Employee Claims When Buying Assets Out of Receivership in Ontario

One question comes up in almost every conversation about buying assets from an insolvent business: what happens to the people who used to work there? It matters both practically — you may want to keep some of them on — and legally, since the answer determines whether you're taking on someone else's employment obligations along with the assets.

The short version is that buying assets out of receivership is not the same as buying a going-concern business, and the ordinary rules about continuity of employment don't map onto it cleanly. This article walks through why.

What Usually Happens to Employees When a Business Becomes Insolvent

When a business enters receivership, the receiver commonly terminates or lays off employees in connection with ceasing or scaling back operations, sometimes before a sale process even begins. Those former employees' claims for unpaid wages, termination pay, and other amounts they're owed generally become claims against the insolvent estate — to be dealt with through the insolvency process itself, alongside the claims of other creditors. A buyer who later purchases assets from the receiver does not automatically become responsible for paying those claims simply by buying the assets.

Does ESA Continuity of Employment Still Apply?

Under Ontario's Employment Standards Act, 2000, where a business (or part of one) is sold as a going concern and the purchaser hires the seller's employees, the employees' service with the seller generally counts toward their statutory entitlements with the purchaser, as if their employment hadn't been interrupted. That rule was built for an ordinary sale between an operating employer and a buyer.

Insolvency complicates that picture considerably. Where employment has already ended and the former employees' claims are being pursued against an insolvent estate — and where there may be a genuine break in the operation of the business before any sale closes — whether that statutory continuity concept still applies, and how, becomes a fact-specific question rather than a straightforward "yes" or "no." This is genuinely one of the more nuanced corners of an already fact-specific area of employment law, and it deserves a specific legal opinion on your actual transaction rather than an assumption either way.

A Buyer's Own Independent Choice

What is reasonably clear is this: a buyer of assets out of receivership is not obligated under the ESA to hire any of the former employees. If you choose to hire some of them, you're making an independent hiring decision, not inheriting an existing employment relationship automatically. How that new relationship is characterized — and whether any prior service gets recognized as part of it — depends on how you structure the offer and on the specific legal analysis for your transaction.

What a Buyer Can Do to Manage This Risk

• [ ] Don't make blanket promises about employment continuity to former employees before getting legal advice specific to your transaction.
• [ ] If you plan to hire some former employees, treat each offer as a fresh hire with its own written terms, unless your lawyer advises differently after reviewing the specifics.
• [ ] Get clear information from the receiver about the status of former employees — whether and when they were terminated, and what claims (if any) remain outstanding against the estate.
• [ ] Put new employment terms in writing through a proper offer letter or employment agreement, rather than relying on informal continuity of the old arrangement.
• [ ] Ask your lawyer specifically whether the ESA continuity concept could apply to your transaction's facts, rather than assuming it does or doesn't.

Common-Law Notice Is a Separate Question

Even where a statutory minimum entitlement carries forward in some form, that's not the same as a buyer inheriting a departed employee's full common-law reasonable notice exposure. A new employer offering new employment on new terms is generally establishing a new employment relationship — but how a court might later treat any recognition of prior service, in the context of a future wrongful dismissal claim, is a separate and genuinely specialized question. Get advice on this before you make representations to new hires about recognizing their prior service, not after.

Frequently asked questions