Agus learned the same lesson twice, and only listened the second time

The situation

What Agus was actually afraid of was writing a cheque for severance he had not budgeted for, months after a deal had already closed and there was no one left to negotiate the price down. He had been warned about exactly this once before, years earlier, when he expanded his own dental practice into a second location and leaned on a staffing agency to cover the hygienist roster while the new office got established. We had flagged then that agency staff who are supervised and scheduled like employees can carry termination entitlements against the practice itself, whatever the staffing contract says on paper, and Agus, working to a tight budget for the expansion, decided the extra review wasn't worth the added cost and time. A group of those hygienists turned out to have exactly that claim once the arrangement wound down, landing on his practice directly with no warning and no seller left to share the cost. That earlier cheque was not enormous against the size of his practice, but it was money he had not planned for, and it left a specific kind of dread attached to any staffing arrangement that looked flexible on paper and permanent in practice. He had absorbed the cost quietly and moved on, and it had shaped the way he looked at every business decision since, including the one that would become his first acquisition.

Agus had built a successful dental practice over many years, and the income from it had let him set up a holding company with his wife, Indah, who ran the finance side and reviewed every prospective deal's numbers before Agus even took a meeting, specifically so the two of them could make their first real business acquisition rather than continuing to sit on savings. The target was a Georgina-based logistics company owned by Haruto, a business running a mid-sized trucking and warehousing operation serving distribution clients across the region, priced in the range of sixty million dollars once the warehouse property, fleet, and existing client contracts were accounted for. It was by far the largest financial commitment either of them had made, and the stakes of getting the workforce question wrong had grown right alongside the purchase price.

Haruto's company ran its warehouse floor using a mix of directly employed staff and workers supplied through a staffing agency, a common enough arrangement in logistics operations that scale up and down with seasonal volume and need extra hands during peak shipping periods without committing to a permanently larger payroll. The agency workers had been treated, for years, as the agency's employees rather than the company's — paid through the agency, managed day to day by the agency's own supervisors on paper, with the company simply paying an hourly rate for labour supplied and treating the arrangement as a flexible cost rather than a fixed one.

Agus came to us early this time, before signing anything, and said plainly that the workforce arrangement was the one thing he wanted looked at harder than anything else in the deal, harder even than the fleet condition or the client contracts. He remembered exactly how the last one had gone, and he was not interested in finding out the same way twice whether history was repeating, whatever the extra diligence cost in time or fees.

The legal question

The question at the centre of the review was not whether the workers were called employees or contractors on paper — it was who actually controlled their work in practice, because that is what determines the legal answer, not the label the parties chose to use. Employment law looks past the staffing agreement to the reality of the relationship: who set the hours, who directed the day-to-day tasks, who supplied the tools and the workspace, how integrated the workers were into the company's own operations, and how long the arrangement had actually run before anyone thought to question it.

On paper, the agency workers were the staffing agency's employees. In practice, our review found that the company's own floor supervisors, not the agency's, assigned daily tasks, set shift schedules, and disciplined workers directly, while the agency itself did little more than issue paycheques and handle the original hiring paperwork. Many of the agency workers had been in place for years, working alongside directly employed staff doing functionally identical work, using the company's equipment under the company's safety procedures, wearing the same uniforms and reporting to the same shift leads. That pattern is exactly what tips a relationship from a genuine staffing arrangement into what the law treats as an employment relationship with the company itself, regardless of what the paperwork says or what the agency's invoices call the arrangement.

The consequence of that finding is specific and expensive. If these workers were, in substance, employees of Haruto's company all along, then the company carried an obligation to provide notice or severance if their positions were ever terminated — an obligation that had never been budgeted for, never appeared on the company's books as a liability, and would transfer to Agus's holding company the moment it acquired the business, since a buyer of shares takes on the target company's existing obligations as they stand, known or not, disclosed or not.

This was not a hypothetical risk sitting quietly in the background. Several of the affected workers had been with the company long enough that a termination liability calculated properly, using their real length of service rather than their agency start date, would run into a meaningful six-figure sum in aggregate — money that would land on Agus's company the day any of those roles were eliminated after closing, whether through a deliberate restructuring or simply a slow season, with no advance warning and no seller left to share the cost once the deal was done.

What we did

1. Interviewed the company's floor supervisors directly rather than relying only on the staffing agreement's language, because the real test turns on day-to-day control, and supervisors who actually assign shifts and discipline workers know the practical answer a contract on file cannot show on its own. Those interviews produced a first-hand account of who actually ran the floor day to day, evidence the later negotiation with Haruto's side relied on directly.
2. Mapped each agency worker's actual length of service against the company's own operations, not against the staffing agency's records, since a worker who has been on the floor for six years under company supervision carries a much larger notice entitlement than one who started last season, and the aggregate exposure depended entirely on getting each individual's timeline right rather than relying on the agency's summary.
3. Calculated the termination liability under a realistic scenario, modelling what it would cost the company to end the agency arrangement and replace those roles with direct hires or eliminate them outright, so Agus was negotiating against a real, defensible number rather than an abstract warning about risk that would be easy for Haruto's side to dismiss. The exercise produced a dollar figure built worker by worker from actual length of service, something neither side could wave away as a hypothetical during the negotiation that followed.
4. Raised the finding with Haruto's side formally through the diligence process, requiring a direct written response rather than letting the issue sit as an unresolved question buried in a data room folder, which forced an early and honest conversation about who would ultimately bear the cost of the exposure. Putting the finding in writing also meant Haruto's side could not later claim the issue had never been disclosed to them.
5. Rebuilt the purchase price to reflect the exposure, negotiating a holdback from the purchase price sized to the calculated liability, so a portion of Haruto's proceeds would remain available specifically to cover termination costs if they materialized in the company's first two years under new ownership, rather than becoming Agus's sole responsibility. This gave Agus a funded backstop rather than a bare promise, and gave Haruto a genuine incentive to help manage the transition cleanly since his own proceeds were tied to the outcome.
6. Added a specific indemnity naming the workforce issue directly rather than relying on general representations about employment compliance, since a specific indemnity is far easier to enforce than an argument about whether a general clause was meant to cover this particular risk, and it removed any ambiguity about what triggers a claim. Naming the exact group of workers and the exact risk in the indemnity language meant Agus would not have to litigate, after the fact, whether a general compliance clause was ever meant to reach this specific problem.
7. Advised converting the longest-serving agency workers to direct employment before closing, which resolved the legal ambiguity going forward rather than leaving it open indefinitely, at a cost that was modest against the six-figure exposure it removed and that also improved retention on a floor that depended on experienced staff who already knew the equipment and the client accounts. Doing the conversion before closing, rather than after, meant the cost sat with Haruto's company while it was still his to run, not as a surprise Agus inherited on day one.
8. Reviewed the staffing agency's own contract for indemnity language of its own, checking whether the agency had any obligation to share responsibility for its role in structuring an arrangement that, in practice, looked far more like direct employment than genuine staffing, which added a second potential source of recovery beyond Haruto alone if a dispute over a specific worker's status ever arose after closing.

The outcome

Haruto agreed to a purchase price holdback tied specifically to the workforce exposure, released to him in stages over two years if no termination claims materialized from the affected group. The company converted its longest-serving agency workers to direct employment ahead of closing, which cost more in payroll administration and benefits but removed the largest single piece of the liability before Agus's holding company ever took ownership of the business.

The deal closed at the agreed price with the holdback structure in place, and no termination claims arose in the first year of Agus's ownership. The exposure that had gone entirely unaddressed the first time it mattered was, this time, priced, allocated, and largely resolved before it ever became his problem to manage without recourse against anyone else.

Part of the holdback was eventually released to Haruto on schedule once the first year passed without a claim, and the remainder is due to follow assuming the second year stays equally clean. Agus has since said, plainly, that the difference between then and now was not the workforce arrangement itself — staffing structures like this one are common enough in logistics — but whether anyone looked hard enough at the practical reality behind the paperwork before the deal closed rather than after it was too late to negotiate anything.

Indah, running the finance side of the holding company, has since asked for the same workforce review to be built into diligence on every acquisition they make going forward, regardless of how confidently the target describes its own staffing as a straightforward agency arrangement. The warehouse floor now runs with a smaller share of agency-supplied labour than it did under Haruto's ownership, a change Agus made deliberately, having decided that the administrative cost of direct employment was worth the certainty it bought him.

What you can learn from this