Does it matter if the seller classified someone as a contractor when they were really an employee?

Yes, this matters quite a bit, because under the Employment Standards Act, it's the actual substance of the working relationship — not the label the parties used in a contract — that determines whether someone is genuinely an independent contractor or, in reality, an employee entitled to statutory protections. A worker labelled "contractor" but who was in fact functioning as an employee can be found to have been misclassified, which can mean they were owed statutory entitlements — vacation pay, overtime, notice — all along, regardless of what their paperwork said.

In a share purchase, this liability generally comes with the corporation, since misclassification claims relate to the ongoing employment relationship the same continuing entity has had with that worker. In an asset purchase, whether you inherit this risk depends on whether you continue engaging the same person, and under what actual terms; simply changing paperwork going forward doesn't fix a misclassification that already occurred, though it can prevent it from continuing under your ownership.

Review any contractor relationships specifically during due diligence, looking at the actual working arrangement rather than just the paperwork label. A Treadstone business lawyer can help assess whether any contractor relationships carry this risk.