What employment liabilities do I inherit when I buy a business?

This is the question every buyer should be asking before they finalize price, and the honest answer is that deal structure does most of the work — but not all of it.

Share sale: you inherit the corporation, obligations included

Buying shares means buying the legal entity, and that entity carries every employment liability it has ever accumulated — unpaid wages, accrued vacation, employment standards or human rights complaints, workers’ compensation assessment history, and exposure from past terminations that were never properly closed out. None of that resets because ownership changed hands.

Asset sale: a narrower slate, with real exceptions

An asset purchase generally leaves the seller’s past liabilities with the seller. But several exceptions matter: continuity-of-service rules can require the buyer to recognize prior tenure for future entitlement calculations; unionized workplaces can bind the buyer to an existing collective agreement and its grievances; and unpaid workers’ compensation premiums can create successor liability in some provinces if the buyer does not obtain a clearance certificate before closing.

Where diligence gaps become the buyer’s problem

• No clearance certificate obtained, leaving the buyer exposed to the seller’s unpaid workers’ compensation assessments
• No review of employment contracts, so restrictive covenants or promised entitlements surface only after closing
• No check of misclassified contractors, who may later be found to have been employees all along
• No holdback or indemnity tied to known employment risks identified during diligence

How buyers protect themselves

Representations and warranties about employment matters, a holdback or escrow tied to known risks, and a clearance certificate before funds change hands are standard tools for a reason. None of them make the risk disappear, but they decide who pays if something surfaces after closing.