Workers’ compensation clearance when buying a business in British Columbia

In British Columbia the workers’ compensation board is WorkSafeBC, and a buyer should ask what the seller owes it. WorkSafeBC’s guidance says that if a seller is indebted for unpaid insurance premiums, the firm’s assets may be subject to a lien in favour of WorkSafeBC. A clearance letter is its answer to that risk. This guide covers what WorkSafeBC says to do before buying a firm’s assets, how that differs from the subcontractor letters its “Why do I need a clearance letter?” page describes, and what a buyer needs to arrange for its own coverage.

Asset purchases are handled by phone or fax

WorkSafeBC says most types of clearance letters can be accessed through its online clearance letter application, with some exceptions. It lists the letters that must be requested by phone or fax, and one of them is “clearances when you are buying the assets of a firm”. It adds: “You should contact us before buying any assets from a firm.” So do not expect the online search to settle an asset purchase. Plan a conversation with WorkSafeBC early in diligence and have your lawyer on the same call.

What the lien warning means

WorkSafeBC states that if the seller owes unpaid premiums, the firm’s assets may be subject to a lien in favour of WorkSafeBC, and that a clearance letter will protect you against these liens. WorkSafeBC says to contact it before buying any assets, so get the letter before you pay. The Personal Property Registry search the Province of British Columbia describes records security interests and liens against personal property. Run that search as well, but the Province also says some liens need to be filed with other government agencies, so do not assume it shows everything; ask your lawyer whether WorkSafeBC’s position appears there.

The subcontractor letter is a different tool

WorkSafeBC’s “Why do I need a clearance letter?” page is written for people who hire subcontractors. It says that if you hire a registered subcontractor who is not making required payments, you could be liable for premiums relating to the work, and that to be absolved you need a letter from WorkSafeBC, addressed to you, confirming the subcontractor was active and in good standing for the entire period of your contract. That rule belongs to contracting. Do not use the online letter for a subcontractor as proof that you are protected when you buy assets.

Reading the date on a letter

WorkSafeBC says a letter describing a firm as active and in good standing is honoured up to the date to which the firm has satisfied its assessment remittance requirements, and that date appears in the body of the letter. If your closing falls after that date, ask what it means for you. The page also describes advance clearance for firms with GoldStar clearance status (among other conditions, a good history of reporting payroll and paying premiums) and for firms that prepay their premiums for the year. Ask whether any of that applies to the seller before relying on it.

Your own coverage and entity changes

WorkSafeBC’s apply-for-coverage page recommends submitting an application 30 days before starting a business or hiring a worker, and says review takes approximately 10 business days. WorkSafeBC’s application asks for information such as the CRA business number, the start date of operations and, if the business was active within the last three years, an estimate of annual payroll for each of those years. The legal entity change form is for a registered firm that continues under a new type of legal entity with the same ownership. A sale to a new owner is a different event, so ask which form applies.

Asset purchase or share purchase

WorkSafeBC’s guidance on clearances for buyers is written about buying the assets of a firm. It does not say what a buyer of shares should do. If you are buying shares rather than assets, ask your lawyer to raise this with WorkSafeBC directly, and ask the seller for a current account statement so you can see what the company owes before you sign.

What to ask the seller and WorkSafeBC

Put the questions in writing and keep the answers in your diligence file. Ask the seller whether the firm has ever been late reporting payroll, whether any assessment is under review, and whether the account is registered under a different legal or trade name from the one on the purchase agreement. Ask WorkSafeBC what it needs from you to issue the asset-purchase letter, how long it takes, and what date the letter will cover. A letter that expires before the closing date does not do the job you bought it for.

Tying it into the closing

• Ask the seller for the legal name and WorkSafeBC account number, and confirm them against WorkSafeBC’s records.
• Make a clearance letter a closing condition, and ask whether part of the price should be held back until it arrives; see deposit vs escrow.
• Add a seller representation that all premiums are paid, and see how it would be backed up under representations and warranties vs indemnities.
• Apply for your own coverage on a timeline that works with your planned first day of operations.