thereof, and severance pay, where applicable.

It is important to note that s. 9:

  1. Does not obligate the purchaser of the business to hire the seller’s employees; and
  2. Allows the employee to reject an offer of employment from the purchaser and to instead treat the sale of the business as a termination by the seller.

The purchaser is not obligated to hire the seller’s employees whether they are currently working, on lay-off, sick leave, a leave of absence or workers' compensation.

The employee is under no obligation under the ESA 2000 to accept employment with the purchaser and their refusal does not disentitle them to termination notice, or pay in lieu or severance pay. This is so even if the purchaser is offering the same terms of employment or reasonable alternative employment.

It sometimes happens that the sale contract between the seller and the purchaser will contain a provision obligating the purchaser to offer employment to some or all of the seller’s employees. However, if the seller, relying on the contract, does not provide notice of termination to its employees but the purchaser does not end up making an offer after all, it is the seller who is responsible for the termination pay and severance pay, since it is the one who terminated and severed its employees' employment. There is no basis in the ESA 2000 for holding the purchaser liable, despite what was in the sale contract, although the seller may be able to sue the purchaser civilly.

Termination and severance liabilities where purchaser employs seller’s employees and terminates/severs

Where a purchaser does employ the seller’s employees following a sale in accordance with s. 9 but later terminates their employment, there is no pro rata division of liability for termination pay between the seller and purchaser. The subsequent responsibility for complying with Part XV requirements based on length of employment with both the seller and the purchaser lies solely with the purchaser.

Further, the purchaser is not entitled to any credit for termination pay or notice of termination that was previously paid or provided by the seller at the time of the sale. However, if the seller had paid severance pay at the time the employees lost their employment with it, that amount may be offset against the purchaser’s subsequent liability as a contractual payment based on length of employment or seniority per paragraph 3 of s. 65(8).

Exception – s. 9(2)

While in many sale situations, the employee’s first day of employment with the purchaser will follow immediately after their last day of employment with the seller, there will also be situations where there are short interruptions in employment. Section 9(2) provides, in effect, that s. 9(1) will apply only if no more than 13 weeks separates the first day of employment with the purchaser and the earlier of:

  1. The employee’s last day of employment with the seller; or
  2. The day of the sale.

The term last day of employment with the seller simply means the last day on which the employee is employed by the seller for purposes of the ESA 2000. Bearing in mind that both active and inactive employment counts as employment for purposes of ESA Part XV, s. 59(1) and ESA Part XV, s. 65(2), this includes time spent on lay-off up to the point at which a termination or severance is triggered. Note that for purposes of s. 9(2), the first day of the lay-off is not considered the last day of employment with the seller. While some might argue that it should be so considered because of s. 56(5), which deems the first day of a lay-off that ends in termination to be the day on which the employee’s employment is terminated, this argument ignores the fact that s. 9(2) refers to the last day of employment, not the day on which the employee’s employment was deemed terminated; it also ignores the fact that s. 9(2) applies for all rights under the ESA 2000 that depend on how long an employee has been employed and not just for purposes of notice of termination or termination pay in lieu.

If an employee on lay-off is potentially entitled to both termination pay and severance pay, their last day of employment will be considered, for purposes of s. 9(2), to be the later of: (1) the day on which a termination is triggered, and (2) the day on which a severance is triggered. For example, if an employee who is potentially entitled to both termination pay and severance pay is put on lay-off and benefits are not maintained and none of the other conditions described in ESA Part XV, ss. 56(2)(b) or (c) are met, their employment is considered terminated once more than 13 weeks have passed, and severed once 35 weeks had passed. For purposes of s. 9(2), therefore, their last day of employment is considered to be the final day of the 35th week; if the purchaser hired the employee within 13 weeks of the earlier of that day and the day of the sale, there would be continuity insofar as any subsequent calculation of length of employment or period of employment was concerned.

If the employee did not have a potential entitlement to severance pay, for example, because they would not have accumulated five years of employment with the employer in total as of the end of 35 weeks of lay-off, or because their employer did not have a payroll of at least $2.5 million, the last day of employment would be considered to be the final day of the 13th week of lay-off; if the purchaser hired the employee within 13 weeks of the earlier of that day and the day of the sale, there would be continuity insofar as any subsequent calculation of length of employment or period of employment was concerned.

Example 1:

  • If an employee were laid off one week before the date of the sale and the lay-off ceased to be temporary 13 weeks later (and assuming the seller had no severance obligations with respect to the employee), the employee’s last day of employment would be 12 weeks after the date of the sale.
  • In this case, employee continued to be employed (i.e., was on a temporary lay-off) with the seller of the date of the sale. In order to trigger the continuity of employment obligations in s. 9, the purchaser would have to hire the seller’s employee within 13 weeks of the sale date.

Example 2:

  • Employee A is placed on temporary lay-off 20 weeks before the date of the sale and ceased to be on temporary lay-off for notice of termination purposes seven weeks before the date of the sale but continued to be on lay-off for severance purposes until 15 weeks after the sale date.
  • In this case, the employee continued to be employed (i.e., was on a lay-off that had not yet resulted in severance) with the seller as of the date of the sale. In order to trigger the continuity of employment obligations in s. 9, the purchaser would have to hire the seller’s employee within 13 weeks of the sale date.

It should also be noted that the deemed termination date as set out in ESA Part XV, s. 56(5) has no application with respect to any subsequent liability a purchaser may have for notice or termination pay where there is continuity of employment under s. 9, because under s. 9(1), the employment would be deemed not to have been terminated at the time of the sale, even if the employee was not hired by the purchaser until after the lay-off had exceeded the period of a temporary lay-off.

Example

  • Employer A sells business to employer B on June 14, 2012.
  • A's employee is laid off on June 7, one week before the sale date.
  • Temporary lay-off for notice of termination purposes ends September 6, the day on which the employee has been on lay-off for more than 13 weeks, 12 weeks after the sale date.
  • Pursuant to s. 56(5), the employee’s employment would be deemed to be terminated on June 7, the first day of lay-off.
  • However, for the purposes of s. 9, A's last day of employment is considered to be September 6.
  • Section 9(1) applies because employer B hired the employee on or before September 13, the date that is 13 weeks after the earlier of (1) the last day of employment with the seller and (2) the day of the sale.
  • Employer B subsequently terminates the employee’s employment.
  • Under s. 9(1), the employee’s employment was deemed not to have been terminated by employer A and the employee’s employment with employer A is attributed to employer B.

Definitions – s. 9(3)

This is an inclusive definition, giving sale a broader meaning than it has in normal usage. For example, a sale would not normally include a transfer of a business by way of a gift or inheritance. However, since this section defines a sale to include transfers or any other manner of disposition, such a transfer would be considered a sale for the purposes of s. 9.

However, a contracting out (or contracting in) of services, without more, is not usually considered a sale, even within the meaning of the expanded definition in s. 9. The contracting in/out of services is distinguished from a sale of business because the former typically involves simply a change in the way in which some function ancillary to the business is carried out rather than anything that could be said to amount to the transfer of a business or a part of a business. For example, if a retail employer had in the past provided its security staff with in-house self-defence training and subsequently engaged a private company to provide that training; it would be characterized as a contracting out of services rather than a sale.

It is important to note that determining whether what has taken place is a sale of business (or part of a business) or is instead merely a contracting out or contracting in is very much a fact-specific determination. See, for example, the discussion of the Abbott v Bombardier Inc.

Predecessor Acts – s. 9(4)

9(4) For the purposes of subsection (1), employment with the seller includes any employment attributed to the seller under this section or a provision of a predecessor Act dealing with sales of businesses.

Section 9(4) ensures the flow-through of length or period of employment attributed to a seller under the provisions of the current ESA 2000 or former Employment Standards Act.

Example

  • Employee hired by Corporation A - September 1, 1990
  • Corporation A sells business to Corporation B – January 1, 1994
  • Employee is hired by Corporation B – January 1, 1994
  • Corporation B sells business to Corporation C – January 1, 2002
  • Employee is hired by Corporation C – January 1, 2002
  • Corporation C sells business to Corporation D – January 1, 2006
  • Employee hired by Corporation D – January 1, 2006

In this example, pursuant to s. 9(4), the employee’s employment with corporations A, B and C will be treated as if it was employment with corporation D for purposes of those rights under the ESA 2000 that depend on period or length of employment.

This is because under the former Employment Standards Act, the sale from A to B and B's hiring of the employee resulted in the employee’s employment with A being attributed to B. The sale from B to C and C's hiring of the employee occurred after the current Act had come into force, and it resulted in the employment with B – including employment with A that was attributed to B under the former Employment Standards Act – being attributed to C. Likewise, the sale from C to D and D's hiring of the employee resulted in the employment with C – including employment with A and B that was attributed to C – being attributed to D.

Section 10 - New building services provider

New building services provider – s. 10(1)

10(1) This section applies if the building services provider for a building is replaced by a new provider and an employee of the replaced provider is employed by the new provider.

This provision is similar to ss. 13.1(2) and 13.1(3) in the former Employment Standards Act. It defines the circumstances in which s. 10 will provide continuity of employment when a provider of building services is replaced by a new provider and the new provider employs any of the replaced provider’s employees (subject to the rules regarding a hiatus or gap, s. 10(3)).

Definitions

The terms building services and building services provider are defined in s. 1(1) of the ESA 2000 as follows:

Building services
Building services provider

These terms are discussed in more detail in ESA Part I, s. 1 and O Reg 287/01 of the Manual with respect to the termination and severance obligations of building services providers in Part XIX of the ESA 2000 (Building Service Providers) when employees of a replaced provider are not hired by the new provider.

Section 10(1) applies to provide continuity of employment if the following criteria are met:

  1. The former building services provider is replaced by a new provider; and
  2. An employee of the replaced provider is employed by the new provider.
    • This criterion is met if any employee of the replaced provider is employed by the new provider, including, for example, employees such as office managers who worked only at the replaced provider’s head office. In other words, s. 10 is not restricted in its application only to those employees who were engaged in actually providing building services.
    • This is to be contrasted with s. 75, which establishes a special rule regarding termination pay and severance pay liabilities where there is job loss in the context of a change in building service provider: s. 75 applies only to an employee of the replaced provider who is engaged in providing services at the premises and whom the new provider does not employ. See Betts v Brookfield Lepage Johnson Controls Facility Management Services Ltd., 2007 CanLII 12199 (ON LRB).

Application

1. The former building services provider is replaced

Section 10 applies where a building services provider stops providing services to a building and is replaced by a new provider. In order to replace the former building services provider, the two providers must be providing the same general category of building services at the premises. If, for example, a building owner discontinued its food service contract with A and contemporaneously entered into a security services contract with B, it would be difficult to see how B could be said to be replacing A at the premises.

2. An employee of the replaced provider is employed by the new provider

 As noted above, s. 10 will apply to create continuity of employment only if the new provider hires an employee of the replaced provider (subject to the time limits in s. 10(3)). One issue that arises is how s. 10 applies if either the replaced provider or the new providers falls under federal jurisdiction:

Section 10 does not apply. The ESA 2000 only applies to employees and their employers (both replaced and new providers) who are provincially regulated, s. 3(2). Therefore, the new provider would not be required to consider the employee’s length or period of employment with the replaced provider.

Again, s. 10 does not apply because employment with an employer under federal jurisdiction would not be attributable to the new provider. This may arise as the reverse of the situation described above, e.g., where a bank (which is under federal labour jurisdiction) uses its own in-house staff to perform security services, but then contracts out those services to a security company.

See Rostrust Investments Inc./Investissements Rostrust Inc. v Doxtater, 2006 CanLII 41431 (ON LRB) in which the Board concluded that the continuity of employment provisions in the ESA 2000 did not apply where the former provider (Rostrust Investments Inc.) fell under provincial jurisdiction and the new provider (Public Works and Government Services Canada) fell under federal jurisdiction on the basis that s. 3(2) of the ESA 2000 specifically provides that the ESA 2000 does not apply if the employment relationship is within the jurisdiction of the federal government.

No termination or severance – s. 10(2)

10(2) The employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the replaced provider shall be deemed to have been employment with the new provider for the purpose of any subsequent calculation of the employee’s length or period of employment.

Section 10(2) provides for continuity of employment for an employee when there is a change in the provider of building services at a building if the new provider employs an employee of the replaced provider (subject to the s. 10(3) rules regarding a gap between employment with the new provider and the earlier of: (1) the last day of employment with the replaced provider and (2) the date the new provider began servicing the premises). In that case, the employee is deemed not to have had his or her employment terminated or severed for the purposes of the Act and employment with the replaced provider is included in any subsequent calculation of length or period of employment with the new provider for entitlements to:

  1. Vacation: Employees whose period of employment is less than five years are entitled to two weeks of vacation with pay upon completion of each 12-month vacation entitlement year - s. 33(1)(a) and employees whose period of employment is five years or more are entitled to three weeks of vacation with pay upon completion of each 12-month vacation entitlement year;
  2. Pregnancy leave: An employee may be entitled to pregnancy leave if their due date is at 13 weeks after the date they commenced employment – s. 46(1);
  3. Parental leave: Employees may be entitled to parental leave if they have been employed at least 13 weeks prior to commencing the leave – s. 48(1);
  4. Organ donor leave: Employees may be entitled to organ donor leave if they have been employed at least 13 weeks prior to commencing the leave – s. 49.2(3);
  5. Reservist leave: Employees may be entitled to reservist leave if they have been employed at least six consecutive months prior to commencing the leave – s. 50.2(3);
  6. Critical Illness Leave: Employees may be entitled to critical illness leave if they have been employed for at least six consecutive months prior to commencing the leave – s. 49.4(2) and (5);
  7. Domestic or Sexual Violence Leave: Employees may be entitled to domestic or sexual violence leave if they have been employed for at least 13 consecutive weeks prior to commencing the leave: s. 49.7(2);
  8. Crime-Related Child Disappearance Leave: Employees may be entitled to crime-related child disappearance leave if they have been employed for at least six consecutive months prior to commencing the leave – s. 49.6(2);
  9. Child Death Leave: Employees may be entitled to child death leave if they have been employed for at least six consecutive months prior to commencing the leave – s. 49.5(2);
  10. Written notice of termination or pay in lieu:
    • Employees may be entitled to notice or pay in lieu (including mass notice, s. 58) if they have been employed for at least three months – s. 54; [See the discussion in the Manual at section 9.2.1 regarding the impact of s. 10 on eligibility for termination entitlements];
    • Entitlement to one to eight weeks of notice or pay in lieu depends on length of employment – s. 57;
  11. Severance pay:
    • Employees may be entitled to severance pay if they have been employed for at least five years – s. 64;
    • Entitlement to up to 26 weeks of severance pay depends on length of employment – s. 65.

1. Vacation

The Program’s policy is that the employee’s length of service, for vacation with pay purposes, flows through from the replaced provider to the new provider. However, the liability for accrued vacation pay does not. This is because s. 76 of the Act requires building services providers who cease providing services at a premises, and who terminate the employment of an employee, to pay the employee all his or her accrued vacation pay (whether it was otherwise due or not) no later than the later of seven days after the termination of employment or on what would have been the employee’s next pay day.

An exception to the flow-through rule, as it applies to length of service, occurs if the new building services provider for a building hires the employee more than 13 weeks after the earlier of the employee’s last day of employment with the replaced provider and the day on which the new provider began servicing the premises. In this situation, the new provider is not required to recognize the employee’s length of service with the replaced provider, for the purposes of determining the employee’s entitlements to vacation under Part XI.

For a detailed discussion of the application of s. 76 see Part XIX, s. 76.

2. Part XIV leaves of absence

In addition to the information above regarding statutory leaves, it is important to note that there is nothing in s. 10 that would require a new building service provider to hire any employee of the replaced provider, including an employee of the replaced provider who was on a statutory leave at the time the new provider began providing services at the premises. In most cases however, where the new provider does not make a reasonable offer of employment to employees of the replaced provider, the new provider must comply with the notice and severance obligations under the Act with respect to those employees – see ESA Part XIX, s. 75. This would apply equally to employees who were on a statutory leave at the time. See ESA Part XIV, s. 53 for a discussion of rights to notice for employees who are legitimately terminated while on leave.

3. Termination unrelated to change in providers

Where an employee’s employment is terminated and severed prior to the change of providers and for reasons unrelated to that change, the question may arise as to whether s. 10 would apply. Because the purpose of s. 10 is to undo a common-law termination that would otherwise be triggered by the change of providers, it is the position of the Program that s. 10(2) does not apply where the termination or severance is not related in any way to the change. Thus, for example, if an employee’s employment was terminated by the replaced provider for wilful misconduct but they were hired by the new provider, s. 10(2) would not apply.

Exception – s. 10(3)

10(3) Subsection (2) does not apply if the day on which the new provider hires the employee is more than 13 weeks after the earlier of his or her last day of employment with the replaced provider and the day on which the new provider began servicing the premises.

While in many change of provider situations, the employee’s first day of employment with the new provider will follow immediately after his or her last day of employment with the replaced provider, there will also be situations where there are short interruptions in employment. Section 10(3) provides, in effect, that s. 10(2) will apply only if no more than 13 weeks separate the first day of employment with the new provider and the earlier of:

  1. The employee’s last day of employment with the replaced provider; and
  2. The day on which the new provider began servicing the premises.

The term last day of employment with the replaced provider simply means the last day on which the employee is employed by the replaced provider for purposes of the ESA 2000. Bearing in mind that both active and inactive employment counts as employment for purposes of the ESA 2000 [see s. 59(1) and s. 65(2)], this will include time spent on lay-off up to the point at which a termination or severance would be triggered.

Note that for purposes of s. 10(3), the first day of the lay-off would not be considered the last day of employment with the seller. While some might argue that it should be so considered because of s. 56(5), which deems the first day of a lay-off that ends in termination to be the day on which the employee’s employment is terminated, this argument ignores the fact that s. 10(3) refers to the last day of employment, not the day on which the employee’s employment was deemed terminated; it also ignores the fact that s. 10(2) applies for all rights under the Act that depend on how long an employee has been employed and not just for purposes of notice of termination or termination pay in lieu.

If an employee on lay-off is potentially entitled to both termination pay and severance pay, his or her last day of employment will be considered, for purposes of s. 10(3), to be the later of (a) the day on which a termination would be triggered and (b) the day on which a severance would be triggered. For example, if an employee potentially entitled to both termination pay and severance pay is put on lay-off and benefits are not maintained and none of the other conditions described in clauses 56(2)(b) or (c) of the Act are met, his or her employment would be considered terminated once more than 13 weeks had passed, and severed once 35 weeks had passed. For purposes of s. 10(3), therefore, his or her last day of employment with the replaced provider would be considered to be the final day of the 35th week; if the new provider hired the employee within 13 weeks of the earlier of that day and the day of the sale, there would be continuity insofar as any subsequent calculation of length of employment or period of employment was concerned.

If the employee did not have a potential entitlement to severance pay (say, because they would not have accumulated five years of employment with the employer in total as of the end of 35 weeks of lay-off, or because his or her employer did not have a payroll of at least $2.5 million) the last day of employment would be considered to be the final day of the 13th week of lay-off; if the new provider hired the employee within 13 weeks of the earlier of that day and the day on which the new provider began servicing the premises there would be continuity insofar as any subsequent calculation of length of employment or period of employment was concerned.

Example 1:

  • If an employee were laid off one week before the changeover date and the lay-off ceased to be temporary 13 weeks later (and assuming the replaced provider had no severance obligations with respect to the employee), the employee’s last day of employment would be 12 weeks after the changeover date.
  • In this case, employee continued to be employed (i.e., was on a temporary lay-off) with the replaced provider as of the changeover date. In order to trigger the continuity of employment obligations in s. 10, the new provider would have to hire the employee of the replaced provider within 13 weeks of the changeover date.

Example 2:

  • Employee A is placed on temporary lay-off 20 weeks before the changeover date and ceased to be on temporary lay-off for notice of termination purposes seven weeks before the changeover date but continued to be on lay-off for severance purposes until 15 weeks after the changeover date.
  • In this case, the employee continued to be employed i.e., was on a lay-off that had not yet resulted in severance) with the replaced provider as of the changeover date. In order to trigger the continuity of employment obligations in s. 10, the new provider would have to hire the employee of the replaced provider within 13 weeks of the changeover date.

It should also be noted that the deemed termination date as set out in s. 56(5) has no application on any subsequent liability a new provider may have for notice or termination pay where there is continuity of employment under s. 10, because under s. 10(2), the employment would be deemed not to have been terminated, even if the employee was not hired by the new provider until after the lay-off had exceeded the period of a temporary lay-off. For example:

  • Employer A loses contract for building services to employer B.
  • Changeover date is June 14, 2002.
  • A's employee is laid off one week before the changeover date (June 7). Temporary lay-off for notice of termination purposes ends September 6 (the point at which the employee has been on lay-off for more than 13 weeks), 12 weeks after the changeover date). Pursuant to s. 56(5) the employee’s employment would be deemed to be terminated on first day of lay-off (June 7).
  • However, A's last day of employment is considered to be September 6 for the purposes of s. 10.
  • Section 10(2) applies because employer B hired the employee on or before September 13, the date that is13 weeks after the earlier of (1) the last day of employment with the replaced provider and (2) the changeover date).
  • Employer B subsequently terminates the employee. Under s. 10(2), the employee was deemed not to have been terminated by employer A and the employee’s employment with employer A is attributed to employer B.

Predecessor Acts – s. 10(4)

10(4) For the purposes of subsection (2), employment with the replaced provider includes any employment attributed to the replaced provider under this section or under a provision of a predecessor Act dealing with building services providers.

This provision was introduced with the ESA 2000. Section 10(4) ensures the flow-through of length or period of employment attributed to a replaced provider under the provisions of the ESA 2000 or the former Employment Standards Act. (The first continuity of employment provision in the context of building service providers was proclaimed into force on January 1, 1993, but it applied in respect of changes in providers that occurred after June 4, 1992.)

Example

  • Provider A hires employee on September 1, 1990
  • Provider B takes over contract, and hires employee on January 1, 1994
  • Provider C takes over contract and hires employee on January 1, 2002
  • Provider D takes over contract and hires employee on January 1, 2006

In this example, pursuant to s. 10(4), the employee’s employment with contractors A, B and C will be treated as if it was employment with contractor D for purposes of those rights under the Act that depend on length or period of employment.

Note: Under the former Employment Standards Act, the change in providers from A to B and B's hiring of the employee resulted in the employee’s employment with A being attributed to B, because the change occurred after June 4, 1992. The changeover from B to C and C's hiring of the employee occurred after the current Act had come into force, and it resulted in the employment with B, including employment with A that was attributed to B under the former Act, being attributed to C. Likewise, the changeover from C to D and D's hiring of the employee resulted in the employment with C, including employment with A and B that was attributed to C, being attributed to D.