Anonymised, illustrative composite. An Ontario asset sale, a warehouse folded into the buyer’s existing site ninety minutes away, and a regulation that puts the entire outcome inside the buyer’s own offer letter.
At a glance
The vendor ran a single-site parts-distribution business in Mississauga with 41 employees, sold by asset purchase for $6.2 million. The buyer already operated a larger distribution centre in Cambridge and had no intention of keeping the Mississauga site open; the deal was a straightforward consolidation, not a continuation of the seller’s operation as it stood.
The asset purchase agreement allocated pre-closing employment liabilities to the vendor in the ordinary way, backed by a $200,000 holdback. Neither party had priced in what happened next, because on paper every one of the 41 employees was being offered continued work at the same pay.
Eleven employees, most with young children or a second job near the old site, told the vendor before closing that they would not make a ninety-minute commute each way. Their position, relayed through counsel, was that the sale had effectively ended their employment and that the alternative on offer was not a real alternative at all — so the vendor owed them notice, and the six with five or more years of service also wanted severance pay.
The vendor’s first instinct was to treat this as settled law: a sale does not automatically trigger termination pay, because ESA s.9(1) deems continuous employment where “the purchaser employs an employee of the seller.” But none of these eleven were going to be employed by the purchaser — they had already said no. Continuity under s.9(1) had nothing to attach to. The real question was a different provision entirely.
Notice entitlement under ESA Part XV runs one week per completed year to a maximum of eight weeks. Severance pay under s.64 applies only where the employer’s Ontario payroll is $2.5 million or more and the employee has five or more years of service, at one regular week’s wages per year to a maximum of 26 weeks. Run across the eleven — four with two to four years’ service, seven with five to twelve — the combined notice-and-severance exposure, had it applied, was approximately $340,000: roughly 8% of the purchase price, concentrated entirely in a fact nobody had diligenced because it depended on what happened after signing, not before it.
Two paragraphs of the same regulation, worded almost identically. O. Reg. 288/01 s.2(1) lists the employees excluded from notice or termination pay, and paragraph 5 reads: “An employee whose employment is terminated after refusing an offer of reasonable alternative employment with the employer.” s.9(1), the parallel severance-pay exclusion list, carries the same idea at paragraph 4: “An employee whose employment is severed after refusing an offer of reasonable alternative employment with the employer.”
The word doing the work is “employer.” Under ESA s.9(1), on a sale where the purchaser employs the seller’s staff, the employee’s employment “shall be deemed not to have been terminated or severed for the purposes of this Act” and is deemed to have continued with the purchaser. That fiction is what makes an offer from the buyer count as an offer “with the employer” under O. Reg. 288/01, even though the buyer and the eleven employees had never had an employment relationship at all. Without s.9(1), the exemption would only reach an offer from the seller — and the seller here was closing its doors.
Neither the ESA nor the Regulation defines “reasonable.” No fixed test exists in the text; it is applied to the facts of the specific offer. The buyer’s letter preserved base pay, hours and job title exactly, credited existing seniority for vacation and benefit eligibility, gave 30 days to decide rather than the ordinary notice-period pressure of a closing, paid a $2,500 relocation stipend, and offered a 90-day right of return to the old commute band if the employee could show a documented hardship. Structured that way, the offer carried the exemption for ten of the eleven: refusing it was refusing something reasonable, and refusing a reasonable offer costs the employee the entitlement rather than costing the employer the payout.
Ten of the eleven refusals were accepted as refusals of a reasonable offer. No notice pay, no severance pay, from either party. The eleventh employee had a documented mobility limitation that made a two-way commute of that length materially different from a preference not to drive far — a fact pattern the parties had specifically carved out in the purchase agreement’s employee-risk allocation clause as one where the buyer’s standard offer might not carry the exemption. That employee received a $31,000 combined notice-and-severance payment, split evenly between vendor and buyer under that clause. Closing was not delayed.
If the buyer had made a bare-bones offer instead — a pay cut, no seniority credit, 48 hours to decide, no accommodation for the extra distance — the exemption would plausibly have failed for most or all eleven. In that world s.9(1) still never attaches (none of them were employed by the purchaser), so the notice-and-severance obligation falls back on the vendor at ordinary common law and statutory rates — the full $340,000, against a $200,000 holdback that was never sized for it, in the weeks after the vendor corporation had already dissolved into a shell holding only the sale proceeds.
Nova Scotia reaches the identical exemption from a different direction and with higher stakes attached to it. The Labour Standards Code puts “reasonable other employment” directly in the statute rather than a regulation — s.72(3)(e) exempts “a person who has been offered reasonable other employment by his employer” from the notice requirements in s.72(1) and (2). What makes it sharper is s.71(1): an employer may not discharge or suspend an employee of ten or more years’ service “without just cause unless that employee is a person within the meaning of person as used in clause (d), (e), (f), (g), (h) or (i) of subsection (3) of Section 72.” Clause (e) is the reasonable-offer exemption. In Nova Scotia, then, a reasonable relocation offer is not only about avoiding a notice bill — for a ten-year employee it can be one of the only lawful routes to ending the employment relationship at all on a business sale.
Every other continuity risk in this employment cluster is fixed by the time the parties sign — who is on leave, whose contract is already void, who was left off a list. This one is not. It is decided by a document the buyer writes after signing, and nobody in this deal put a floor on what that document had to contain. The purchase agreement should have specified the minimum terms a continued-employment offer must carry to qualify for the exemption — pay, hours, duties, seniority recognition, decision period — because that is the one fact pattern in the whole cluster where the buyer, not the calendar, controls the exposure.
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