Canadian Lawyer

September 2019

The most widely read magazine for Canadian lawyers

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www.canadianlawyermag.com 51 disputes, including in contracts and employment. "Often you will see in the structure of the deal that there's a price adjustment for the fact that the liabilities triggered have to be paid for," Butti says. In Q u e b e c , n o f o r m a l o ff e r o f employment needs to be made to employees of the target company by the acquiror, says Patrick Galizia, who practises employment and labour law with Norton Rose Fulbright Canada LLP in Montreal. "If it's a share purchase agreement . . . employees simply continue to work for that new buyer. There's no offer of employment presented to them; we simply inform them of the new owner, based on sections 2096 and 2097 of the Civil Code of Quebec." Potential liability associated with acquiring the vendor's personnel includes the number of employees, each employee's length of service with the vendor, position duties and compensation, including their benefits, says Marni Outerbridge, a civil litigator and employment lawyer at SV Law in Guelph, Ont. Also, are there any current or threatened employment-related claims against the target company? Do employees have detailed contracts and, if so, what do they say? "No matter how the deal is structured, whether that's an asset or shared [sale] deal, the disclosures are still going to be very important in order to assess employment- related liabilities," Outerbridge says. toward the employees of the target company. In a share sale, in which a buyer purchases the shares of the target company and the assets and liabilities that go with it, the target's employees remain with the company, although they typically receive formal offers of employment by the acquiror. In an asset sale, a buyer will purchase certain assets of the company but not the entire company, and non-unionized employees need not be kept on. For employees not being kept on — or who choose not to sign on — severance obligations arise for the vendor. For those who are offered employment, it must be essentially on the same terms as what the employee currently has — or better. Indeed, if the benefits offered by the acquiror aren't equivalent to those offered by the vendor, employees may have grounds to claim constructive dismissal. Since it is the vendor that must pay severance to employees who will not continue with the acquiror, that may substantially affect the purchase price where there are very senior long-term or large-scale terminations resulting from a transaction, says Lauren Butti, a litigator at Goodmans, who deals with business Unders tanding the ke y terms of employment contracts of senior personnel is especially important, including incentive plans under which they are currently getting compensation, which may be affected and triggered by the sale, says Gosselin. A vendor is bound by common law in severing an employee whose letter of offer simply indicates, say, a salary and a requirement to be bound by company policy; but what's considered a reasonable award under common law will change over time and jurisdiction, and "of late, age, and an older age, has become a more relevant factor," she adds. "Someone in their fifties may not be employable in the same way as they were in their thirties. Courts are starting to focus more on that." Getting target employees on board Retention bonuses and increases in salary may be offered to key personnel to bring them on board, "and all that attached to a condition that they will be staying with the company for a certain duration," says Galizia. Those contracts with higher-level personnel should be made pre-sale and include a restrictive covenant, he says. And acquirors should start with good communication in retaining desired staff. Once the deal is signed and announced, the messaging by the acquiror and the target should present a united front, with town halls for employees attended by both vendor and buyer, says Gosselin. "You want to understand the landscape of the entire workforce. . . . Whether you decide to take [employees] on or not, that gives a birds-eye view of the severance obligations." Brenda Gosselin, Goodmans LLP, Toronto COMMUNICATE WITH EMPLOYEES IN TARGET COMPANY Smart companies present a united front in presenting sale news to employees Counsel can review a Q-and-A for handing out at a town hall announcing the deal

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