Going In-House for Building Services? Plan for Potential ESA Changeover Liability

By Victory Adeosun and Carolina Recinos

I am changing my current commercial cleaning service for my building.  Why do I need to consult a lawyer?  Changing a building service provider for cleaning, food, security, parking attendant, or property management services, or ending a building services contract to bring those services in-house, may seem like a routine decision for a building owner or operator. Sometimes these changes are made following the acquisition of a new business or property or simply in response to rising costs.  In Ontario, however, either approach can trigger employment obligations under the Employment Standards Act, 2000 (the “ESA”).

Ontario’s building services “changeover” rules: why they matter

The ESA contains a specialized “building services” framework designed to protect workers in an industry where contracts frequently change hands. In many employment relationships, when employees are terminated, the employer ending the relationship is responsible for termination pay (and, where applicable, severance pay). In a building services changeover, that risk can shift to the incoming provider.

Under this framework, the incoming provider (or the owner/operator bringing the work in-house through itself or an affiliate) may be required to either:

• offer employment to the outgoing provider’s on-site employees; or
• if it does not hire them, assume responsibility for ESA termination (and potentially severance) obligations for those employees.

To help incoming providers assess this risk, the ESA requires outgoing providers to disclose prescribed information about the employees assigned to the premises to prospective or incoming providers (for example, job duties, wages, hours, and length of service). These disclosure rules exist because the legislation expects parties to evaluate and manage employment exposure before a changeover occurs.

How Ontario decision-makers have applied the rules

In Judd v. Star Group International Trading Corp.,[1] the Ontario Labour Relations Board (the “Board”) rejected an incoming provider’s attempt to avoid ESA liability by relying on termination letters issued by the outgoing contractor immediately before the changeover. The Board emphasized that the building services provisions can apply based on the reality of a continuing service relationship at the premises, not just on how the change was documented.

In Supreme General Services Inc. v. Klean U Services Inc.,[2]the Board confirmed that a new contractor is not required to hire the existing cleaning staff—but if it chooses not to, the ESA can shift termination pay consequences to the incoming provider where the changeover provisions apply.

In some circumstances, exposure may extend beyond ESA minimums. In Kondaj v. Crossbridge Condominium Services Ltd. and Duka Property Management Inc.[3] the Ontario Superior Court considered whether the incoming provider’s responsibility on a changeover could include common law reasonable notice, depending on the facts. In that decision, the Court held that a property manager who was terminated was entitled to a 10 month notice period. The decision highlights why owners, operators, and incoming providers should treat changeovers as both an employment and a commercial risk issue and not a last-minute staffing decision.

This issue can also arise when an owner or operator ends a building services contract and decides to perform the same services in-house or through an affiliated company. Depending on the circumstances, the incoming provider (including an owner/operator or affiliate stepping into that role) may need to keep the outgoing provider’s on-site employees or budget for potential termination and severance exposure.

Key exception: “prescribed employees”

Not every worker connected to the outgoing contractor triggers changeover liability. The ESA changeover obligations do not apply to certain “prescribed employees” of the outgoing provider. In plain terms, prescribed employees include:

• employees who provided building services at the premises, but did not work primarily at that premises during the 13 weeks before the changeover date;
• employees who were not actively at work immediately before the changeover date and who did not work primarily at the premises during their most recent 13 weeks of active employment;
• employees who did not work at the premises for at least 13 weeks during the 26-week period before the changeover date; and
• employees who refuse an offer of employment from the new provider that is reasonable in the circumstances.

Determining who is (and is not) a “prescribed employee” is fact-specific, and disputes sometimes arise between outgoing and incoming providers.

In sum, a routine operational change such as switching building services vendors or bringing building services in-house can trigger unexpected ESA obligations. These changeover risks are often overlooked during bigger projects such as the acquisition of a new business or property, a new property management arrangement, or a time-sensitive procurement. Our multi-service team helps you connect the dots across employment, contracts, and your broader business transition so you can execute the changeover efficiently and avoid costly surprises.