Can I claim against the seller if employees quit en masse right after the sale over unpaid wages?
This raises two separate issues worth untangling. First, whether wages were actually properly paid up to closing is a factual and structural question — in an asset sale, unpaid wages for the period before closing generally remain the responsibility of the seller as the original employer unless the purchase agreement expressly assigned that liability to you, while continuity-of-employment rules under the Employment Standards Act can mean certain accrued entitlements for employees you hired carried over regardless.
Second, if the seller represented in the purchase agreement that payroll and employee obligations were current and compliant, and that turns out to have been false, the resulting mass departures — and any exposure they cause the business — can support an indemnity claim for breach of that representation, subject to its negotiated survival period, cap, and basket. Given how quickly staff departures can affect the business's ongoing value, get a clear, documented picture of exactly what wasn't paid, for what period, and what the agreement represented about payroll, before assessing what's actually recoverable.
Key takeaways
- Responsibility for unpaid pre-closing wages depends on deal structure and what was assumed.
- ESA continuity of employment can carry certain accrued entitlements forward regardless.
- A false payroll-compliance representation can separately support an indemnity claim.
- Document exactly what wasn't paid and what the agreement represented before assessing recovery.