- An acquisition price is usually built on the business continuing to perform after closing, which assumes the people who make it perform are still there.
- Buyers typically focus on people who: - Hold most of the institutional knowledge about clients, suppliers, or processes.
A business is often worth what it’s worth because of the people running it day to day — the operations manager who knows every account, the technician who holds the client relationships, the salesperson who is, unofficially, half the pipeline. Buyers know this, and one of the quieter risks in any acquisition is that key people leave right around closing, taking real value with them. This article looks at why that risk matters and what can legally be done about it in Ontario.
Why Buyers Worry About Key People Leaving
An acquisition price is usually built on the business continuing to perform after closing, which assumes the people who make it perform are still there. A key employee’s departure shortly after closing can mean lost client relationships, disrupted operations, or a scramble to rehire and retrain — none of which was priced into the deal.
Unlike financial or legal risks, flight risk is harder to diligence with documents alone. It often comes down to conversations, incentive structures, and how the transition is handled.
Identifying Who’s Actually "Key"
Not every valued employee is a flight risk that needs a special plan. Buyers typically focus on people who:
- Hold most of the institutional knowledge about clients, suppliers, or processes.
- Have direct client or referral-source relationships that could follow them elsewhere.
- Would be difficult or slow to replace given the specific skills or licensing the role requires.
- Have shown signs of dissatisfaction, or an obvious motive to leave — for example, they expected to buy the business themselves.
Tools for Reducing the Risk
| Tool | What it does | Key limitation |
|---|---|---|
| Retention bonus or stay agreement | Pays a bonus for staying through and after closing | Cost is negotiated between buyer and seller |
| Employment agreement update | Confirms role, compensation, and terms with the new owner | Can’t impose worse terms without agreement |
| Non-solicitation agreement | Restricts a departing owner or key employee from soliciting clients or staff | Generally enforceable, but scope must be reasonable |
| Non-compete agreement | Restricts competing with the business | Only enforceable in narrow circumstances — see below |
| Earn-out or holdback tied to performance | Ties part of the seller’s proceeds to post-closing results | Depends on continued cooperation and honest reporting |
Non-Competes: What Ontario Law Actually Allows
Since October 25, 2021, when amendments to the Employment Standards Act, 2000 took effect, general employee non-compete agreements have been prohibited in Ontario — an employer generally cannot lock a regular employee into a non-compete just because it would be convenient. There are two recognized exceptions that matter in a business sale:
- The business-sale exception — where the seller becomes an employee of the purchaser as part of selling the business, a non-compete tied to that sale can still be used.
- The executive exception — certain senior, defined C-suite-style roles fall outside the general prohibition.
A non-compete signed with a departing minority shareholder who isn’t becoming an employee, or with a manager who doesn’t qualify as an executive, may not fall within either exception. Don’t assume a non-compete is available just because the situation "feels" like a sale — have your lawyer confirm which category actually applies before you rely on one.
Non-Solicitation and Confidentiality Still Work
Non-solicitation agreements, restricting someone from soliciting clients or staff, and confidentiality or non-disclosure agreements are treated differently from non-competes under the ESA and generally remain enforceable, subject to ordinary reasonableness limits. For many deals, these do more practical work than a non-compete would anyway — they don’t stop a former owner from finding new work, only from actively poaching what they left behind.
Building Flight Risk Into the Deal Timeline
- Identify key people during due diligence, not after closing.
- Decide who needs a retention conversation before the deal is announced internally.
- Negotiate retention terms — bonuses, updated agreements — as part of the purchase agreement, not as an afterthought.
- Plan the announcement carefully. How and when staff learn about the sale affects morale and retention risk directly.
- Confirm enforceable restrictions, such as non-solicitation agreements and non-competes where they legally apply, are documented and signed before or at closing.
Frequently asked questions
Can a buyer require key employees to sign new agreements as a condition of closing?
This is a matter of negotiation, often built into the purchase agreement as a closing condition. It needs to be planned for early, not requested at the last minute.
Is a retention bonus paid by the buyer or the seller?
It varies by deal — sometimes it’s built into the purchase price allocation, sometimes it’s a separate cost the buyer bears after closing. This is a negotiation point, not a fixed rule.
Can I stop a departing owner from starting a competing business nearby?
Only through a properly drafted non-compete that fits within one of the ESA’s narrow exceptions, or through common-law restrictions tied to the sale of goodwill. Get this reviewed before you rely on it.
What if a key employee quits right after closing despite everything?
It depends on what agreements were in place. This is exactly why identifying flight risk and putting protections in writing before closing matters — after the fact, options are more limited.
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