What happens to the employees when I buy a business?

Share purchase: the employer does not change

When you buy shares, the corporation that employs the staff is the same corporation the day after closing. Employment contracts, service dates, accrued vacation, benefit plans and any collective agreement all carry on exactly as before. No offers, no terminations and no new contracts are required.

That continuity is also the risk. Every promise the corporation made to its employees, every unpaid entitlement and every past termination that might still generate a claim comes with the shares. Employment representations and warranties in the share purchase agreement, backed by an indemnity and a holdback, are how buyers manage it.

Asset purchase: you hire, but service carries over

In an asset purchase the seller is the employer until closing and you are a new employer. You choose which employees to offer jobs to and on what terms. But s. 9(1) of the Employment Standards Act, 2000 deems the employment of anyone you hire not to have been terminated, and treats their service with the seller as service with you when calculating entitlements under the Act such as notice, severance pay and vacation. Under s. 9(2) that continuity applies only if you hire them within thirteen weeks of the earlier of their last day with the seller and the day of the sale.

The Act sets minimums. Common-law reasonable notice can be higher, and courts often recognise prior service there too.

Notice, severance and who pays

Employees the seller does not keep and you do not hire are terminated by the seller, who owes them notice or pay in lieu under s. 57 of the Act, severance pay under s. 64 if the length-of-service and payroll or headcount tests are met, and any common-law notice a contract does not validly limit. Fifty or more terminations in a four-week period bring the mass termination rules in s. 58 into play.

Buyers commonly protect themselves with a warranty that all amounts owed to employees to closing have been paid, and an indemnity for pre-closing liabilities. Use the severance calculator below to understand the scale of the Act's minimums for a given employee.

Offers, new contracts and key people

Because you are a new employer in an asset purchase, you can offer written contracts with terms suited to your business, provided they meet or exceed the Act, which cannot be contracted out of. Those contracts should acknowledge prior service for the purposes of the Act and can define what notice applies to a future termination. Offers are best made before closing and conditional on it, and the purchase agreement can make acceptance by key employees a closing condition.

Under s. 67.2 of the Act, non-compete agreements with employees are generally void in Ontario, but s. 67.2(3) makes an exception where a seller becomes your employee immediately after the sale.

We draft the employment offers and the closing condition on key employees accepting them, so the deal does not close on an empty promise.

Payroll accounts, WSIB, EHT and unions

In an asset purchase you open your own payroll account with the Canada Revenue Agency, register with the WSIB and, if your payroll is large enough, for Employer Health Tax. The seller closes its accounts and issues records of employment. Ask for a WSIB clearance certificate before closing; a successor can inherit the seller's WSIB experience and premiums. In a share purchase the accounts continue and only the contact details change.

If any employees are unionized, s. 69 of the Labour Relations Act, 1995 binds a purchaser to the collective agreement as a successor employer, whether you buy assets or shares.