Offering New Employment Contracts After an Ontario Asset Purchase: What to Include

When you buy a business through an asset purchase, you are not automatically inheriting the seller’s workforce as a matter of contract law. If you want specific employees to keep working for you after closing, you generally need to offer each of them a new employment contract — even if their day-to-day job doesn’t change at all.

Getting these offer letters right matters more than most buyers expect. A poorly drafted contract can accidentally waive protections you were counting on, misstate an employee’s recognized service, or leave you exposed to a costly dispute years down the road if that relationship ever ends.

This article walks through what a new employment contract should address when you are re-hiring staff as part of an Ontario asset deal, and why the details around "continuity of employment" deserve particular care.

Why an Asset Purchase Usually Means New Contracts

In an asset purchase, you are buying specific assets — equipment, inventory, contracts, goodwill — not the seller’s corporation itself. The seller’s corporation remains the legal employer of its staff unless and until something changes that relationship. Employees don’t automatically become your employees just because you now own the business they work at.

If you want to keep them on, the standard approach is a written offer of employment, which the employee is free to accept or decline. Where you hire someone who was working in the business as a going concern, section 9 of Ontario’s Employment Standards Act, 2000 can treat that employee’s service with the seller as continuous with their new employment with you — but this is a statutory minimum-standards concept, not a substitute for an actual contract.

What Should Go Into the New Offer Letter

A thoughtfully drafted offer letter for a rehired employee typically addresses:

• Position, reporting line, and compensation — spelled out clearly, even if nothing is changing day to day.
• Recognition of prior service — a statement of whether, and how, the employee’s time with the seller will be counted toward vacation entitlement, benefits eligibility, and any other length-of-service benefits you choose to offer.
• A properly drafted termination clause — this is where buyers most often get into trouble; see below.
• Benefits and any variable pay — matched to what was promised, or clearly flagged where terms are changing.
• Confidentiality and, where applicable, non-solicitation obligations — going forward, protecting your business rather than the seller’s.
• Start date and conditions — usually tied to the closing date of the transaction.

Getting the Termination Clause Right

This section causes the most post-closing disputes. Two traps come up repeatedly:

1. Understating recognized service. If ESA continuity applies to an employee under section 9, their prior time with the seller generally counts toward their entitlements with you going forward. A termination clause that ignores this and calculates entitlements as if the employee just started can be unenforceable — and can expose you to a broader claim than the more limited one you intended.
2. Assuming an ESA-minimums clause is automatically enforceable. Even where you intend to limit an employee to statutory minimums, that clause has to be validly drafted to survive scrutiny. An asset purchase is not the moment to reuse a generic template found online.

It’s also worth remembering the flip side: buying the business does not automatically hand you the seller’s common-law notice exposure for that employee. A properly drafted new contract is precisely how you define, going forward, what that employee is entitled to — rather than leaving it to be argued out later.

A Short Checklist Before You Send Offer Letters

• [ ] Confirm which employees you intend to offer positions to, and by when.
• [ ] Decide, with legal advice, whether and how much prior service will be recognized for each entitlement.
• [ ] Have a lawyer draft or review the termination clause specifically for this transaction — not a recycled template.
• [ ] Coordinate offer timing with the closing date and with the seller’s communications to staff.
• [ ] Keep records of what was offered and accepted, for your own files and for any later dispute.

Frequently asked questions