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Businesses are frequently bought and sold. The structure of the sale can affect the liability for employees’ severance entitlements. It is important for both employers and employees to understand whether the previous or current owner is required to provide severance pay to dismissed employees.
Generally speaking, businesses can be sold in one of two ways:
1. Share Transaction
2. Asset Transaction
Share transactions involve the sale of a business through the transfer of the company’s shares. In this type of sale, the employees’ employment automatically continues as the legal identity of the employer does not change, rather the owner of the shares changes. The new owner would to give employees notice of termination in order to end their employment and since there is no break in employment, the new owner is liable for the employees’ total years of service with respect to their severance if terminated at a later date.
Asset transactions involve the sale of a business through the sale of its assets. For example, this can occur when an employer sells its property where its store, factory, etc. is located. The seller, former owner, is immediately liable for severance upon the sale as there is a change in ownership. However, if the new owner offers employees continued employment, then it becomes liable for severance if they are terminated at a later date.
Upon the change of ownership of a business, employers must consider their obligations to existing employees, and whether they wish to continue their employment or offer them a severance package. On the other hand, employees must consider their entitlements if they are offered a package and also if they are offered continued employment from the new employer. If the new business is asking you to sign new contracts or ‘offer letters’, those should be reviewed by an employment lawyer to determine how it is affecting your rights. For both employers and employees, it is important to contact an employment lawyer to understand the full extent of your obligations and entitlement under the law.
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