What happens to contractors and freelancers in a sale?

Contractors and freelancers get far less attention in due diligence than employees do, largely because they look like a simpler, more flexible arrangement. That assumption is often where the real risk hides.

Share sale: the agreements continue, misclassification risk included

In a share sale, contractor agreements are contracts of the corporation, and the corporation does not change — they continue in force exactly as written, with the buyer inheriting both the arrangement and any classification problem already baked into it.

Asset sale: assignment is not automatic

In an asset sale, a contractor agreement is an asset like any other business contract — it needs to be either assigned, with the contractor’s consent where the agreement requires it, or replaced with a new agreement the buyer negotiates directly. Some contractor agreements expressly prohibit assignment without consent, which makes early outreach to key contractors part of deal planning, not an afterthought.

Why misclassification is the real exposure

A worker labelled a contractor but treated like an employee — set hours, ongoing supervision, tools supplied by the business, no meaningful ability to work for others — can be found by a court or tribunal to have been an employee all along, entitled to everything that comes with that status retroactively. That exposure does not disappear because a sale happened in between; in a share sale it stays with the corporation, and in an asset sale it can still attach to a buyer who keeps engaging that person on the same terms.

What to check before relying on a contractor roster

• How each contractor is actually managed day to day, not just what the agreement says
• Whether any contractor works exclusively, or nearly exclusively, for the business
• Assignment and termination clauses in each contractor agreement
• Any prior disputes over classification, paid or unresolved