Employees when you sell a business in Ontario

Owners selling an Ontario business often assume employees are a detail to sort out after the deal closes. They are not. What happens to a person’s job, their years of service, and what they are owed if their role ends, is governed by specific Ontario statutes that apply differently depending on how the deal is structured — and getting this wrong can turn into a costly liability well after the sale is done.

A share sale changes nothing about who the employer is

In a share sale, the corporation that employs the staff does not change — only who owns the shares of that corporation changes. Employment simply continues, with the same start date, the same accumulated entitlements, and the same employer of record. This is one of the reasons buyers and sellers sometimes prefer a share sale from a pure simplicity standpoint, even though it usually means the buyer also inherits the corporation’s full history of liabilities, employment-related and otherwise.

An asset sale triggers Ontario’s continuity-of-employment rules

An asset sale is different, because the buyer is not automatically the employer — they are acquiring specific assets, and whether they hire the seller’s staff is, on its face, their choice. Ontario’s Employment Standards Act, 2000 steps in here: in many circumstances, if a new employer hires an employee within a defined window after the sale, that employee’s prior service with the seller counts as continuous with the new employer for entitlement purposes, even though technically a new employment relationship began. This affects how termination pay, severance pay and other length-of-service entitlements are calculated years later, which is exactly why it needs to be understood before closing, not discovered during a termination dispute long after.

Not hiring someone does not necessarily end the seller’s obligations cleanly

If a buyer chooses not to offer employment to some or all of the seller’s staff, that can trigger termination and severance obligations under the Act — and depending on how the purchase agreement is drafted, it is not always obvious in advance whose responsibility that cost is. This is a term that belongs in the purchase agreement itself, negotiated explicitly, rather than left as an assumption either side works out after the fact.

A unionized workplace adds a separate layer

If the business has a collective agreement in place, Ontario’s labour relations framework has its own rules about whether and how that agreement, and the union’s bargaining rights, follow the business to a new owner — rules that operate independently of, and in addition to, the Employment Standards Act analysis above. A buyer evaluating a unionized target needs to understand this before pricing the deal, because it directly affects how much flexibility they will actually have to change staffing, wages or working conditions after closing.

Vacation pay, benefits and other entitlements need to be reconciled at closing

Accrued vacation pay, outstanding wages, and enrollment in group benefits or a pension plan all need to be accounted for as part of closing, and the purchase agreement should say explicitly who is responsible for what, as of what date. Leaving this as an informal understanding is a common source of post-closing disputes, particularly where an employee’s vacation pay accrued partly under the seller and continues to accrue under the buyer.

Due diligence on the employee side catches problems before they become yours

Before you buy, or before you sell and represent the state of your workforce to a buyer, employment records should be reviewed for accuracy — hours, wages actually paid, any outstanding grievances or complaints, and whether anyone has an employment contract with terms unusual enough to matter, such as a change-of-control clause. A buyer who skips this and inherits an undisclosed wrongful dismissal claim, or a key employee with a contract entitling them to a large payout on a change of ownership, has bought a more expensive business than the one on the financial statements.

Key employees may need their own retention agreement

Losing a key manager or technician in the weeks after closing can do more damage to a buyer’s confidence, and to the business itself, than almost any other single event in a deal. It is common for a purchase agreement to include a retention agreement for one or more key employees — a bonus or other incentive tied to staying through a defined post-closing period — negotiated and signed alongside the rest of the deal rather than left to an informal conversation after closing. If your business depends heavily on a handful of people who are not the owner, identify them early and think through whether a retention arrangement is worth building into the deal before a buyer raises it as a condition.

• Confirm whether the deal is a share sale or an asset sale before assessing employee impact
• Understand how ESA continuity-of-employment rules apply if staff are being rehired
• Put responsibility for termination and severance costs explicitly in the purchase agreement
• Check whether a collective agreement and union bargaining rights follow the business
• Reconcile vacation pay, benefits and pension enrollment as of the closing date