Employees on Leave: Cannot Be Ignored in Transactions

By George Waggott, founder, George Waggott Law

Employers who acquire a Canadian business through an asset purchase often mistakenly ignore the rights of employees on leave. A recent Ontario court decision reinforces the risks of discrimination claims if these issues are not properly addressed.

In Brandt Tractor Ltd. v. Morasse, 2026 ONSC 992, the Ontario Divisional Court upheld a finding that an acquiring employer had engaged in discrimination when it excluded employees on leave from the hiring process associated win an asset purchase. The employer attempted to argue that the transaction treated everyone the same, with all employees on any type of leave not being offered employment, but this argument failed, with the Court saying that this was not a proper defence.

The Brandt Tractor decision sends a clear message that the obligations under Canadian human rights laws apply during corporate transactions. And this includes situations where a party has never been the employer of impacted employees. This means that any organization involved in transactions, including merger, takeovers or restructurings, needs to ensure that all employees on leave are given proper consideration when employment decisions are made. Simply put, there is no ability to “offload” responsibility to the seller, and a company cannot blame tight business deadlines for a flawed approach.

This decision involved a claim by Melissa Morasse, who had been employed by Nortrax Canada Inc. for five years. She was on maternity leave when Nortrax sold its business to Brandt Tractor in an asset sale transaction.  Of the 650 Nortrax employees, all but 30 of them were offered employment by Brandt. Morasse was told that her employment with Norax was terminated because Brandt “did not have a position available” for her.

Morasse filed a complaint with the Human Rights Tribunal of Ontario, which found that she had been subjected to discrimination by Brandt. The Tribunal rejected the argument that Brandt was not a proper party to the case because it had never employed Morasse. This finding was based on the evidence that Brandt had been directly involved in hiring decision, which included a review of personnel files and consultations with Nortrax managers.

The Tribunal’s reasoning, which was endorsed by the Court, also emphasized that the  termination letter expressly indicated that the employment was being terminated because the purchaser was not offering her employment. In short, it was Brandt’s own role in the hiring process, and its blanket refusal to communicate with employees on leave, which exposed it to the risks of a discrimination claim. An organization is not insulated from potential legal claims by claiming that it does not have knowledge of particular employees or relevant facts. The evidence was clear that Morasse was not interviewed because she was on maternity leave, which amounted to discrimination based on a protected ground.

This decision is important for employers, including in particular those who are purchasing a business through an asset transaction. In cases where the successor employer is directly involved in hiring decisions, it can be held liable for discriminatory outcomes. All employees of the selling employer, including those on leave, must be actively considered for continued employment with the purchaser – an across-the-board refusal to exclude any group of employees may result in significant legal problems, no matter the intent or context. In cases where the target business provides substantial information about its employees, a purchaser will be deemed to have knowledge of all employees, including those on leave, and will need to adjust its hiring and offer processes accordingly. Time pressures associated with business transactions will not justify cutting corners.

For more information about George Waggott Law, please see: www.georgewaggott.com, or contact: george@georgewaggott.com