What Happens to Independent Contractors in an Ontario Business Sale?

Employees get the benefit of Employment Standards Act continuity-of-service protections, at least in some circumstances. Genuine independent contractors in an Ontario business sale don’t — their relationships are governed by ordinary contract law, not employment standards legislation, so what happens to them depends entirely on what their contracts say and how the deal is structured.

This is easy to overlook. Many Ontario businesses lean on independent contractors for bookkeeping, IT support, sales, delivery, or specialized trade work, and losing one of those relationships mid-transition — or inheriting a contractor who was never really a contractor — can be an expensive surprise for a buyer.

This article walks through how contractor relationships are typically treated in an asset sale versus a share sale, when a contract needs to be formally assigned or replaced, and why classification deserves its own look during due diligence.

Employees vs. Contractors: A Different Starting Point

What Happens in an Asset Sale

In an asset sale, a contractor agreement is simply one more contract the seller holds. If the buyer wants that relationship to continue, the contract needs to be identified as an asset being acquired, and — depending on its terms — either assigned to the buyer or replaced with a fresh agreement directly between the contractor and the buyer. Many contractor agreements include a clause restricting assignment without the other party’s consent, which means the contractor may need to agree before the relationship legally transfers.

If a contractor agreement is never formally assigned or replaced, the safest assumption is that it stays exactly where it was — an agreement between the contractor and the seller’s corporation — and simply doesn’t carry over to the buyer at all.

What Happens in a Share Sale

In a share sale, the corporation that signed the contractor agreement doesn’t change — it’s the same legal entity, just under new ownership. Contractor agreements generally continue automatically, without needing consent or reassignment, unless the agreement itself contains a change-of-control clause that gives the contractor a right to terminate or renegotiate when ownership changes.

Misclassification Risk: When "Contractor" Isn’t the Full Picture

A due diligence review shouldn’t stop at reading the contract’s label. Someone described as an "independent contractor" who works set hours, uses the company’s equipment, reports to a supervisor, and has worked exclusively for the business for years may, in substance, be an employee regardless of what the paperwork calls them. A buyer who takes over that relationship — especially in a share sale, where the corporation’s obligations come along automatically — can inherit exposure to back entitlements the arrangement never accounted for.

Before closing, it’s worth reviewing:

• [ ] How long the relationship has run and how exclusive it is
• [ ] Who controls the work — schedule, methods, tools, supervision
• [ ] Whether the contractor invoices through their own corporation or as a sole proprietor
• [ ] Whether the contractor has other clients or works solely for this business
• [ ] Whether any past dispute or complaint has raised classification as an issue

Practical Steps for Buyers

1. Inventory every contractor relationship, not just the largest ones — smaller vendors get missed.
2. Read each agreement for assignment and change-of-control language before assuming it transfers.
3. Decide early which relationships you actually want to keep — a sale is a natural point to renegotiate terms.
4. Flag anything that looks more like employment than a contract for a closer look before you rely on it.

Frequently asked questions