When considering the purchase of a piece of commercial property, there are many employment and labour-related issues which may arise where the purchaser intends, after closing, to continue operating the business of the vendor, or to operate a similar business. While a purchaser may view the transaction as a simple real estate deal, it is very likely such a transaction will be classified as the sale of a business for the purposes of the British Columbia Employment Standards Act (the "Act"), which sets out the rights and responsibilities of employees and employers in British Columbia, and the British Columbia Labour Relations Code (the "Code), which governs most aspects of the relationship between unions and employers in British Columbia. This is because generally speaking, both the Act and the Code broadly define the sale of a business, and purchasers of a substantial portion of a business's assets, real estate, leases, or even a purchase from a trustee in bankruptcy may be deemed to have purchased a business as a going concern and may inherit the employment and labour obligations of the vendor/former employer. It should be noted that this article does not address issues that may arise under the Canada Labour Code, which governs employment-related issues in respect of federally-regulated businesses.
The impact of the Act and the Code means that any employee who is working for the vendor prior to closing, and who continues working for the purchaser after closing, will generally be deemed to have continuous employment for the purposes of the Act and the Code. Some of the consequences that flow from this include:
Where the workforce is unionized
- The purchaser will inherit the existing collective agreement and the obligations of the vendor thereunder, and will be required to deal with the employees in compliance with the provisions of the Code.
- Under the successor provisions of the Code, the purchaser may assume responsibility for any outstanding grievances, arbitration, complaints under the Human Rights Code, complaints to the Labour Relations Board, and WorkSafe BC claims or health and safety orders which could affect the ongoing business.
Where the workforce is not unionized
- If the employees of the vendor do not have their employment terminated before or as of the closing date, their employment will be deemed continuous for the purposes of determining what they are entitled to if they are ever terminated by the purchaser in the future, including any entitlement to notice of termination of employment (which can be as much as 24 months of compensation), with the result that such employees will obtain credit for all their past years of service with the vendor regardless of the fact that they may have only been working for the purchaser for a short while in connection with the purchaser's continuation of the vendor's business.
- The purchaser may assume responsibility for any existing contractual obligations, outstanding employment-related law suits, human rights complaints, and matters arising under the Workers' Compensation Act.
In light of the potential employment-related obligations that may be triggered under the Act and the Code by the purchase of commercial property, potential purchasers should approach any real estate transaction that could be characterized as the sale of a business with the same level of due diligence as if the vendor's business itself was being purchased, and be wary of papering the transaction by way of a standard form contract of purchase and sale often favoured by realtors. These standard form contracts will typically either fail to address, or inadequately address, the potential employment-related risks and obligations that may flow to the purchaser. We would therefore strongly recommend that potential purchasers seek legal advice prior to signing any contract to ensure that the risks to and impact on a purchaser are managed through thorough due diligence and contractual negotiation of employment-related vendor representations, warranties and covenants, as well as through parallel negotiations with stakeholders such as labour unions, if applicable.