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Mergers and Acquisitions in Canada

Labour relations legislation across Canada contains similar sale of business or successorship provisions, which apply to the purchase of a unionized business whether by assets or shares. The legislation stipulates that the purchaser is bound to the collective agreement as if it were the original signatory to the contract. In other words, the purchaser must recognize the union as the exclusive bargaining agent for the employees and is bound to the collective agreement. Accordingly, the typical asset purchase agreement will require the purchaser to continue the employment of all unionized employees on identical terms and conditions of employment. There is normally no need to make any offers of employment; employment simply flows through from the seller to the purchaser. To change any of the terms and conditions of employment would constitute a breach of the collective agreement and could be taken to arbitration by the union. If the purchaser does not wish to hire all of the unionized employees, the layoff, bumping and seniority provisions of the collective agreement must be followed to effect a reduction in the workforce.

Generally, the provincial Labour Relations Boards distinguish between the purchase of discrete assets and the purchase of a viable business. Therefore, in some cases where only certain equipment is purchased and there is no value allocated to goodwill or, if the new business will be of a very different character than that carried on by the seller, the union successorship provisions may not apply.

The potential purchaser should be aware that if the seller is engaged in collective bargaining negotiations with the union while the sale is being actively contemplated, the seller has a statutory duty to disclose this significant development to the union at the bargaining table. Failure to disclose may constitute an unfair labour practice. In cases where bargaining is ongoing, the purchaser may wish to become involved in negotiations to some extent to ensure that the seller does not agree to an overly generous package with the union. Similarly, the purchaser may wish to become involved in order to ensure that the business is not headed towards a strike.

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