Buyers routinely assume they can hire the seller's staff as new employees with a clean slate. In Ontario they cannot. The Employment Standards Act carries an employee's service across to the purchaser, and the liability that comes with it is often the largest unpriced item in an asset deal.
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In a share sale the employer does not change. The corporation that employs the staff is the same corporation before and after closing — only its shareholders are different. Employment contracts continue untouched, service keeps accruing, nobody is terminated and nobody needs a new offer. The buyer inherits every employment liability the company already had, including the ones nobody has mentioned.
In an asset sale the buyer is a different legal entity. Employment contracts do not transfer automatically. The seller's employment relationships end on closing and the buyer offers fresh employment to whichever employees it wants. That is why the two structures produce completely different employment work, and why the structure decision should be settled before anyone speaks to staff.
The risk also sits with different parties. In a share sale the buyer's protection is diligence and indemnities, because it is taking on historical exposure. In an asset sale the seller's exposure is the employees the buyer does not want, and the buyer's exposure is the ones it does — because of what the legislation does with their accumulated service.
Neither structure lets a buyer choose staff freely. Human rights obligations apply to hiring decisions the same way they apply to firing ones. Declining to offer employment to someone who is on pregnancy or parental leave, or on a disability-related absence, is a problem regardless of how the transaction is papered.
Section 9(1) of the <a href="https://www.ontario.ca/laws/statute/00e41">Employment Standards Act, 2000</a> is direct. Where an employer sells a business or part of one and the purchaser employs an employee of the seller, that employee's employment is deemed not to have been terminated or severed, and their employment with the seller is deemed to be employment with the purchaser for any later calculation of their length of employment. The clock does not restart.
There is one exception, in section 9(2). It does not apply if the purchaser hires the employee more than 13 weeks after the earlier of their last day with the seller and the date of the sale. That window is the entire exception. Deliberately laying employees off and rehiring them after it carries its own termination liability, so it usually costs more than it saves.
Continuity determines what an eventual termination costs. Statutory notice under section 57 rises with length of employment to a maximum of eight weeks. Severance pay under section 64 is owed where the employee has five years or more and either the employer has a payroll of $2.5 million or more, or fifty or more employees are severed within six months because of a permanent discontinuance. Severance is capped at 26 weeks of regular wages.
So a buyer hiring a fifteen-year employee is hiring fifteen years of accrued statutory entitlement, not a new hire. That liability should be quantified during diligence, priced into the purchase price or covered by an indemnity, and reflected in the closing adjustments alongside accrued vacation pay and unpaid wages.
Common law reasonable notice is a separate and generally larger obligation than the statutory minimum, and it is not governed by the Employment Standards Act at all. Courts commonly take prior service with the seller into account when assessing notice for an employee who moves with the business. A buyer wanting to limit that exposure needs a properly drafted employment agreement with fresh consideration, presented before the employee starts — not after.
Work through the employee list line by line well before closing. Who is being offered employment and on what terms. Who is not, and which party pays their termination and severance entitlements. How accrued vacation, banked overtime and outstanding commissions are allocated in the closing adjustments. Which individuals are genuinely key, and whether they need retention arrangements or non-solicitation covenants to stay.
If any employees are unionized the analysis changes. Ontario labour legislation contains successor rights that bind a purchaser of a business to the existing collective agreement and the union's bargaining rights. That is not something a purchase agreement can contract out of, and it needs to be identified at the start rather than discovered at closing.
Timing and communication are practical rather than legal, but they decide how the transition actually goes. Staff usually learn about a sale before the parties intend them to. Agree a joint message and a date for it. We handle the employment side of Ontario business sales as part of the deal — see <a href="/pricing">our published fee</a> and how we run a <a href="/buying-selling-a-business">purchase or sale</a>.
There is nothing to transfer. In a share sale the employer is the same corporation before and after closing, so employment contracts, service dates and entitlements all continue without interruption. No terminations occur and no new offers are needed. The buyer inherits all existing employment liabilities along with the company, including ones that have not yet surfaced.
In an asset sale, generally yes — the buyer is a different employer and chooses who it offers employment to. But the seller must then terminate those employees and pay their statutory notice and any severance. Hiring decisions still have to comply with human rights obligations, so declining someone because they are on a protected leave is not permitted.
No. Under section 9(1) of the Employment Standards Act, where a purchaser employs an employee of the seller, service with the seller counts as service with the purchaser for any later calculation of length of employment. The only exception is where the purchaser hires the employee more than 13 weeks after the earlier of their last day with the seller and the sale date.
Whoever the purchase agreement says, and the agreement should say it clearly. As a starting point the seller terminates the employees the buyer does not want, so the seller carries that cost. Parties often adjust the price to reflect it or share the liability, but the allocation has to be written down before closing rather than argued about afterwards.
A buyer can present a new employment agreement, and a well-drafted termination clause can limit common law notice. It has to be given before the employee starts work with the buyer, supported by fresh consideration, and it can never reduce entitlements below the statutory minimum. Contracts sprung on employees after they have already started are routinely struck down.
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