Thinking about buying a business in British Columbia? Take heed of the lessons learned by an employer in a recent decision by the BC Employment Standard Tribunal (“Tribunal”) in Overstory Media Inc. (Re), 2024 BCEST 109. Despite never agreeing to hire the vendor’s employees, the purchaser of a business was nonetheless found liable to the employees for unpaid wages of over $270,000.

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Facts

On September 21, 2022, Overstory Media Inc. (“Overstory”) closed the purchase of the physical operating assets and intellectual property of Vancouver Free Press Publishing Core (“VFP”). The purchase agreement was an asset purchase agreement and required that VFP terminate its employees as Overstory would not be taking them on after the closing.  However, VFP failed to terminate the employees until approximately a week after the closing date. In terminating their employment, VFP did not provide its employees with their entitlements under the BC Employment Standards Act (the “ESA”), including wages and termination pay.

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Unsurprisingly, nine VFP employees filed an employment standards complaint against Overstory for unpaid wages and termination pay.

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Employment Standards Tribunal Decision

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Even after taking into consideration the explicit terms of the purchase agreement and the fact that Overstory did not offer employment the VFP employees, the Tribunal found that section 97 of the ESA deemed the VFP employees to have continued their employment with Overstory on the closing date. The Tribunal further found that section 97 does not require the negotiation of new employment contracts between affected employees and the purchaser. In other words, there is no requirement for a formal offer of employment to be made and accepted for section 97 to apply. Section 97 reads as follows:

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If all or part of a business is disposed of, or the business continues to operate under a receiver or receiver-manager, the employment of an employee of the business is deemed, for the purposes of this Act, to be continuous and uninterrupted by the disposition or receivership, as applicable.

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As a result of section 97 under the ESA, Overstory was found liable to nine VFP employees for a total of over $270,000. This award represented unpaid wages, termination pay, and even earned vacation pay from when the employees were on VFP’s payroll (i.e. prior to the closing).

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‍Takeaways

In structuring asset purchase agreements, the parties should carefully plan and consider the employment law implications of the transaction. If purchasers do not want to keep the vendor’s employees, steps must be taken to terminate the employees prior to closing the transaction and the parties must clearly outline who is responsible for the cost of the termination in the purchase agreement. Purchasers should be mindful that in BC, even if they do not offer or agree to employ the vendors’ employees, they could still be found liable for breaches of employment standards committed by the vendor.

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Our employment and labour lawyers are heavily involved in various local BC Chambers and Policy Committees, attend roundtable discussions and present webinars regularly on the Employment Standards Act and related legislation. We communicate all these updates to our clients and readers on our Employer Resources Portal and through monthly Newsletters. If you have any questions or need assistance revising your employment contracts or policies, please reach out to Chris Drinovz at [email protected], or submit a Contact form.

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