Successor Rights: When you buy a business, does the union come with it?

A purchaser looking to buy an existing business usually considers factors such as the potential target company’s market share, product or service offerings, goodwill, and overall profitability. But one factor that must not be forgotten is the employees. In particular, if the vendor’s workforce is unionized, there are significant labour relations consequences that flow from the transfer of the business.

The legislation that determines the labour relations implications of a transfer of business depends on whether the businesses are federally regulated (governed by the Canada Labour Code (“CLC”)) or provincially regulated (in Ontario, governed by the Labour Relations Act (“LRA”)).

Under the CLC, where a federally regulated business is sold to another federally regulated entity, section 44 of the CLC provides that the trade union that is the bargaining agent for the business’ employees continues to be the bargaining agent, and the purchaser becomes bound to any existing collective agreement. Similarly, section 69 of the LRA provides that a provincially regulated purchaser is bound by any collective agreements that cover the employees of the provincially regulated vendor.

While the exact implications of a transfer of business will depend on the nature of the sale, the general intent of the labour relations legislation is to provide for labour relations continuity when a business is sold. Often times, the definition of what constitutes a “business” is hotly disputed. Accordingly, purchasers should consider the labour relations environment of any prospective target businesses.

Written with the assistance of Samantha Cass, articling student.