Successor Employer Liability in an Ontario Asset Purchase: What Continues and What Doesn't

Buying a business as a going concern almost always means deciding what to do about the people who work there. Many buyers assume that because they only bought assets — not the corporation itself — they're starting with a clean employment slate. That assumption is only partly right, and getting it wrong is one of the more common surprises in an Ontario asset purchase.

Ontario's Employment Standards Act, 2000 has a specific rule for exactly this situation. Here's what it actually does.

The Core Rule: ESA Section 9 Continuity of Employment

Under section 9 of the ESA, where a business (or part of a business) is sold as a going concern and the buyer hires an employee of the seller, that employee's employment is deemed not to have been terminated by the sale. Their period of employment with the seller counts as service with the buyer, as though it were one continuous period — for purposes like vacation entitlement, leaves of absence, and statutory notice or severance calculations down the road.

This is the rule that catches buyers off guard: purchasing assets rather than shares does not, by itself, reset an employee's length of service if you go on to hire them into the same or a similar role.

The 13-Week Rule in Practice

The continuity rule has a built-in time limit. It generally doesn't apply if the buyer hires the employee more than 13 weeks after the earlier of the employee's last day of employment with the seller and the date of the sale. In other words, a buyer who waits too long to make an offer — or who hires former employees well after the transaction closes — may fall outside continuity altogether, depending on exactly how the timing lines up.

This cuts both ways for planning purposes: it's not a loophole to "reset the clock" by simply delaying an offer by a few days, but it does mean the specific dates matter and are worth tracking carefully if hiring timing is at all uncertain.

What Continues vs. What Doesn't

The pattern worth noticing: ESA continuity is about entitlements going forward being calculated on combined service — it is not a general rule that the buyer inherits all of the seller's past employment-related debts and legal exposure.

Why This Only Fully Applies to Asset Deals

In a share purchase, this entire analysis works differently, because the employer — the corporation — never actually changes. The same legal entity that employed the worker before the sale still employs them after; only its shareholders have changed. Employment simply continues without any need for a continuity rule, because there was never a break in who the employer is. Section 9 matters specifically because an asset sale changes the employer, and without it, employees could lose credit for years of service through no fault of their own.

Practical Steps for Buyers

• [ ] Review the seller's employee records, including length of service, to know what continuity would mean for each person you're considering hiring
• [ ] Decide affirmatively — and document — whether you're offering employment to each employee, and on what terms
• [ ] Track the exact timing of any offers against the 13-week window if there's any gap between the sale and the hiring decision
• [ ] Get seller representations and warranties about employment compliance, including confirmation of no outstanding wage, vacation pay, or complaint issues
• [ ] Negotiate an indemnity for pre-closing employee-related liabilities the seller should be bearing, not you
• [ ] Get legal advice before communicating anything to employees about their status — how and when this is handled affects both morale and legal exposure

Frequently asked questions