Staff Issues When Buying or Selling a Practice

In the event that you are buying or selling a practice it is imperative to understand the mandatory requirements of notification that are owed to the staff under the Employment Standards Act (ESA).

Timing of staff notification is a critical issue and may have an impact upon legal obligations of the vendor and the future success of the transition to the new owner. The most important thing you must understand is that the ESA, administered by the Ontario Ministry of Labour, leans strongly toward the employee, and not the employer, in the event that a dispute occurs. Essentially, what this means is that, as an employer, you must obey the minimum requirement of the ESA, regardless of any future development regarding your staff’s continued employment.

Another thing I wish to make clear is that a vendor and purchaser cannot contract out of the obligations of the ESA and there are no legal loopholes or opportunities that can be used that will allow either party to avoid these minimum requirements. Each employee is entitled to a minimum of one week’s notice for each year of service, up to a maximum of eight weeks in pay or in notice or a combination of both. For example, say you have a receptionist who has been with you for 10 years. He or she is entitled to a minimum of eight weeks pay or notice or a combination of both. Any additional notice or pay you offer is voluntary. I highly recommend that you consider offering more than the ESA requires. This may demonstrate your respect for the employee’s many years of loyal service. As well, legal decisions have been made based on more than just time on the job.

Purchasers should be aware that the employee’s time of service (seniority) cannot be lost through the sale of the business. For example, that same 10-year receptionist is re-hired by the purchaser. He or she is a 10-year employee, no matter what you do. Unless the employee signs a release that eliminates his or her rights to seniority, which very few would do, you owe that receptionist the same minimum of eight weeks pay or notice, even if you terminate the position one month after you buy the practice.

Vendors and purchasers, whether using a professional practice broker or not, are strongly advised to seek legal advice about this issue before making or accepting offers to purchase. It is well advised to delay closing dates so that sufficient time is allowed for the vendor to give notice, introduce the purchaser to the staff and then close the transaction 30 to 90 days thereafter, depending on the number and seniority of employees.  I always advise a vendor that they should never notify employees of the pending sale until all conditions of an offer have been removed. This prevents premature notification that may result in a reversal of the vendor’s plans, if the offer fails for any reason. Think of how embarrassing it would be to tell your staff you have sold, introduce them to the buyer, then have to sit them all down again and inform them that things are not going to change after all.

Purchasers should be permitted to meet the staff only after they have removed all the conditions of the offer they made. Once conditions are waived, the vendor should immediately deliver notice to the staff and the purchaser should be introduced very soon thereafter. Imagine telling your staff you have sold, then they are made to wait several weeks before meeting the new owner and discussing their employment with him or her. Your staff would be living in great uncertainty for this time and may even resort to seeking other positions and interviewing with other dentists in your area. Eventually, the pending sale would be common knowledge and patients and staff could leave if things are not handled properly.

Again, I stress the importance of using a broker or lawyer who understands both the practical and the legal side of this issue. Most brokers have suggested scripts of what to say and when to say it, as well as assisting in the timing of the introduction of the purchaser. The purpose of all of this is to protect both parties legally and to ensure the continued success of the practice for both the new owner and the past owner if associating.

In many instances, a vendor stays on as an associate of the new owner. Imagine the problems if the vendor did not respect his or her obligations to the staff and then had to work with them after closing.

There are many other situations that can arise when dealing with people’s livelihood. Please be very careful when proceeding on any matter related to buying or selling a practice with respect to the staff. They are paramount to continued patient retention and if not handled properly, could harm both the vendor and the purchaser economically.

Dos and Don’ts of Staff Terminations when a Practice is Bought or Sold:

  • DO allow plenty of time for the vendor to give sufficient notice prior to closing date.
  • DO NOT attempt to save money by telling your staff too late and then ask them to sign a waiver of their rights. This is certain to encourage them to seek their own legal advice and, after that, you are likely to be in a very weak position.
  • DO offer an extra period of notice or additional pay over and above the Employment Standards Act minimum. Remember that the staff have been loyal and deserve something more than the minimum (and case law often demands more). This could also be looked upon as insurance that the trust you have built would be honoured.
  • DO NOT introduce a buyer unless all conditions have been met.
  • DO introduce the purchaser very soon after the staff is notified of the pending sale to relieve their curiosity and take away the fear they may have about losing their position.
  • DO NOT attempt to slip in a legal document that waives the employee’s rights. This can lead to serious problems even if they do sign it and see a lawyer afterwards.
  • DO consult with your professional practice broker and/or your own independent legal advisor prior to signing any offer to purchase.

Ontario Dentist – June 1999