HR Professional - September 2013 - (Page 16)

legal words B Y L A U R I E J E S S O M E A N D K R I S T I N TAY L O R RETAINING EMPLOYEES BEFORE, DURING AND AFTER A SALE OF A BUSINESS—PART 1 This article will be the first in a series of two articles on the topic of employee retention, specifically in the context of the sale of a business. The intent of this instalment is to provide an overview of some of the challenges employers encounter in the planning stages of any transaction and to provide human resources professionals and in-house legal counsel with tools to assist your business with responding to those challenges. Keeping employees post-closing is often critical to the success of an acquisition. The relationships that employees have with customers and suppliers as well as all of the institutional knowledge they possess generally form part of the goodwill that is fundamental to the value of the sale. Occasionally, a purchaser only seeks to acquire certain assets and employees aren’t essential to the deal. This is the exception, though, not the rule. Even where the purchaser does not perceive employee retention to be a key element to its success, the vendor will often want to ensure that certain employees stay on through the sale process to assist in closing the deal. In our experience, it is crucial that employers appreciate that the uncertainty associated with the sale of a business often creates a great deal of anxiety and de-motivation in an employee population. Where the direction and future of the business is 16 questionable, it is human nature to engage in conjecture and speculation. A sense of unease can prevail and it is common for unprepared employers to see departures of key employees and hesitancy on the part of those who remain. So, from a legal standpoint, what can be done to retain and motivate employees through the challenging (and often disruptive) sale process? SHARE PURCHASE VS. ASSET PURCHASE In considering retention issues associated with the sale of a business, it is important first to understand that, insofar as employees are concerned, there are fundamental differences between a sale purchase and an asset purchase. Although we often hear about employees being transferred as part of a deal, the concept of a “transfer” between unrelated companies is actually inconsistent with Canadian employment law. There are two types of sales: either a purchaser can buy the shares of a business or its assets. In complex global transactions, there also can be combinations of the two. The choice between a share and asset purchase usually involves tax considerations and often depends on the underlying structure of the vendor business. In a share deal, the purchaser actually inherits the employees of S E P T E M B E R 2 0 1 3 H R PROF E S SION A L the vendor, without any interruption in their employment relationship. By buying the shares, the purchaser becomes the vendor as far as employees and the law are concerned. Employees’ existing terms and conditions of employment must be respected post-closing, subject to the usual concerns arising when an employer seeks to impose changes on employees without triggering a constructive dismissal claim. In an asset deal, the employees’ employment at least technically terminates on the closing of the transaction. If the purchaser has made an offer of employment, employees may choose to accept it and, where they do so, they will continue in their employment with the purchaser on the terms and conditions set out in that offer, subject to one caveat. The caveat is that employment standards legislation requires the purchaser to respect the employees’ service with the vendor for the purposes of that legislation. This requirement exists in all Canadian jurisdictions. As a result, service-based entitlements like leaves of absence, vacation, notice of termination and severance pay, must be calculated based on the employees’ original date of hire by the vendor. It is important to note that this concept of uninterrupted service after a sale of business is a minimum

Table of Contents for the Digital Edition of HR Professional - September 2013

Editor’s Letter
Leadership Matters
Legal Words
Embracing Loss: Succession Planning for Sudden Departures
Motivating Gen Y
Looking Ahead 10 Years: Top Challenges Facing HR
Making Connections for Immigrant HR Professionals
Interview with an HR Hero: Rod Jackson, MPP
Off the Shelf
The Last Word

HR Professional - September 2013