- The starting point is the deal structure: - In a share sale, the corporation itself is the employer both before and after closing — nothing about the employment relationship changes on…
- If ESA continuity of service applies to an employee — because they were hired as part of a going-concern asset purchase within the statutory window, or because the deal was a share sale…
- ESA continuity is a statutory-minimum concept.
Once the sale closes, the question of who’s responsible for an employee’s exit changes — but not always in the way people assume. Whether the buyer inherits full responsibility for a termination, or shares it with the seller, depends heavily on how the deal was structured and what the purchase agreement says.
Share Sale vs. Asset Sale: Who’s the Employer Now?
The starting point is the deal structure:
- In a share sale, the corporation itself is the employer both before and after closing — nothing about the employment relationship changes on paper. The buyer, through the corporation it now owns, simply steps into the employer’s shoes, liabilities and all.
- In an asset sale, the buyer only becomes an employer of the staff it chooses to hire, under a new contract. The seller’s corporation remains the employer of anyone not hired by the buyer, and remains responsible for any pre-closing conduct even toward employees the buyer does take on.
What Happens If the Buyer Terminates Someone After Closing
If ESA continuity of service applies to an employee — because they were hired as part of a going-concern asset purchase within the statutory window, or because the deal was a share sale where continuity is automatic — that employee’s prior service with the seller generally counts toward their entitlements when calculating statutory notice and, where the qualifying thresholds are met, statutory severance. The buyer, as the current employer, is the one who owes these amounts, calculated using the full recognized length of service, not just the time since closing.
Common-Law Exposure for the Buyer
This is where it gets less automatic. ESA continuity is a statutory-minimum concept. At common law, a sale of a business can, in some circumstances, be treated as ending the employment relationship with the seller — and the buyer does not automatically inherit the seller’s common-law reasonable-notice exposure just because ESA minimums carry over. Whether a buyer’s common-law exposure reflects the employee’s full historical tenure, or something narrower, is a fact-specific legal question that depends on how the transaction and the new employment relationship were structured and documented.
Allocating This Risk in the Purchase Agreement
Because post-closing termination liability can be significant, purchase agreements typically deal with it directly through:
- Representations and warranties about the employees — their terms, entitlements, and any outstanding claims as of closing.
- Indemnities allocating responsibility for claims connected to pre-closing conduct or misrepresented employee information.
- Holdbacks or escrow, letting the buyer withhold part of the purchase price for a defined period to cover claims that surface after closing, including employment-related ones.
Comparing Liability by Deal Structure
| Share sale | Asset sale | |
|---|---|---|
| Who employed the person before closing? | Same corporation, before and after | Seller’s corporation |
| Who employs them after closing? | Same corporation (now buyer-owned) | Buyer, only if hired under a new contract |
| Does prior service generally count toward entitlements? | Yes — automatic, employer never changed | Only if ESA continuity applies (going-concern hire within the statutory window) |
| Typical protection tools | Reps, warranties, indemnities, holdback | Same tools, plus clear documentation of who was and wasn’t hired |
Frequently asked questions
If I didn’t hire an employee, can they still make a claim against me?
Generally, no — if you never employed them, they don’t have an employment claim against you directly. But always confirm this with a lawyer based on exactly how the deal and any hiring decisions were documented.
Does a holdback protect the buyer from every employment claim?
It provides a source of funds and a mechanism to make a claim against the seller, but it doesn’t eliminate the buyer’s exposure to the employee themselves — it addresses cost allocation between buyer and seller, not the underlying entitlement.
Can the purchase agreement just say the buyer isn’t responsible for anything pre-closing?
The agreement can allocate responsibility between buyer and seller, and this is standard practice, but it doesn’t change what the buyer, as the current employer, actually owes the employee under the ESA or at common law. It determines who ultimately bears the cost between the parties, through indemnities, not what the employee is owed.
What’s the safest way to handle a termination shortly after closing?
Get legal advice before acting, confirm what entitlements apply given the deal structure and how the employee was brought on, and check what the purchase agreement says about indemnities for exactly this scenario.
Does it matter whether the termination is for cause or without cause?
Yes. A termination for cause has a much higher legal bar and, if it doesn’t hold up, can turn into a without-cause claim with additional exposure for having been mischaracterized. Get advice before relying on cause as the basis for cutting off an employee’s entitlements, particularly for anyone whose service history includes time with the seller.
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