Anonymised, illustrative composite. An Ontario asset sale where the buyer’s offer list matched the active payroll, not the actual workforce — and where the missing names turned out to be the expensive ones.
At a glance
The vendor operated an industrial-services business with 58 employees. The buyer bought the operating assets and, in the ordinary course of an asset deal, sent offer letters to the people who would keep the business running — the 54 employees who were actively at work in the weeks before closing. Three employees on long-term disability leave and one on parental leave were not on the distribution list. Nobody made an active decision to exclude them; the list was built from current payroll, and none of the four were drawing current pay.
The vendor corporation, once the asset sale closed, distributed the proceeds to its shareholders in the ordinary course and began winding down. Four months later, the four excluded employees filed claims for notice and severance pay.
The buyer’s working assumption was that leaving them off the offer avoided any obligation toward them — they had never worked a day for the buyer, so how could the buyer owe them anything? That assumption was correct about the buyer. It said nothing about whether the obligation had disappeared, and it had not: it sat entirely with the vendor, at its full value, against a corporation that no longer held the money to pay it.
ESA notice runs one week per completed year of service to a maximum of eight weeks; severance under s.64 adds one regular week’s wages per year, capped at 26 weeks, for any employee with five or more years’ service at an employer with an Ontario payroll of $2.5 million or more — a threshold this vendor cleared. Two of the four disability-leave employees had nine and six years’ service respectively and qualified for both notice and severance; the third, at three years, and the parental-leave employee, at four, qualified for notice only. Combined, the four represented approximately $175,000 in notice-and-severance exposure — a figure that had nothing to do with the buyer’s payroll or the deal price, and everything to do with tenure the vendor had accumulated over years before the sale was ever contemplated.
Two provisions did the work, and they point in different directions. ESA s.9(1) carries continuity of employment onto a purchaser only where “the purchaser employs an employee of the seller” — the deeming rule that lets an offer count as coming from “the employer” (see employee refuses the buyer’s offer and loses everything) only reaches someone the purchaser actually took on. The four were never on the buyer’s payroll for a single day, so s.9(1) never engaged for them at all. Their employment relationship simply ended with the vendor at closing, on ordinary termination principles, with the vendor as the party liable for whatever notice and severance that termination triggered.
s.59(1) then decided how much that was: “Time spent by an employee on leave or other inactive employment is included in determining his or her period of employment.” s.65(2) does the same work for severance pay specifically: “All time spent by the employee in the employer’s employ, whether or not continuous and whether or not active, shall be included in determining whether he or she is eligible for severance pay under subsection 64 (1) and in calculating his or her severance pay under subsection (1).” Between them, these two provisions mean a leave of absence does not discount an employee’s entitlement in any way. Whatever tenure they had built before the leave began, and however long the leave itself ran, all of it counted at full value against whichever employer owed them notice when the employment actually ended.
s.53(1) and s.51(1) — the reinstatement duty and the running benefit-plan obligation — never came into play here at all, because the four were never re-employed by anyone; they are the rule that governs the opposite fact pattern, where the buyer does hire an employee on leave and then cannot place them when the leave ends (see the parental-leave employee the buyer had to reinstate). This file is entirely about who a buyer left off the list, not about what happened after someone was hired.
The claims proceeded against the vendor corporation. Because the sale proceeds had already been distributed, the vendor had no assets to satisfy the awards from, and the four employees were left pursuing a corporate shell — a result the purchase agreement had not contemplated, because nobody on either side had diligenced the leave roster against the offer list before the deal closed. The buyer, having correctly avoided any legal exposure of its own, absorbed no direct cost; the loss landed entirely on the four employees, who recovered only what they could collect from a corporation that no longer held anything.
Had the buyer’s counsel cross-checked the payroll list against a leave-of-absence register before the offer letters went out, the fix was cheap: include the four in the offer, at the same terms as everyone else, and s.9(1) continuity would have carried their tenure forward with no incremental notice-and-severance liability crystallising at closing at all. The $175,000 was not a cost the deal had to bear — it was a cost created by an offer list built from active payroll instead of the full employee roster, and it fell on the vendor only because the vendor had already spent the proceeds by the time the bill came due.
Several provinces remove this decision from the buyer’s offer list entirely by making continuity automatic rather than conditional on being employed by the purchaser. British Columbia’s Employment Standards Act s.97 provides that “the employment of an employee of the business is deemed, for the purposes of this Act, to be continuous and uninterrupted” whenever a business is disposed of, with no requirement that the purchaser actually take the employee on. Alberta’s Employment Standards Code s.5 is worded almost identically. Quebec goes further still: Civil Code of Québec art. 2097 provides that “a contract of employment is not terminated by alienation of the enterprise” and “the contract is binding on the successor of the employer” — the employment relationship itself survives the sale by operation of law, offer letter or none. In each of those three provinces, there is no list to leave anyone off. Saskatchewan’s Employment Act s.2-10 looks similar on its face but is closer to Ontario’s structure than to BC’s or Alberta’s: continuity applies only “if … an employee continues to be employed at the business after the sale” — so a Saskatchewan buyer that never takes an employee on can leave the same gap this file describes.
The tell is that the buyer’s process was internally correct and externally incomplete. Every offer letter followed sound practice; the list they were built from simply was not the whole workforce. An accurate offer list for an Ontario asset deal has to be built from the employment roster — everyone with an active employment relationship, whether or not they are drawing pay that week — not from the payroll run, which by definition only shows who is currently being paid.
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