Successor Employer

The successor employer doctrine determines whether, after a business is acquired, the purchaser is bound by the employment obligations — including existing collective agreements, notice entitlements, and service continuity — of the previous employer. In Canadian employment and labour law, the answer depends on whether the transaction is structured as a share sale or an asset sale, and on whether provincial employment standards legislation deems the buyer to be a "successor employer."

In a share sale, the corporation itself changes hands but the legal employer remains the same entity. All existing employment relationships, contracts, entitlements, and obligations continue without interruption. The buyer inherits the seller's full employment liability, including accrued vacation, termination notice entitlements based on total years of service, and any collective bargaining agreements in place.

In an asset sale, the general rule at common law is that the buyer is not automatically bound by the seller's employment obligations — employment does not transfer automatically, and the seller must formally terminate its employees, triggering notice and severance obligations. However, most Canadian provinces have successor employer provisions in their employment standards legislation (such as Ontario's Employment Standards Act, 2000, s.9) that deem the buyer a successor employer when a business is sold as a going concern, preserving employees' service continuity for the purpose of calculating minimum notice entitlements. Where a business has unionized employees, the successor employer provisions of provincial labour relations legislation also typically require the buyer to recognize the existing collective agreement.

See also: Share Sale, Asset Sale, Due Diligence, Purchase Agreement, Representations and Warranties.