What employee liabilities must I disclose to a buyer of my business?

Employee liabilities are easy to understate because much of the exposure never reaches the financial statements. A buyer who keeps your staff can take on their history along with them, so expect detailed questions. What you are required to say comes mainly from the purchase agreement you sign and from the cost of leaving something out.

Why buyers ask about service and pay

Provincial employment standards rules explain the interest. Ontario’s guide says an employee hired by the purchaser does not start as a “new employee” and gets credit for past employment. British Columbia’s Employment Standards Branch says that for employees who continue, the purchaser is responsible for all outstanding wages and assumes liability for accrued vacation pay. Start dates and balances therefore drive what a buyer inherits.

What sellers are typically asked to cover

• Wages, overtime, vacation pay or bonuses still owed.
• Complaints, grievances or human rights claims, whether active or threatened.
• Employees on leave and when they are expected back.
• Written contracts, offer letters and any promised terms that were never documented.
• A collective agreement, if any, and the state of labour relations.
• Recent terminations, and whether notice, severance or a release was given.

How the agreement turns disclosure into protection

The agreement typically has you state facts about the workforce as of closing. A disclosure schedule then lists the exceptions you are flagging rather than hiding. A statement that there are no employee claims except those scheduled protects you for what is listed, and it exposes you to an indemnity claim for anything relevant that should have been listed and was not.

What happens if something is missed

If a claim appears after closing, the indemnity terms decide who pays, and buyers often hold back part of the price to have a fund ready. Informal complaints that never reached writing are generally still caught if they are material. A knowledge qualifier can limit your exposure to what you knew, but it has to be negotiated deliberately. For the severance side, see who pays severance when a business is sold.