Could undisclosed severance liabilities come with the business I buy?

Severance is a contingent cost. Nobody owes it until a job ends, so a buyer can close without ever seeing it on a schedule of debts. The exposure is real all the same, because it is built from each employee’s years of service, and sale rules in several provinces carry that service across to the new owner.

How service carries over in an asset purchase

Ontario’s Employment Standards Act, 2000 provides that when an employer sells a business and the purchaser employs one of the seller’s employees, the employment is deemed not to have been terminated, and the time with the seller counts toward any later calculation of length of employment. The Act ties severance pay to length of service. British Columbia’s guide says that if an employee employed at the time of the sale is later terminated, the purchaser is responsible for compensation for length of service, or notice in lieu, calculated from the date the employee was hired by the original seller.

Quebec keeps the claim alive

In Quebec, the CNESST says that when a company changes owner the employment relationship continues as if nothing had changed, provided the new owner shows that the company’s operation continues. The Act respecting labour standards adds that a claim unpaid at the time of the sale is not cancelled, and the former and new employers are bound solidarily for it.

A share purchase changes nothing for the employee

When you buy shares, the company stays the employer, so every employee’s full history and any claim already made come with it, along with whatever termination terms sit in individual contracts. See who pays severance when a business is sold for how the cost is usually allocated.

What to ask for before closing

• A list of employees with hire dates, roles and pay, to see how much service you would inherit.
• The written employment contracts, to read any termination terms, which can promise more than the statute.
• Recent terminations, and whether releases were signed.
• Complaints, claims or demand letters from current or former staff.