Making New Employment Contracts a Closing Condition in an Ontario Business Sale

Buying a business often means buying the people who run it as much as the assets on its balance sheet. When most of the value in a deal is tied up in a handful of key employees — the operations manager who knows every account, the technician with the specialized certification — a buyer may be unwilling to close until those people have committed in writing to stay. That is why a signed offer letter or new employment agreement from named staff sometimes shows up as an employment contracts closing condition in the purchase agreement itself.

This is especially common in asset purchases, where the buyer has no automatic right to anyone’s continued employment, but it can appear in share deals too when a buyer wants firmer terms than what already exists.

This article looks at why buyers ask for this, how it works mechanically, what a good offer letter typically covers, and what it means for the employees being asked to sign.

Why Buyers Ask for This

In an asset purchase, the purchaser has no statutory obligation to hire any of the seller’s employees. If the value of the business depends heavily on a small number of people — rather than on the brand, the customer list, or the equipment — a buyer reasonably wants certainty that those people are staying before money changes hands. Making signed employment agreements a condition precedent to closing shifts the risk of a key person walking away from the buyer to the seller, who is usually better positioned to manage that relationship before closing.

How the Condition Typically Works

A closing condition of this kind sits in the purchase agreement alongside the other conditions precedent — financing approval, landlord consent, no material adverse change, and so on. It generally specifies:

1. Which employees must sign (often named individually, sometimes a minimum number or percentage of a defined group).
2. By when the signed agreements must be delivered — typically before or at closing.
3. What happens if the condition isn’t met — usually the buyer can walk away from the deal, or the parties renegotiate price or terms.

Because the seller usually has the existing relationship and leverage with its own staff, sellers are typically the ones tasked with securing the signatures, even though the new contracts are with the buyer.

What Goes Into the New Employment Agreements

A typical offer letter or agreement drafted for this purpose addresses:

• Position, reporting line, and compensation going forward
• Start date tied to the closing date
• Confidentiality obligations
• Non-solicitation of customers, suppliers, or co-workers
• A restrictive covenant against competing, where legally available

On that last point: since October 25, 2021, general employee non-compete agreements are unenforceable under the Employment Standards Act, 2000. The main exception that matters in a business sale is where the individual signing is the seller who is becoming an employee of the purchaser as part of the transaction — a narrow exception, along with a separate one for defined executive roles. A buyer cannot assume it can lock a rank-and-file key employee into a non-compete just because a sale is happening; confidentiality and non-solicitation terms, which remain generally enforceable, usually do the heavier lifting instead.

Share Sale vs. Asset Sale: Does the Employer Even Change?

What It Means If You’re Asked to Sign

Employees are not legally required to accept a new offer, even when the business they work for is being sold. Declining doesn’t automatically create new legal rights against the buyer — but depending on how the seller has structured its own obligations, it can affect what the seller owes the employee on termination, and whether Employment Standards Act continuity-of-service protections apply at all. If you’re asked to sign a new agreement as part of a sale, it’s worth having the terms reviewed before you do — particularly any restrictive covenant.

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