Employment due diligence, step by step

Buying a business almost always means buying its workforce along with it, in one form or another, and the workforce carries its own category of risk entirely separate from the financial and legal review already underway. Whether the employment relationship transfers automatically or has to be re-established depends heavily on how the deal is structured and where the business operates — a share purchase generally leaves the employer relationship untouched, while an asset purchase raises real, province-specific questions about employment continuity. Either way, the people already working there come with obligations, entitlements and risks a buyer inherits whether or not they were disclosed clearly beforehand.

Understand what you actually inherit from the seller’s workforce

On a share purchase, the corporation remains the employer and nothing about the employment relationships changes on paper, even though the ownership behind the corporation has. On an asset purchase, the legal position is more complicated and genuinely varies by province — in Ontario, for example, employment standards legislation treats certain transfers of employment in a way that can affect whether length of service and entitlements carry forward, while other provinces apply their own frameworks. Do not assume the rule you have heard about applies universally; confirm the specific answer for the province the business operates in and the structure the deal is actually using.

Read every employment contract, not just the org chart

An org chart tells you who reports to whom; it does not tell you what each person is actually entitled to. Review written employment contracts for every employee where they exist, and pay close attention to termination entitlements, because those become the new owner’s liability if a role is ever eliminated. Just as important is finding the arrangements that were never written down at all — a verbal bonus structure, an informal commission arrangement, an understood flexible schedule — because employees expect those informal terms to continue even though nothing obligates a new owner to honour them, and quietly ending them is a fast way to lose good staff right after closing. Ask the seller directly what has been promised informally over the years, since those promises rarely surface in any document but will surface quickly in employee expectations the moment ownership changes.

Check for wage and hour exposure before it becomes yours

Review how overtime has actually been paid, whether vacation pay has been accruing and paying out correctly, and whether anyone classified as an independent contractor is, in substance, functioning as an employee. Misclassification is one of the more expensive and more common findings in employment diligence, because a worker classified as a contractor for years can retroactively be entitled to employee benefits and protections, and that exposure does not disappear just because it predates the sale — it becomes a liability the new owner is left holding.

Confirm whether a union comes with the business

Where a collective agreement is in place, it generally continues to bind the business regardless of who owns it, under successor-employer principles that apply across most Canadian jurisdictions in some form. Review the collective agreement itself for its term and upcoming negotiation dates, check whether any grievances are currently in progress, and understand what obligations — seniority lists, benefit contributions, negotiated wage schedules — transfer along with the business rather than assuming a change of ownership resets the relationship with the union.

Verify WSIB and workplace safety standing

In Ontario, a Workplace Safety and Insurance Board clearance certificate confirms the business is current on its premiums, and the employer’s experience rating carries forward and directly affects what the new owner pays going forward — a poor safety record under the previous owner becomes the new owner’s ongoing cost, not a clean slate. Other provinces run their own workers’ compensation boards with their own clearance processes, so confirm the equivalent requirement for wherever the business actually operates rather than assuming Ontario’s rules apply nationally.

Identify the people you cannot afford to lose

Not every departure after a sale is equally damaging, but losing the one or two people who genuinely hold the business together — the technician who knows every piece of equipment, the account manager the biggest customer actually trusts — can undo a large part of what you paid for. Identify those people specifically during diligence, find out discreetly whether they know a sale is happening and how they feel about it, and consider whether a retention agreement or bonus, negotiated as part of the deal, is worth the cost of losing them. This is worth doing even when the seller insists everyone is happy and loyal, because an owner who is emotionally invested in a smooth sale is not always the most reliable judge of how their own staff will actually react to new ownership.

• Written employment contracts and any employee handbook or policy manual
• Payroll records showing overtime and vacation pay history
• Any collective agreement, including grievance history
• Current WSIB clearance status or the applicable provincial equivalent
• A list of contractor relationships, reviewed for correct classification