What happens to employees
when a business is sold in Ontario
The staff are often what a buyer is really paying for, and the cost of letting them go is often what a seller forgets to price. Whether the deal is for shares or assets decides who the employer is on the day after closing.
A business sale changes who owns the business. Whether it changes who employs the staff depends on how the deal is structured, and that one point drives most of the employment issues in the purchase agreement.
In a share sale the company stays the employer and every employment contract carries on. In an asset sale the buyer is a new employer who chooses whom to hire, and Ontario's Employment Standards Act carries each hired employee's years of service over to the buyer. Employees the buyer doesn't take remain the seller's responsibility.
This article is general information, not legal advice. It covers provincially regulated, non-union workplaces unless it says otherwise. Entitlements depend on each employee's contract and history, so have the actual documents reviewed before you rely on any of it.
Does selling a business end the employees' jobs?
Not in a share sale, and not necessarily in an asset sale. The two structures work differently.
| Question | Share sale | Asset sale |
|---|---|---|
| Who is the employer after closing? | The same company, with a new owner | The buyer, for the employees it hires |
| Do employment contracts continue? | Yes, unchanged | No. The buyer makes new offers. |
| Can the buyer pick which employees to keep? | Not without terminating the others, at the company's cost | Yes, subject to the agreement, any union and human rights law |
| Whose past service counts? | All of it, since nothing has changed | All of it for hired employees, under section 9 of the Act |
| Who pays for employees who aren't kept? | The company, which the buyer now owns | The seller, unless the agreement says otherwise |
The guide to asset purchases and share purchases covers the other differences between the two structures.
Does the buyer have to keep the seller's employees?
In an asset sale of a non-union business, no. The buyer can offer jobs to all of the employees, some of them or none. The choice can't be made on a ground the Human Rights Code protects, such as age, disability or pregnancy, and the purchase agreement often commits the buyer to offer employment to a listed group on terms at least as good as they have now.
In a share sale there's nothing to offer. The employees already work for the company the buyer is acquiring. If the buyer wants a smaller team, the company has to terminate the others properly, and the buyer bears that cost unless the price or an indemnity accounts for it.
Do employees keep their years of service with the buyer?
Yes. Under section 9 of the Employment Standards Act, 2000, when a business is sold and the buyer employs one of the seller's employees, the employment is treated as continuous. The time worked for the seller counts as time worked for the buyer when vacation, notice of termination and severance pay are calculated later.
There's one exception. The rule doesn't apply if the buyer hires the employee more than 13 weeks after the earlier of the employee's last day with the seller and the day of the sale.
The Act sets minimums. An employee without an enforceable termination clause may also be owed reasonable notice at common law, which is usually longer. Courts generally count service with the seller there too, unless the buyer made it clear in the offer that past service wouldn't be recognized. A buyer who wants a clean start has to say so in writing, and should expect employees and their lawyers to notice.
What this means for price. A buyer who hires a 20-year employee takes on 20 years of service on day one. If that employee is let go a year later, the buyer pays on 21 years. Long-service staff are a liability to be counted in due diligence as well as an asset.
Who pays termination and severance pay if employees aren't kept?
Whoever is the employer when the job ends. In an asset sale that's the seller for anyone the buyer doesn't hire. The purchase agreement can shift the cost between the parties, but the employee can still claim against their employer.
The Act's minimum entitlements are:
- Notice of termination or pay in its place: one week for less than a year of service, rising to eight weeks at eight years or more.
- Severance pay, on top of notice, for an employee with five or more years of service where the employer has a payroll of $2.5 million or more, or where 50 or more employees lose their jobs within six months because all or part of the business is permanently discontinued. It's a week's regular wages for each year of service, to a maximum of 26 weeks.
- Mass termination rules with longer notice periods when 50 or more employees at one establishment are terminated in the same four-week period.
Common law reasonable notice can be several times these amounts for long-service or senior employees. An employee who turns down a comparable job with the buyer may recover less, because the law expects them to take reasonable steps to limit their loss.
Can the buyer change pay, hours or job terms?
In an asset sale the buyer is making a new offer and can propose new terms. In a share sale the existing terms continue, and a significant change imposed without agreement risks a constructive dismissal claim.
An asset sale is the one moment when a buyer can put a proper written employment agreement in front of every employee, including a termination clause that complies with current Ontario law. Offers that are noticeably worse than the current terms get refused, and each refusal lands on the seller as a termination. Sellers negotiate for comparable offers for exactly that reason.
What about a unionized workplace?
The buyer is generally bound by the collective agreement. Under section 69 of the Labour Relations Act, 1995, a person who buys a business from an employer bound by a collective agreement is bound by it as if they had been a party, until the Ontario Labour Relations Board declares otherwise. That applies to asset sales too. A buyer of a unionized business should get labour law advice before signing a letter of intent.
What should the purchase agreement say about employees?
It should say who is offered a job, on what terms, who pays for those who aren't, and what the seller promises about the workforce. The usual provisions are:
- An employee schedule listing each person's position, start date, pay, bonus, vacation accrual and whether they have a written contract.
- The offer covenant: which employees the buyer will offer employment to, and how comparable the terms must be.
- Allocation of termination costs for employees who aren't offered jobs, who refuse, or who are let go soon after closing.
- A price adjustment for accrued vacation pay, unpaid wages, bonuses and commissions as of closing.
- Representations that wages and remittances are paid, that there are no outstanding employment claims, and that people treated as contractors really are contractors. Misclassified workers are a common hidden liability, explained on the page about independent contractor agreements.
- Workplace insurance. Under section 146 of the Workplace Safety and Insurance Act, 1997, a person who acquires all or part of a business is liable for amounts the seller owed the WSIB immediately before the sale. Buyers ask for the WSIB's confirmation of the seller's account before closing.
- Key employees. If the deal depends on particular people staying, make their signed agreements a condition of closing.
These clauses sit in the asset purchase agreement or, with less to transfer and more to promise, in the share purchase agreement.
Buying or selling a business with staff?
Have the employee terms reviewed before the agreement is signed. Free 30-minute consultation.
Can the buyer use non-competes to keep staff from leaving to compete?
Not for ordinary employees. Ontario bans employee non-competes, and the sale-of-business exception covers the seller, not the seller's staff. The exception applies where the seller of a business agrees not to compete and becomes the buyer's employee immediately after the sale. For everyone else the buyer relies on non-solicitation and confidentiality agreements, which are still enforceable when they're reasonable. The guide to non-competes when buying or selling a business goes through the rules.
When should employees be told about the sale?
Ontario has no general rule requiring advance notice of a sale to non-union employees, so most are told once the agreement is signed and shortly before closing. What the law does require is proper notice of termination, or pay in its place, for anyone who won't be kept.
A plan that works: keep the deal confidential under an NDA during due diligence, let the buyer meet key employees late in the process with the seller's consent, announce the sale jointly, and hand out the buyer's written offers the same day with a reasonable time to consider them.
Key takeaways
- Structure decides the employer. Shares: nothing changes. Assets: the buyer hires whom it chooses.
- Service carries over. Section 9 of the Employment Standards Act counts time with the seller when the buyer hires within 13 weeks.
- Unhired employees are the seller's cost. Statutory minimums are the floor, and common law notice can be much higher.
- The agreement allocates the cost. Offers, termination liabilities and accrued vacation should all be dealt with expressly.
- Non-competes are for the seller. Staff can be bound by non-solicitation and confidentiality terms only.
Frequently asked questions
Do employees automatically transfer to the buyer when a business is sold?
In a share sale, yes, in the sense that nothing changes: the company is still the employer and only its owner is new. In an asset sale, no. The buyer is a different employer and decides which employees to offer jobs to, unless the workplace is unionized or the purchase agreement requires offers to be made.
Does the buyer have to recognize my years of service?
For Employment Standards Act purposes, yes, if the buyer hires you within 13 weeks. Section 9 of the Act treats your employment with the seller as employment with the buyer when your length of service is calculated later. Courts deciding common law notice generally count the earlier service as well, unless the buyer clearly told you otherwise when you were hired.
Who pays severance when a business is sold?
If the buyer doesn't hire an employee in an asset sale, the seller is the employer that ended the job and owes the termination and severance entitlements. If the buyer hires the employee and lets them go later, the buyer owes them, calculated on the combined service. The purchase agreement can move the cost between buyer and seller, but it can't reduce what the employee is owed.
Can the buyer offer employees lower pay or different terms?
In an asset sale the buyer is making a new offer of employment and can propose different terms. An employee can turn it down, which leaves the seller responsible for ending the employment. In a share sale the existing contracts continue, and a significant change imposed without agreement can amount to constructive dismissal.
What if an employee refuses to work for the buyer?
The employee's job with the seller still ends, and the seller owes the statutory minimums. Refusing a comparable job with the buyer can reduce what the employee recovers for common law notice, because an employee is expected to take reasonable steps to limit their loss. Whether the offer was comparable is a question of fact.
Do the seller's employees have to be told about the sale before closing?
There's no general rule in Ontario requiring advance notice to non-union employees that the business is being sold. Employees who won't be kept need proper notice of termination or pay in its place, and a unionized workplace has its own rules. Most deals are kept confidential until the agreement is signed, with the announcement and the buyer's offers planned together.
Can the buyer make employees sign a non-compete?
Generally not. Ontario's Employment Standards Act bans non-compete agreements for employees. The exception for a sale of a business covers a seller who becomes the buyer's employee right after the sale. It doesn't cover the seller's staff. Non-solicitation and confidentiality agreements are still available.
Is the buyer responsible for wages the seller didn't pay?
In a share sale, yes, because the company's debts stay with the company. In an asset sale, unpaid wages and vacation pay are the seller's debts unless the buyer agrees to take them on, but a buyer who hires the employees inherits their length of service, and with it the future cost of vacation, notice and severance. That's why the agreement adjusts the price for accrued amounts.
Talk to a Toronto business lawyer about the employees in your deal
Employee terms are easy to leave to the end and expensive to get wrong. Jonathan Kleiman acts for buyers and sellers of Ontario businesses and deals with the workforce as part of the purchase agreement: who's offered a job, who pays if they aren't, and what the seller stands behind. Book a free 30-minute consultation and bring the letter of intent or the draft agreement.
Buying or selling a business with employees?
Bring the letter of intent or the draft agreement. Jonathan Kleiman helps Ontario buyers and sellers sort out who is hired, who pays and what is promised. Free 30-minute consultation.