What happens if the business underperforms during an earn-out period?

If the underperformance is genuine, reflecting real market conditions or ordinary business risk rather than anything improper the buyer did, the seller typically just receives a lower earn-out payment, or nothing at all, depending on how the metric and its thresholds are defined in the purchase agreement. An earn-out is a bet on future performance, and Ontario law does not step in to guarantee a seller a minimum payment simply because results came in lower than hoped, absent some breach of the agreement itself.

The seller's real protection against this outcome comes from the drafting done before closing, not from any default legal safeguard afterward. Many earn-out agreements include operating covenants requiring the buyer to run the business consistent with past practice, restrictions on diverting customers or opportunities away from the target, and defined, auditable accounting methods for calculating the metric, precisely so a seller has some recourse if underperformance looks more like buyer conduct than market reality. Without those protections built in, a seller has limited ability to challenge a low or zero earn-out payment after the fact.