Employment Law Ultimate Guide for Business Owners and Employees
- Anna Duke & Tony Wong
- Jul 21
- 15 min read
Updated: Sep 4
Business law is complicated and touches upon many areas of law such as intellectual property, tax law, sales, bankruptcy, employment law, state labor laws, real estate and others.
This article examines the fundamental tension between business law and employment law in Ontario. Business law, through principles like the separate corporate personality and freedom of contract, provides a framework for commercial efficiency and limited liability. In direct contrast, employment law acts as a protective counterweight, establishing minimum rights and protections for workers to address the inherent power imbalance in the employment relationship.
Click below to download the whole paper in PDF format, which is over 30 pages long and cites more than 90 references.
Table of Content
I. Business Law vs. Employment Law in Ontario
The bedrock of all commercial relationships is contract law. Its fundamental elements—offer, acceptance, and consideration—create a framework where parties are presumed to have the autonomy to negotiate and agree upon terms that serve their mutual interests. This principle of "freedom of contract" is central to business law, as it allows for the flexible and efficient allocation of rights and obligations in everything from supplier agreements to complex financial transactions. This framework, however, presupposes a relative equality of bargaining power, an assumption that is frequently and vigorously challenged in the employment context.
On the contrary, Employment law in Ontario acknowledges the inherent inequality of bargaining power between an individual employee and a corporate employer and seeks to redress this imbalance through a combination of statutory minimums, common law principles, and overarching human rights and safety obligations. Documenting the specifics of the employment relationship in a written contract is a crucial step for both parties, as it helps to protect the business and manage the relationship by clearly defining rights, responsibilities, and conditions of employment.
The Employment Standards Act (ESA) establishes a comprehensive floor of non-waivable rights for most employees in the province. These minimum standards govern critical aspects of the employment relationship, including minimum wage, hours of work, eating and rest periods, various leaves of absence, and entitlements to termination notice and severance pay. Crucially, the ESA stipulates that no employee can agree to waive or contract out of these minimum standards; any such agreement is void.
Layered on top of this statutory floor is a robust body of common law, which requires an employer to provide an employee with reasonable notice of termination, unless there's just cause for termination. This common law entitlement is often far more generous than the minimum notice periods prescribed by the ESA, with courts considering factors such as the employee's age, length of service, character of employment, and the availability of similar work to determine an appropriate notice period, which can extend up to 24 months or more in some cases.
Finally, the employment relationship is governed by quasi-constitutional statutes that impose broad, non-delegable duties on employers. The Ontario Human Rights Code mandates a right to equal treatment in employment without discrimination on enumerated grounds and imposes a duty on employers to accommodate employees to the point of undue hardship. Similarly, the Occupational Health and Safety Act (OHSA) places a positive duty on employers to take every precaution reasonable in the circumstances to protect the health and safety of workers. These statutes reflect the principle that no right is absolute and that the rights of commercial actors must be balanced against the fundamental rights of individuals to dignity, safety, and equality in the workplace.
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II. Employment Law Implications of Mergers & Acquisitions, Corporate Insolvency
a. The Asset vs. Share Purchase Distinction
In a share purchase, the purchaser acquires the shares of the target corporation from its shareholders. The legal identity of the employer corporation remains unchanged; it simply has a new owner. Consequently, all of its assets, liabilities, and contractual relationships—including its employment contracts—remain intact. In an asset purchase, by contrast, the purchaser buys specific assets (such as equipment, inventory, and intellectual property) directly from the target corporation. This structure allows the buyer to be selective, acquiring desired assets while leaving unwanted liabilities, including most employee-related obligations, with the seller. For this reason, purchasers generally prefer asset deals, while vendors often favour share deals.
This business law distinction has critical consequences under the common law of employment. In a share purchase, because the corporate employer remains the same legal entity, the employment relationship continues uninterrupted. An employee's length of service is unaffected. At common law, an asset purchase has the opposite effect: it operates to terminate the employment relationship between the employees and the vendor corporation at the moment of closing. If the purchaser then offers employment to the vendor's employees, this constitutes a new contract of employment with a new employer. Absent an explicit agreement to the contrary, the employees' prior service with the vendor is not automatically recognized for the purpose of calculating their common law reasonable notice entitlement upon a future termination by the purchaser. In an asset purchase, any employees not retained by the buyer are considered terminated by the seller, who remains responsible for any termination-related entitlements.
b. Successor Employer Provisions of the ESA
The harsh common law outcome of an asset purchase, where long-serving employees could see their accrued service and associated rights vanish overnight, prompted direct legislative intervention under Section 9 of the ESA - the successor employer provisions.
Section 9(1) of the ESA stipulates that if an employer sells a business or part of a business and the purchaser employs an employee of the seller, the employee's employment is deemed not to have been terminated or severed for the purposes of the Act. Furthermore, their period of employment with the seller is deemed to have been employment with the purchaser for calculating future statutory entitlements. This provision effectively "undoes" the common law termination that would otherwise be triggered by the sale. It ensures that an employee's accrued service for the purposes of statutory rights—such as vacation time and pay, pregnancy and parental leave, termination notice, and severance pay—is preserved and flows through to the new employer. This continuity of employment is a mandatory employment standard and cannot be waived or contracted out of by the parties.
The following table provides a comparative analysis of the effects of asset and share purchases on key employee entitlements, illustrating the starkly different outcomes flowing from this initial business law decision.
Factor | Share Purchase | Asset Purchase (Common Law) | Asset Purchase (ESA s. 9 Applied) |
Identity of Employer | Unchanged | Changes from Vendor to Purchaser | Changes from Vendor to Purchaser |
Status of Employment Contract | Continues uninterrupted | Terminated by Vendor | Deemed not to be terminated |
Liability for ESA Entitlements | Remains with the corporation | Vendor liable for termination/severance; Purchaser starts fresh | Purchaser assumes liability for prior service for most entitlements |
Liability for Common Law Notice | Continuous service is recognized | Service resets unless Purchaser explicitly recognizes prior service | Not applicable (ESA only governs statutory minimums) |
You may want to take a look at the article below, which provides an in-depth discussion of the intricacies between employment law and the sale of a business:
c. Piercing the Corporate Veil for Employee Entitlements in the case of Corporate Insolvency
The principle of limited liability, which shields corporate directors from personal responsibility for the corporation's debts, is a foundational tenet of business law. However, this "corporate veil" is not absolute. Both the Ontario Business Corporations Act (OBCA) and the Employment Standards Act (ESA) contain provisions that make directors personally liable for unpaid employee wages. In addition, the federal government established the Wage Earner Protection Program (WEPP), which covers unpaid wages, vacation pay, termination pay, and severance pay to a certain extent.
Director Liability: The corporate veil is statutorily pierced to hold directors personally liable for unpaid wages, reflecting a policy decision that protecting earned wages can supersede the principle of limited liability.
Corporate Insolvency: When a business fails, federal insolvency law prioritizes secured creditors, often leaving employees as unsecured creditors with little recourse. The federal Wage Earner Protection Program (WEPP) provides a limited safety net, highlighting a policy compromise where the logic of commercial finance largely prevails.
You may want to take a look at the article below, which provides an in-depth discussion of the intricacies between employment law and Corporate Insolvency:
III. Defining the Employment Relationship
The choice between engaging individuals as employees versus independent contractors has significant financial and operational implications.
a. The Players
The following table outlines the key distinctions between the three categories of workers recognized in Ontario law, illustrating the different rights and obligations associated with each status.
Factor | Employee | Dependent Contractor | Independent Contractor |
Control over Work | High (Employer directs method) | Low (Principal directs result) | Low (Principal directs result) |
Ownership of Tools | Employer provides | Worker provides | Worker provides |
Financial Risk / Profit | None (receives wage/salary) | Yes (bears costs, can profit) | Yes (bears costs, can profit) |
Entitlement to ESA Minimums | Yes | No | No |
Entitlement to Common Law Notice | Yes | Yes | No (unless contracted) |
Payroll Deductions (CPP/EI) | Yes (Employer remits) | No (Worker remits) | No (Worker remits) |
The Ontario Court of Appeal's decision in McKee v. Reid's Heritage Homes Ltd., 2009 ONCA 916 provides a useful synthesis of these principles, emphasizing the holistic nature of the inquiry and the need to determine, in essence, "whose business is it?".
b. The Intermediate Category -Dependent Contractor
The "hallmark" of a dependent contractor is this economic dependency, which is typically demonstrated by evidence of exclusivity or near-exclusivity of service over a prolonged period. The legal significance of this classification is profound: unlike true independent contractors, dependent contractors are entitled to common law reasonable notice of termination. The courts created this category to provide a remedy for workers who, despite their formal status, were in a position of vulnerability akin to that of an employee upon the cessation of the relationship.
The threshold for establishing dependent contractor status has been the subject of considerable judicial attention. In its 2019 decision in Thurston v. Ontario (Children’s Lawyer), 2019 ONCA 640, the Court of Appeal for Ontario clarified that to establish the requisite level of economic dependency, "near-exclusivity requires substantially more than 50%" of the worker's income to be derived from the single source. This has set a relatively high, though not rigidly defined, bar for workers seeking to claim this status.
c. Corporate Liability
The ESA strictly prohibits employers from misclassifying employees as "contractors" to avoid statutory protections. If a court, labour tribunal, or the Canada Revenue Agency reclassifies a worker as an employee, the employer faces retroactive liability for all of these unpaid entitlements, often stretching back several years. This can include back pay for overtime and vacation, penalties and interest for unremitted payroll taxes, and significant damages for wrongful dismissal at common law. In any dispute, the burden of proof rests on the employer to demonstrate, on a balance of probabilities, that the worker is not an employee.
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IV. Miscellaneous
Employment Law and business law are closely intertwined. We highlight a few other key issues here.
a. Restrictive Covenants
Under Common Law, employer seeking to enforce a non-compete bore the heavy onus of proving that the clause was no broader than reasonably necessary to protect a legitimate proprietary interest and that it was not contrary to the public interest.
In a landmark policy shift, the Ontario government intervened directly in this area. Through the Working for Workers Act, 2021 (also known as Bill 27), the legislature amended the Employment Standards Act (ESA), to prohibit employers from entering into non-competition agreements with their employees.
The statutory ban is not absolute. The legislation carves out two key exceptions:
Sale of a Business: A non-compete agreement is permissible where it is entered into between a seller and a purchaser of a business, and the seller becomes an employee of the purchaser immediately following the sale.
Executives: The prohibition does not apply to individuals who hold "executive" positions, defined narrowly to include C-suite roles such as Chief Executive Officer, President, Chief Financial Officer, and other chief officers.
Working for Workers Act, 2021 took effect retroactively to October 25, 2021. But Bill 27 DOES NOT apply to contracts that were already in existence BEFORE October 25, 2021.
While non-competition agreements are now largely prohibited, the ESA ban does not extend to other forms of restrictive covenants, most notably non-solicitation and non-disclosure agreements. A non-solicitation clause is more narrowly tailored, typically restricting a former employee from actively soliciting the clients, customers, or employees of their former employer for a specified period.
To be upheld, a non-solicitation clause must be clear and unambiguous, and its restrictions on duration and scope must be no wider than necessary to protect the employer's proprietary interest in its customer connections. An overly broad clause that effectively prevents any form of competition, rather than just active solicitation, may be struck down as an unenforceable non-compete in disguise.
b. The Gig Economy, Remote Work and the Digital Platform Workers' Rights Act
The gig economy, characterized by platform-based companies like Uber and DoorDash that connect service providers with customers, is built on a business model that classifies its workers as independent contractors.
The Digital Platform Workers' Rights Act, 2022 (DPWRA), which came into force in Ontario on July 1, 2025, grants a specific set of rights to platform workers in the ride-share and delivery sectors, regardless of their formal classification. Key protections under the DPWRA include:
The right to be paid at least the general minimum wage for each "work assignment".
The right to transparency regarding how pay is calculated and how tips are handled.
The right to a recurring pay period and protection of tips.
The right to written notice and an explanation for removal ("deactivation") from a platform.
The right to have disputes resolved in Ontario.
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c. Legal Challenges of Remote Work
The widespread adoption of remote work has dissolved the traditional workplace, creating a new set of legal challenges at the intersection of business operations and employment law.
Jurisdictional Issues: A primary challenge is determining which province's employment standards apply to a remote worker. The prevailing legal principle is that the law of the province where the employee permanently resides and performs their work governs the relationship, regardless of where the employer is located. This can create significant compliance complexities for businesses with a geographically dispersed workforce, as they must navigate differing standards for minimum wage, leaves, and other entitlements.
Constructive Dismissal: The terms of a remote work arrangement can become an integral part of the employment contract. As demonstrated in cases like Byrd v. Welcome Home Children's Residence Inc., a unilateral demand for an employee to return to in-person work after a prolonged and accepted period of remote work can constitute a fundamental breach of the contract, amounting to constructive dismissal. This underscores the need for employers to have clear, written policies that reserve the right to recall employees to the office.
Occupational Health and Safety: The employer's duty under the OHSA to take every reasonable precaution for the protection of a worker extends to the remote workplace. Recent amendments to the OHSA have explicitly confirmed its application to "telework," including new provisions to address virtual or digital harassment. While employers are not expected to inspect private residences, they are expected to provide policies, training, and resources to ensure home workspaces are ergonomically sound and safe.
Digital Workplace Policies: Reflecting the new reality of work, the ESA now requires employers in Ontario with 25 or more employees to have written policies on "disconnecting from work" and on electronic monitoring. While the former does not create a new right to be unavailable, it requires employers to set clear expectations regarding after-hours communication. The latter requires transparency about how and why employees are being monitored electronically.
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d. Enforceability of Termination Clauses in Employment Contract
The Court of Appeal of Ontario has clearly stated in Waksdale v. Swegon North America Inc., 2020 ONCA 391, that any attempt to contract out of the ESA will not be saved by construction of a severability provision that the invalidity of one termination provision now has the legal effect of invalidating all other termination provisions within the same agreement.
Going forward it would be extremely surprising to find a case that deviate from the Waksdale Test. Dufault v. Ignace (Township), 2024 ONCA 915, aff'g 2024 ONSC 1029, Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952 have clearly stated that any termination clauses that are not narrowly construed and are overly broad will be struck down. The decision in Gracias v Dr David Walt Dentistry Professional Corp, 2023 ONSC 2052 (Div Ct), aff'g 2022 ONSC 2967, adds another requirement that not only the termination provisions be perfect, but the whole employment contract be faultless in order for the termination terms to be enforceable.
As a precautionary measure, it is suggested that termination for cause be removed from the employment contract, or at the very least confined to termination for wilful misconduct under regulation O. Reg. 288/01 under the Employment Standards Act.
You may want to take a look at the article below, which provides an in-depth discussion of enforceability of termination clauses in employment contracts:
e. Severance Pay Considerations for Short Service Executives
The termination of an executive's employment in Ontario is a high-stakes process fraught with significant legal and financial risk. Both employers and executives should seek experienced legal counsel to navigate the complexities surrounding common law reasonable notice, the continuation of incentive compensation, and the employer's duty of good faith.
Determining the appropriate reasonable notice period for an executive goes far beyond statutory minimums. Ontario courts assess a range of factors, and for senior roles, they place particular emphasis on the character of the employment and the availability of comparable positions. Special consideration is given to short-service executives who may have been induced to leave stable employment for the role, recognizing their unique vulnerability and the difficulty they face in securing similar senior-level opportunities. This often results in notice periods that are disproportionately longer than their tenure might otherwise suggest.
Furthermore, employers are bound by an overarching duty of good faith and fair dealing in the manner of dismissal. A failure to act with candor, honesty, and sensitivity can expose the organization to additional liability for bad faith damages, separate from the wrongful dismissal claim itself. Given these complexities, proactive legal advice is essential to manage risk and ensure all obligations are met.
You may want to take a look at the article below, which provides an in-depth discussion of suitable notice period for short service executives:
IV. Conclusion
Business law provides the vehicle for economic activity. Employment law acts as the traffic control system, imposing rules and restrictions to ensure that the pursuit of commercial objectives does not come at the expense of the fundamental rights, safety, and dignity of the workers who power the enterprise.
In the context of mergers and acquisitions, the statutory successor employer provisions of the ESA directly override the common law consequences of an asset sale, forcing business law practitioners to build employment liability allocation into the very structure of their deals. In the classification of workers, the judiciary has looked past the contractual labels preferred by businesses to examine the economic reality of the relationship, creating the intermediate "dependent contractor" category to extend protections to vulnerable workers.
The corporate veil, a cornerstone of business law, is deliberately pierced by both the OBCA and the ESA to hold directors personally liable for unpaid wages, reflecting a clear policy choice that this basic obligation outweighs the principle of limited liability. The legislative ban on non-compete agreements marks a decisive intervention in favour of labour mobility over the protection of business interests, fundamentally altering post-employment contractual practices.
The legislative responses to the gig economy and remote work signal the future trajectory of this interaction. The Digital Platform Workers' Rights Act shows a move towards creating bespoke regulatory regimes for new business models, sidestepping traditional classification battles in favour of targeted protections. This suggests a future where the law recognizes a spectrum of work arrangements, each with a corresponding set of tailored rights.
Whether you are an employer or an employee, you may want to consult with an experienced employment law firm, such as HTW Law, to learn about your employment law rights and obligations and your legal options.
With the right legal support, employees and employers alike can navigate the complex employment law issues towards a more equitable and respectful work environment.
You don't have to fight the battle alone. Speaking with an employment lawyer who is familiar with the laws and regulations regarding the different facets of employment law such as workplace harassment, disability discrimination, wrongful dismissal, constructive dismissal , employment contract will go a long way. If you are in doubt, it's essential that you reach out for help as soon as possible right away.
Click here to contact HTW Law - Employment Lawyer for assistance and legal consultation.
Author Bio:
Anna Duke is an exceptional freelance content writer and blogger, well-known for her expertise on a variety of topics such as Health, Travel, Home improvement and more. Anna is a member of the Experts mind team. To know more about her visit her personal site askpreeto.com. Experts mind has a team of expert writers, and tutors from Homework Help who are experienced in different substantive areas of interest.
