What employee indemnities belong in a business purchase agreement?

An indemnity solves a different problem from a warranty. A warranty says a fact is true. An indemnity says who pays if a named loss arrives, whether or not anyone was misled. The reps and warranties versus indemnities comparison sets out the difference. For employee matters, the starting question is which losses the buyer could face despite the deal structure.

Losses that can follow the business

Several regulators say so directly. Quebec’s CNESST says labour standards claims not settled before a change of owner are not cancelled, and that the former owner and new owner are solidarily liable for them. Saskatchewan’s WCB says that after a share sale the new owners are responsible for the existing account and its history, including past due amounts and penalties. Ontario’s WSIB says it may hold a purchaser liable for amounts the vendor owes up to the date of sale if an asset purchaser has no valid purchase certificate.

Name what you want covered

An indemnity for “all employee claims” leaves open which claims are meant. Consider naming wages owed for the period before closing, amounts owed on the workers’ compensation account up to the sale date, and labour standards claims that arose before the change. British Columbia’s Employment Standards Branch says that when a seller terminates an employee before the sale, outstanding wages or compensation are the seller’s responsibility. That is a reason to ask for the allocation to be written down rather than assumed.

Make it collectable

An indemnity is only as good as the seller’s ability to pay it. In Saskatchewan, the WCB says it can charge a sale levy back to the seller or withhold it from final payment in the sale transaction, which shows one way an amount can be tied to the price. Ask your lawyer whether a holdback or escrow suits the deal, how long the indemnity should last, and whether the buyer can set claims off against money still owed to the seller.