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From an employment and labour perspective, buying the assets of a business may be preferable to acquiring its shares, as buying assets enables the buyer to clean house and hire new staff.

When considering the merits of an asset transaction, however, a buyer should consider the points raised below regarding the seller’s workforce, as these can significantly affect valuation.

Provincial jurisdiction

Unlike with unionized employees, generally speaking there are no rules protecting non-unionized employees after a business is sold—a buyer can keep the seller’s employees or let them go, even if it continues the same business.

Obviously, the seller will be stuck with the often high cost of dismissing its employees unless it negotiates the transfer of its employees to the buyer. While this may push up the purchase price, it need not be an obstacle, as the buyer can pay the seller a premium on top of the sale price to clean house.

This post was contributed by Jean Allard, Partner, Norton Rose Canada

There are many business and tax reasons for acquiring the assets of a business instead of its shares.

From an employment and labour perspective, buying a business’s assets may be preferable to acquiring its shares because the buyer can clean house and recruit new staff.

Provincial jurisdiction

Each Canadian province has its own legislation governing collective labour relations. This legislation contains provisions defeating the principle of privity of contract and, if the asset sale has the effect of transferring the business to the buyer, requiring that the collective agreement binding the seller will also be binding on the buyer.

In addition, this legislation transfers trade union bargaining rights from the seller to the buyer. Therefore, even if the seller’s collective agreement has expired by the time of the sale, for example, because of a hiatus in operations prior to the sale, the buyer may still be bound to the trade union’s bargaining rights. The buyer will then be obligated to negotiate with the union in good faith to form a new collective agreement.