- In a share purchase, the employer — the corporation — does not change.
- Section 9 of the Employment Standards Act, 2000 provides that where an employer sells a business (or part of one) and the purchaser employs an employee of the seller, that employee's…
- Even where ESA continuity applies automatically, many buyers in an asset purchase choose to issue new written employment agreements.
Keeping the existing team is often the point of buying a going concern — the staff know the customers, the systems, and the day-to-day work that makes the business function. But "keeping" employees on is not always a simple continuation, and whether you need new employment contracts depends heavily on how the deal was structured.
Getting this wrong exposes a buyer to unexpected notice or severance obligations later, and exposes employees to confusion about what their entitlements actually are going forward.
Start With the Structure: Share Purchase or Asset Purchase?
This single question determines almost everything else here.
In a share purchase, the employer — the corporation — does not change. Employees remain employed by the same legal entity they always were, just under new ownership. Their existing employment contracts, length of service, and accrued entitlements continue automatically. There is generally no legal requirement to issue new contracts purely because ownership changed, though a new owner may still want to update terms for other reasons (a new bonus structure, updated policies, and so on).
In an asset purchase, the buyer is a different legal employer from the seller. Continuing employees are, strictly speaking, entering a new employment relationship with a new employer — which is exactly where the Employment Standards Act, 2000 steps in.
What ESA Continuity of Employment Actually Does
Section 9 of the Employment Standards Act, 2000 provides that where an employer sells a business (or part of one) and the purchaser employs an employee of the seller, that employee's employment is deemed not to have been terminated — their prior service with the seller counts as service with the purchaser for statutory entitlements like vacation, leaves, and notice or severance calculations.
Two limits matter for a buyer:
- This continuity does not apply if the purchaser hires the employee more than 13 weeks after the earlier of the employee's last day with the seller or the day of the sale — hire too long after the fact, and the statutory link can break.
- Continuity is a statutory minimum concept. At common law, a court can still treat the sale as ending the employment relationship with the seller, meaning a purchaser does not automatically inherit the seller's full common-law reasonable-notice exposure just because ESA minimums carry over. This is a nuanced area worth reviewing with a lawyer before you make representations to staff about what "continues."
Should You Issue New Contracts Anyway?
Even where ESA continuity applies automatically, many buyers in an asset purchase choose to issue new written employment agreements. Reasons include:
- Clarity. A new contract can set out clearly what the employee's role, compensation, and entitlements are going forward, rather than leaving everyone to infer it from a statutory continuity rule.
- Updated terms. It is an opportunity to introduce or update policies, benefits structures, or role descriptions that differ from what the seller offered.
- Documenting continuity, not erasing it. A well-drafted new contract can expressly recognize the employee's prior service for entitlement purposes, so there is no ambiguity later about how long they have "really" worked there.
The risk to manage is the opposite: a poorly drafted new contract that tries to reset entitlements or introduce unfavourable terms without proper consideration can itself create legal exposure, separate from the acquisition. This is not a do-it-yourself template exercise — get the wording reviewed.
What a Retention Contract Should Address
- [ ] Start date for the purpose of the new employer, and an express statement of how prior service with the seller is (or is not) being recognized
- [ ] Compensation, benefits, and any changes from what the employee previously had
- [ ] Termination provisions that comply with the Employment Standards Act, 2000 at minimum
- [ ] Any restrictive covenants being asked of the employee, and whether they are enforceable for that particular role
- [ ] Confirmation of reporting structure and job duties, especially if these are changing under new ownership
A Note on Restrictive Covenants for Retained Staff
Since October 25, 2021, general employee non-compete agreements are unenforceable under the Employment Standards Act, 2000. There are two recognized exceptions: a business-sale exception, where a seller becomes an employee of the purchaser as part of the deal, and an executive exception limited to defined C-suite-style roles. A rank-and-file employee being retained after an asset purchase generally does not fall within either exception — do not assume a standard non-compete can simply be inserted into their new contract. Non-solicitation and confidentiality obligations are treated differently and remain generally enforceable subject to ordinary reasonableness limits.
Frequently asked questions
If we bought shares, do we need to do anything with employment contracts at all?
Not necessarily right away — employment continues automatically with the same corporate employer. Many share-purchase buyers still choose to review existing contracts for gaps or outdated terms, but there is no automatic legal requirement to reissue them.
Can we require retained employees to sign a non-compete as a condition of staying on?
Generally no, for typical employee roles, since the general non-compete ban took effect in 2021. The narrow business-sale exception applies to the departing seller becoming an employee of the purchaser, not to ordinary staff being kept on.
What if an employee refuses to sign a new contract?
This depends on the specific terms being proposed and the employee's existing rights, and can raise constructive dismissal issues if handled poorly. Talk to a lawyer before treating a refusal as grounds for termination.
Does hiring someone a few months after closing still count as "continuous" under the ESA?
Only within limits. If you hire the employee more than 13 weeks after the earlier of their last day with the seller or the closing date, the statutory continuity link generally does not apply.
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