Anonymised, illustrative composite. Ontario runs two different regimes for a business that retains contractors, one for construction and one for everything else. They use different words, impose different duties, and only the construction one comes with a documentary answer the target either has or does not.
At a glance
The buyer acquired all the shares of a mechanical contracting business doing HVAC and process piping work, mostly as a subcontractor to general contractors and occasionally retaining its own specialists for controls, insulation, crane work and testing. Over the 26 months before closing it had spent $1,840,000 with four such subcontractors.
Diligence checked the target's own WSIB account, obtained a clearance and found it clean. That answered the question in WSIB arrears that followed the assets and did not touch this one. On a share purchase the corporation is the same legal person before and after, so s.146 successor liability does not arise at all — and the corporation simply keeps whatever liabilities it already had, including this one.
The exposure that had never been booked was a liability the target carried for somebody else's payroll. Two of the four had never registered with the Board. A third registered and stopped paying fourteen months in. The fourth had dissolved.
In construction, the duty is affirmative and it runs to the person who retains. Section 141.1(1) provides that “This section applies when a person directly retains a contractor or subcontractor to perform construction work.” Section 141.1(2) then requires that person to ensure the contractor or subcontractor complies with its payment obligations under the Act in respect of the work, and, at clause (b), makes the person “liable for those obligations, to the extent that the contractor or subcontractor does not comply with them”.
The Board determined the target's liability for the four subcontractors' unpaid obligations at $96,400, with interest. The recovery rights the Act gives are real and, on these facts, close to worthless: s.141.1(3) entitles the person to be reimbursed by the subcontractor, s.141.1(6) entitles it to be indemnified, and s.141.1(5) provides that “The person may deduct amounts for which the contractor or subcontractor is liable under subsection (3) from money payable to the contractor or subcontractor.”
Set-off is the only one of the three that ever recovers anything, and it works only while money is still payable. Three of the four subcontracts had been complete and paid for more than a year. Two of the four counterparties no longer existed. The statute gives a right of recovery against precisely the party that has, by definition, already failed to pay — which is why the mechanic is a diligence problem rather than a collection problem.
Construction and everything else are two different sections with two different rules, and quoting the wrong one is the commonest way this gets stated wrongly. Section 141(1) opens: “This section applies when a person retains a contractor or subcontractor to perform work in an industry included in Schedule 1 or Schedule 2, other than construction.” Outside construction, the Board's first power is discretionary — s.141(2) provides that “The Board may determine that the person is deemed to be the employer of the workers employed by the contractor or subcontractor to perform the work”. Only if the person is not deemed the employer does the ensure-and-be-liable duty arise, and then in different words: s.141(6) applies “If the person is not deemed to be the employer under subsection (2)” and makes the person liable “is liable to the extent the contractor or subcontractor does not meet those obligations”.
So the familiar formulation — ensure compliance, and be liable to the extent of non-compliance — is the construction wording from s.141.1(2)(b). Applying it to a non-construction retainer states the rule at the wrong level: outside construction there is a prior discretionary step, and the liability wording is not the same.
The provision that actually decides a construction file is the one nobody quotes, because it is not a liability rule at all. Section 141.1(9) provides that “Subsections (1) to (7) do not apply in respect of a person who complies with section 141.2.” Compliance with s.141.2 is a complete answer to the whole of s.141.1 — and s.141.2(2) states what compliance is: “Before permitting the contractor or subcontractor to begin construction work, the person shall obtain a certificate or a copy of a certificate issued under subsection (3).” Not at the end of the job, not on invoice, not on request. Before.
The obligation is continuing rather than one-off. Under s.141.2(6) the person must obtain a new certificate if, before the work is completed, the certificate expires or is revoked and the person becomes aware of it; under s.141.2(8) “The person shall not permit the contractor or subcontractor to perform construction work for the person during a period for which the person is aware that no certificate is in effect.” The Board's own practice is that a clearance “is valid for all your contracts and is valid for up to 90 days”, so a subcontract running longer than a quarter needs more than one certificate.
And that is what turns this from an estimate into a test a target either passes or fails. Section 141.2(9) requires that “The person shall keep a certificate or copy of a certificate obtained under this section for at least three years after the date it is obtained”. The diligence question is not “were the subcontractors' premiums paid”, which nobody can answer about a third party. It is “produce the certificate file”, and the answer is a folder with a countable number of documents in it.
The buyer asked for the file. A compliant file would have held certificates covering every period of work across 26 months; the target produced twelve, none dated before the first day of the engagement it related to. The gap was visible in an afternoon.
The price was reduced by $110,000 against a specific indemnity for the assessed amount and interest, and the buyer put a certificate gate into the target's own procurement system: no purchase order released for construction work without a current certificate attached, and a diary entry at eighty days.
Nothing, in the sense that matters. Obtaining a certificate is free and takes minutes through the Board's online service. The $96,400 assessment was the price of a step that has no cost other than remembering it before the work starts rather than after.
The forward exposure was larger than the historical one. The target ran about $850,000 a year of construction subcontracts; on the same failure rate, an uncontrolled certificate process was generating roughly $45,000 a year of contingent liability, recoverable only from parties that had not paid.
The tell was that the target could produce its own clearance instantly and could not produce anybody else's. A business that has understood s.141.2 keeps a certificate folder because the Act tells it to keep one for three years. A business that has not, keeps nothing, and there is no third state.
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