Reviewing Employee Obligations When Buying an Ontario Business

When you buy a business, you also take on a workplace. Staff, their pay history and their rights can affect your costs for years after closing.

This article explains how Ontario's rules generally treat employees in asset and share purchases, and what you should verify before you commit.

Asset purchase or share purchase

The structure matters most. Under the Employment Standards Act, 2000, if a business is sold and the buyer employs the seller's employee, the employment is deemed not to have been terminated or severed. The employee's service with the seller counts toward later entitlements with the buyer.

A share sale works differently. Selling a company's shares does not itself create a new employment relationship, so section 9 does not apply. The corporation remains the employer and keeps its employment obligations.

Termination and severance after an asset purchase

If you keep the employees in an asset purchase, you alone are responsible for later termination and severance obligations under Part XV, based on service with both the seller and you. There is no pro rata split with the seller. That is why the price and any holdback should reflect each employee's length of service.

Employees can always reject your offer of employment, and refusing does not take away their termination notice, pay in lieu or severance pay from the seller. If you hire someone more than 13 weeks after their last day with the seller or the day of the sale, whichever is earlier, prior service does not carry over.

Some situations are special: businesses taken over by a landlord for unpaid rent, businesses taken over by a trustee or receiver, and franchise operations. The Ministry says to confirm how continuity applies with the Employment Standards Information Centre at 1-800-531-5551.

WSIB and union obligations

A person who acquires all or part of an employer's business is liable for all amounts the employer owed under the Workplace Safety and Insurance Act, 1997 immediately before the disposition. A WSIB purchase certificate waives WSIB's right to hold you liable for amounts owing up to the date of disposal. It is valid for 30 days from issue, the sale must close within that time, and the seller's account must be in good standing. A separate certificate is needed for each account. The seller or buyer can request it, but the seller must authorize release of its account information.

If you buy only part of a business, you are liable only for amounts relating to the part you acquired. You must describe the assets and prove their value relative to the whole, or WSIB will estimate a pro-rated amount.

If the seller is bound by a collective agreement, you are bound by it as if you had been a party, until the Ontario Labour Relations Board declares otherwise, and the law counts leases and transfers as a sale. Building services is a sector with different treatment. Contested successor cases go to the Board, so get advice.

What to verify before closing

• A complete employee list with hire dates, positions, pay and any written contracts
• Accrued vacation and any unpaid wages or overtime owing
• Any employee on leave, or with a pending complaint or claim
• Whether a union or collective agreement exists
• The state of the seller's WSIB account

Compare the records against what the seller tells you. Gaps in documents are a reason to ask for a larger holdback or an indemnity, both of which are negotiated terms.

What to do next

• Decide whether you are buying assets or shares
• Ask the seller for employee records and authorize WSIB information release
• Request the WSIB purchase certificate early, so the 30-day window fits your closing date
• Decide which employees you will offer jobs to, and in writing
• Have a lawyer draft price adjustments and indemnities that reflect employee service

Frequently asked questions