Anonymised, illustrative composite. The buyer measured the thirteen-week continuity window from the vendor’s last payroll. The Act measures it from the earlier of two dates, and the earlier one was the closing itself.
At a glance
A packaging group bought the assets of a family-owned commercial printing and finishing business in southwestern Ontario for $4,200,000. The business had 61 employees and an annual payroll of $3,350,000. Thirty-four were long-service production staff, averaging 11.4 completed years and regular wages of $1,180 for a regular work week.
The buyer wanted those 34, and its integration plan turned on keeping the crew intact with their seniority recognised. Nobody was trying to shed the workforce — which matters, because the provision that decided this file is usually written up as a planning tool and here it operated as a trap.
The transaction closed on 15 April. The vendor did not stop trading that day: under a transition arrangement it kept the 34 production employees on its own payroll until 31 July, finishing committed work in the same building. The buyer opened its payroll to them on 5 August — five days after their last day with the vendor.
Five days is comfortably inside thirteen weeks, and that is the arithmetic the buyer did. It is not the arithmetic in the Act. ESA s.9(1) deems continuity where an employer “sells a business or a part of a business and the purchaser employs an employee of the seller”, and s.9(3) defines sells to include “leases, transfers or disposes of in any other manner”. Section 9(2), marginal note Exception, then removes it: “Subsection (1) does not apply if the day on which the purchaser hires the employee is more than 13 weeks after the earlier of his or her last day of employment with the seller and the day of the sale.”
Two candidate dates, and the Act takes the earlier. Last day with the seller: 31 July. Day of the sale: 15 April. Thirteen weeks from 15 April expired on 15 July; the buyer hired on 5 August. Section 9(1) applied to none of the 34.
Because s.9(1) did not apply, the vendor had terminated and severed 34 employees, and its obligations crystallised on their last day. Payroll of $3,350,000 satisfied s.64(1)(b), and each had well over the five years the opening words of s.64(1) require.
Severance under s.65(1) is the regular weekly wage multiplied by completed years plus part-years divided by twelve: 11.4 × $1,180 = $13,452 a head, or $457,368 across the 34. None came near the s.65(5) ceiling of “the employee’s regular wages for a regular work week for 26 weeks”. Notice at the top of the s.57 scale — eight weeks at eight years or more — added $9,440 a head, or $320,960. Total: $778,328, none of it budgeted, because on the buyer’s reading nothing was ever going to crystallise at closing.
The most-quoted thing about s.9(2) is the number, and the number is the least interesting part of it. What decides files is the phrase the earlier of: a signing-to-closing-to-transition sequence can consume the whole window before the buyer has met a single employee, because the event that starts the clock is a date on the closing agenda rather than anything that happens to the workforce.
The second thing is what breaking continuity actually does. It does not make the entitlement disappear. It fixes it on the vendor as at the employees’ last day and hands the buyer a workforce whose statutory clocks all read zero. Whether that is an advantage depends entirely on whether the vendor is good for the money, and here the vendor was an asset-sale shell that had distributed the proceeds within weeks of closing.
The employees looked at the directors next, and ran into s.81(3): “The wages that directors are liable for under this Part are wages, not including termination pay and severance pay as they are provided for under this Act or an employment contract and not including amounts that are deemed to be wages under this Act.” Directors’ liability under Part XX reaches unpaid wages, holiday pay, overtime and up to twelve months of vacation pay. It expressly does not reach the two heads that made up the whole of this claim.
The buyer got what it did not want: 34 people with no recognised prior service and a live grievance against a company that could not pay, at the moment its retention plan needed them most.
It fixed the commercial problem rather than the legal one — recognising prior service by contract in each new employment agreement, which binds the buyer because the buyer promised it and not because the Act deems it, and funding a $290,000 hardship pool out of the indemnity escrow. Twenty-nine of the 34 stayed. For the position when continuity does hold, see statutory severance pay and what an asset buyer inherits and what happens to the staff when the business is sold.
Hiring on 15 July rather than 5 August — three weeks earlier, on the same transition plan — would have kept all 34 inside the window. Section 9(1) would have applied, nothing would have crystallised at closing, and the accrued clocks would have stayed a future contingent cost instead of a present loss against a shell.
The reverse case deserves the same precision, because the planning literature runs the other way. A buyer that does not want the accrued clocks can use s.9(2) deliberately, but that saves nothing at deal level: it transfers the bill to the vendor, and a vendor who understands the provision prices it into the price.
Two dates on the same closing agenda, sixteen weeks apart, and nobody subtracted them. The completion checklist carried the closing date, the transition services schedule carried the date the buyer’s payroll would open, and the employment section of the agreement recited s.9 without a single date in it.
The check is one line: take the earlier of the closing date and the last day the vendor will pay these people, add thirteen weeks, and compare it with the first day of the buyer’s payroll. Where a transition arrangement keeps staff on the vendor’s books, the closing date is almost always the earlier one.
There is no equivalent escape west of Ontario. BC ESA s.97 provides that “If all or part 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 or receivership”. No gap exception, and no requirement that the purchaser hire anyone. Alberta’s Employment Standards Code s.5 deems employment “continuous and uninterrupted when a business, undertaking or other activity or part of it is sold, leased, transferred or merged”, and Saskatchewan’s Employment Act s.2-10 asks only that “an employee continues to be employed at the business after the sale, lease, transfer or disposition”.
The federal Code is the mirror image of Ontario, which is worth knowing before treating thirteen weeks as an Ontario peculiarity. Canada Labour Code s.189(1.2) disapplies continuity where the first day with the second employer “is more than 13 weeks after the day that is the earlier of (a) the employee’s last day of employment by the first employer; and (b) the day on which the federal work, undertaking or business is transferred”. Same period, same earlier-of construction, different statute.
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