- A business sale doesn't happen in an instant — there's a period before closing, the moment of closing itself, and everything that follows.
- If someone is let go before the deal closes, the seller is still their employer at that point, in either a share sale or an asset sale.
- In an asset sale, the buyer has no statutory obligation to hire any of the seller's employees.
When an employee is let go around the time a business changes hands, one question comes up almost every time: who actually pays — the seller who employed them beforehand, or the buyer who's now running the show? The answer isn't fixed; it turns on exactly when the termination happened, how the deal was structured, and what the purchase agreement says about it.
This article walks through the most common scenarios, in the order a real transaction tends to raise them, so you can see where the line generally falls.
Why This Question Comes Up
A business sale doesn't happen in an instant — there's a period before closing, the moment of closing itself, and everything that follows. An employee's termination can land at any point along that timeline, and which employer is legally responsible often depends on exactly where it falls, plus whether the deal is a share sale or an asset sale.
Scenario 1: Terminated Before Closing
If someone is let go before the deal closes, the seller is still their employer at that point, in either a share sale or an asset sale. Responsibility for that termination generally sits with the seller — the buyer hasn't yet stepped into any employer role.
Scenario 2: Not Offered a Job by the Buyer (Asset Sale)
In an asset sale, the buyer has no statutory obligation to hire any of the seller's employees. If the buyer doesn't offer a position to someone, the seller's corporation continues to exist and remains that person's legal employer — so addressing their employment, including any termination, generally remains the seller's responsibility, not something that transfers to the buyer by default.
Scenario 3: Hired by the Buyer, Then Let Go Later
Once the buyer hires an employee as part of a going-concern asset sale, the buyer becomes their new employer going forward, and a later termination is generally the buyer's obligation to address. There's a wrinkle, though: if Ontario's statutory continuity-of-employment conditions were met at the time of hiring, the employee's prior service with the seller can count toward the buyer's own termination and severance calculations — meaning the buyer's downstream cost can end up larger than it would be for a brand-new hire with no history at all.
Scenario 4: Share Sale, Any Time
In a share sale, the corporation is the employer before, during, and after the transaction — ownership changes, but the employer never does. Whenever a termination happens, responsibility sits with that same corporate employer, now under new ownership. The sale itself doesn't shift the obligation to a different legal person.
How Purchase Agreements Allocate This Risk
Even though the scenarios above describe the legal employer's obligation to the employee, buyers and sellers routinely negotiate, as between themselves, who ultimately bears the cost. Common tools include:
- Representations and warranties about the accuracy of employee records and compliance with employment obligations.
- Indemnities requiring the seller to compensate the buyer for certain pre-closing employment liabilities that surface after closing.
- Disclosure schedules listing employees, their terms, and any known outstanding issues, so both sides know what they're dealing with going in.
These arrangements reallocate cost between buyer and seller privately — they don't change what the employee is legally owed by their employer.
Quick Reference
| Scenario | Who's Generally Responsible |
|---|---|
| Terminated before closing (either deal type) | The seller |
| Asset sale — not offered a job by the buyer | The seller, as continuing employer |
| Asset sale — hired by the buyer, later let go | The buyer, potentially factoring in service credited from the seller |
| Share sale — any time | The corporation, now under new ownership |
Frequently asked questions
Can the buyer and seller just agree between themselves who pays?
Yes, and this is exactly what indemnity clauses in the purchase agreement typically do — but that agreement operates between buyer and seller. It doesn't change what the employee is legally entitled to claim from their actual employer.
What if the termination happens right at the moment of closing?
This is exactly the kind of timing question that needs to be nailed down in the deal documents, because "right at closing" can fall on either side of the line depending on the precise sequence of events. It's worth having your lawyer confirm how the agreement addresses this specific timing.
Does it matter if I signed a new employment contract with the buyer?
It can. A new contract with the buyer may affect how a later termination is assessed, depending on what it says and the surrounding facts — this is worth reviewing carefully rather than assuming either way.
Is termination pay the same thing as severance pay?
No — they're related but separate concepts under the Employment Standards Act, 2000. Termination pay is generally tied to notice of termination; severance pay is a separate, additional entitlement that depends on its own qualifying conditions, including the employee's length of service and the employer's size.
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