Passing the torch
The difference between continuing a business and just purchasing its assets
Apr 8, 2014
By Jeffrey R. Smith
There are many reasons business owners decide to sell a business. There are also different circumstances under which the sale can happen, and this can affect what can be expected of the employees.
A business can be sold straight up, as is, without interruption. This can result in an uninterrupted flow of business operations, or at least continuation after a short break. In these cases, the new owners are usually considered successor employers and the employees’ service continues. If any employees are dismissed without cause, then their service under the previous owners counts when determining reasonable notice.
Another situation is when a business struggles and has to shut down. Employees are dismissed and the company’s assets are sold. Sale of assets is generally considered not to be a continuation of the original business, and though employees could be hired by the company who purchased the assets, their employment with the original company isn’t included as part of their service.
One year ago, a glass manufacturing company in British Columbia shut down its production lines, leaving only a small distribution department running out of the plant. It sold all its production line equipment to another company and dismissed its production employees. Because some of the equipment was so large and was bolted in place, the purchasing company decided to operate it where it was and leased part of the plant. It operated alongside the original company’s distribution business, though the operations were separated from each other with chicken wire. The second company also hired a few of the first company’s former employees to operate the machinery.
The original union tried to have the second company declared a successor employer, since it operated the same equipment in the same location with the same employees. However, the B.C. Labour Relations Board disagreed, finding the second company intended only to buy the assets and didn’t acquire anything else from the first company. In addition, the equipment was only a part of the first company’s business, and the second company didn’t serve the same customers. Other than some of the equipment, there was no real connection between the two companies, said the board: National Glass Ltd. and Anneal Tempering Inc., Re, 2014 CarswellBC 649 (B.C. Lab. Rel. Bd.).
Circumstances can be different if, instead of the business shutting down and selling off its assets, it goes bankrupt and everything is sold as a whole. In such cases, the business can be considered a “going concern” that would give a purchaser successor employer status under labour relations legislation. An Aberta judge reached this conclusion in the 2002 case of Radwan v. Arteif Furniture Manufacturing Inc., 2002 CarswellAlta 998 (Alta. Q.B.), when the purchaser of a business from a bankruptcy trustee received the business as a going concern and therefore was a successor employer.
A company that purchases another company’s assets can walk a fine line when it comes to successor employer status. What should ultimately determine this status? The hiring of the same employees? Running similar operations with the same equipment? The length of time before the new operations start up after the previous company’s shutdown?
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Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective.