- There are two basic ways to buy a business in Ontario: a share purchase (you buy the shares of the corporation that employs the staff) or an asset purchase (you buy specific assets and…
- In a share purchase, the corporation itself does not change.
- An asset purchase is different because the employer legally changes.
If you are buying a business in Ontario, one of the practical questions that comes up fast is what happens to the people already working there. Their employment contracts — salary, vacation, bonus arrangements, notice provisions — were negotiated with the previous owner. As the incoming buyer, are you required to honour those old employment contracts, or can you treat the workforce as a blank slate?
The honest answer is that it depends entirely on how the deal is structured. A share purchase and an asset purchase produce very different outcomes for existing employment terms, and mixing up the two is one of the more common mistakes buyers make when planning a transition.
The Short Answer Depends on Deal Structure
There are two basic ways to buy a business in Ontario: a share purchase (you buy the shares of the corporation that employs the staff) or an asset purchase (you buy specific assets and decide which liabilities, if any, you are assuming). Employment contracts are treated completely differently under each.
Share Purchases: Nothing Changes for Employees
In a share purchase, the corporation itself does not change. The entity that signed the original employment contracts is still the employer after closing — only its shareholders are different. Every contract, benefit arrangement, and accrued entitlement carries forward automatically, because legally nothing about the employer has changed at all.
This means the new owner does not get a "clean slate" on staff terms. Existing salaries, vacation entitlements, bonus formulas, and any written notice or severance provisions remain exactly as they were unless the corporation and the employee later agree, in writing, to change them.
Asset Purchases: What the ESA Actually Requires
An asset purchase is different because the employer legally changes. The seller's corporation is not the entity hiring staff going forward — the buyer is. So do old contracts simply disappear?
Not entirely. Ontario's Employment Standards Act, 2000 addresses this directly. Where a business (or part of one) is sold as a going concern and the purchaser hires the seller's employees, that employee's service with the seller generally counts as continuous service with the purchaser for ESA purposes — meaning entitlements like vacation, leaves, and statutory notice or severance are calculated as though the employment never ended.
There is an important limit worth knowing: this statutory continuity does not apply if the purchaser hires the employee more than a defined window after the employee's last day with the seller or the closing date, whichever is earlier. If a buyer waits too long to make an offer after closing, that bridge to the old service record can be lost.
What "Continuity" Does and Doesn't Cover
Continuity of service under the ESA is a statutory minimum concept, not a guarantee that every clause of the old contract survives. A few distinctions matter:
- It preserves service length for calculating ESA entitlements — it does not automatically preserve every individual clause the seller had negotiated (a specific bonus structure, a car allowance, a title).
- It does not create a new written contract. If the buyer wants employees on new terms, a new employment agreement is usually offered at or before closing.
- It is separate from common-law notice. Even where ESA minimums carry over, whether a court would treat the buyer as inheriting the seller's full common-law reasonable-notice exposure is a separate legal question that depends on the specific facts.
- A purchaser has no statutory obligation to hire any particular employee in an asset deal in the first place — continuity only applies to the employees the buyer actually chooses to hire.
Can a New Owner Change Terms Going Forward?
Whether a buyer inherits the exact terms or can offer something different comes down to structure and timing:
| Question | Share Purchase | Asset Purchase |
|---|---|---|
| Does the existing contract stay in force? | Yes, automatically | Only if the buyer offers new terms or the parties agree otherwise |
| Does prior service count toward entitlements? | Yes (same employer, never interrupted) | Generally yes, if hired as part of the going-concern sale within the statutory window |
| Can terms be changed after closing? | Only with the employee's agreement | Often addressed in the new employment offer itself |
| Is a new signed contract typical? | Not usually needed | Common, and generally advisable |
Changing material terms unilaterally after the fact — cutting pay, demoting a role, or stripping a benefit — carries the same legal risk it would in any ongoing employment relationship, whether the employer changed hands recently or not.
Practical Steps Before You Take Over Staff
- [ ] Confirm the deal structure (share vs. asset) before making any promises to staff.
- [ ] Review each key employee's existing written contract during due diligence.
- [ ] Decide, well before closing, which employees you intend to offer employment to.
- [ ] In an asset deal, prepare new employment offers that are clear about start date and how prior service will be treated.
- [ ] Get legal advice before communicating any change in compensation or role to retained staff.
Frequently asked questions
Does a new owner have to keep the same salary and job title?
In a share purchase, yes — the contract is unchanged unless both sides later agree otherwise. In an asset purchase, the buyer typically offers new terms directly to the employee, though ESA continuity still governs how prior service is counted for statutory entitlements.
What if the employee never dealt with the new owner before closing?
That is normal in both structures. In a share sale the legal employer hasn't changed regardless of who now owns the shares. In an asset sale, the employee is being offered a job with a new legal employer, and the terms of that offer matter.
Does this apply to unionized employees?
Employees covered by a collective agreement are subject to their own separate framework, which raises additional considerations beyond ordinary employment contracts. If your workforce is unionized, get specific legal advice before closing.
Should we put continuity of service in writing?
Yes. Even where the law provides for it, a clear written statement of how prior service is being treated avoids disputes later and gives both the buyer and the employee certainty.
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