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Legal Guide

While the above summary outlines the various labor and employment law consequences of commencing a new business in Canada, and more specifically in the provinces of British Columbia, Alberta, Ontario and Quebec, purchasers of an existing business have an additional reason for being cautious and informed. The successor rights provisions, which are typical in labor relations legislation, create a very wide definition of a “sale of business”, such that various types of dispositions may leave the purchaser in a bargaining relationship with the vendor’s trade union or unions, and thereby a party to a current collective agreement or agreements. That is, a purchaser may, by virtue of a transaction such as a substantial asset purchase, a lease or even a purchase from a trustee in bankruptcy, become indefinitely bound to the same collective bargaining relationship to which the predecessor employer was bound, including the obligation to honor existing collective agreement terms and, upon its expiry, to negotiate a new agreement.

In addition, a purchaser in either a union or non-union situation must determine whether there are outstanding employee lawsuits, grievances, labor relations board complaints, human rights inquiries, Workers’ Compensation Board claims, or health and safety orders which could affect the ongoing business, and for which the purchaser should negotiate indemnification for damages and expenses, or a reduction in the purchase price.

Finally, due to employment standards legislation, an employee of the vendor who continues with the purchaser retains credit for his or her past service, which could become very important in the event of a subsequent termination from employment. A purchaser must, therefore, fully investigate the nature of the vendor’s labor and employment relations and liabilities in the context of the applicable successor rights provisions.

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