Workers’ compensation clearance when buying a business in Alberta

Alberta runs its own workers’ compensation system, and the Workers’ Compensation Board – Alberta (WCB-Alberta) publishes a list of situations in which the Workers’ Compensation Act calls for a clearance. One of them is the sale of a business. A buyer who hears “clearance letter” in a deal should not assume it means the contractor letter the Board also describes. This guide sets out what the Board says about buying a business, what its page does not say, and how a buyer can make the question part of the deal rather than a loose end after closing.

What WCB-Alberta says a buyer must do

WCB-Alberta’s page on when a clearance is needed lists “Sale of a business (section 132)”. Its wording for buyers is plain: “You have a responsibility to get a clearance when buying a business, its stock or equipment.” Read on its face, that wording names the business’s stock or equipment as well as the business itself. The page is a summary of the Act, not the section itself, so ask your lawyer to read section 132 and tell you which parts of your deal it touches. The same list has a separate entry, under section 133, for buying primary timber products, with an exception for retail sales; if the business you are buying deals in timber, ask whether that entry applies too.

This is not the contractor letter

The same Board page also covers hiring an individual or company, and its clearance letters page describes that situation. The Board files hiring under section 126 and says to get a clearance before hiring the individual or company and before releasing payment. A letter there states whether a contractor has coverage through WCB-Alberta and whether the account is in good standing. The Board adds that if you have no letter and the contractor has not paid premiums, you may be liable for them. That consequence is written for contractors. The Board’s sale-of-a-business entry gives no consequence in the same words, so do not assume one. Ask WCB-Alberta, or your lawyer, what follows if a buyer skips the clearance.

Where lenders and creditors come in

A separate entry covers financial institutions and anyone who owns a debt or equity interest in an organization, who the Board says should get a section 129 or section 130 clearance letter in the situations it lists. It also states that if an employer has defaulted on its premiums, WCB has priority on the property and/or the proceeds of property used in connection with the business. If a lender is funding your purchase, ask early whether it will require its own clearance, so two letters do not collide at the closing table.

How a clearance letter is obtained

The Board says clearance letters can be emailed, faxed or printed online, and that you can search the clearance status of any company registered with WCB. You can sign in to a myWCB account or request a letter without one. The pages describe getting letters for yourself or for companies you hire, so confirm with the Board how a buyer requests the letter for a purchase and whether the seller must be the one to ask. Settle that before the closing date, not on it. The Board also says a registered myWCB online user can sign up for automatic clearance notifications, with a report emailed about changes that could affect their liability. Ask whether that service is available to you after closing, and what the new owner would need to sign up.

Working it into the purchase agreement

Treat the clearance as a diligence item and a closing deliverable. Points to raise with your lawyer:

• Ask for the seller’s exact legal name and WCB account number early. Alberta’s business-name page says a trade name is also known as a sole proprietorship and that the sole proprietor or partners are personally responsible for the business’s debts and obligations, so confirm who the account holder actually is.
• Make a current clearance letter a condition of closing, and confirm the letter is still current on the closing date rather than the day it was printed.
• Ask whether part of the price should be held in trust until the letter arrives. Deposit vs escrow explains the mechanics.
• Add a seller representation that all WCB premiums are paid, and see how it would be backed up; representations and warranties vs indemnities sets out the difference.
• Ask whether your lender’s clearance and yours can be ordered together.

Questions the Board’s page leaves open

The page says “its stock or equipment” without saying whether stock includes shares of a corporation, and it does not say how a share purchase is treated. If you are buying shares, ask the Board and your lawyer directly what it expects and whether the corporation’s account is affected. Employee obligations are a separate question; the guide on employees when you sell a business in Alberta covers that side.