Anonymised, illustrative composite. An Ontario fulfillment operator used a single staffing agency for roughly a third of its shift coverage. The agency’s licence lapsed for eleven weeks, and when it missed a payroll during that window, the client — not just the agency — was on the hook.
At a glance
The target ran a mid-size warehousing and fulfillment operation outside Toronto, moving inventory for a handful of e-commerce brands. Trailing revenue was $9,100,000; the buyer, a logistics roll-up, agreed to acquire 100% of the shares for $6,400,000. Labour was the target’s main variable cost, and to handle its November–January peak the target had relied for three consecutive years on one staffing agency — call it Agency X — for roughly a third of its shift hours.
Employment diligence pulled the target’s accounts payable ledger for Agency X and cross-referenced it against the Ministry of Labour’s public licence record required under ESA s.74.1.12. Agency X’s licence had lapsed for eleven weeks earlier in the year — a late renewal, not a revocation — and the target had continued booking shifts through it the entire time.
That mattered for two separate reasons, not one. First, s.74.1.1(2) provides that “No client shall knowingly engage or use the services of a temporary help agency unless the person who operates the temporary help agency holds a licence for that purpose as required under subsection (1)” — in force since July 1, 2024. Continuing to book Agency X during the lapse was, on its face, the client’s own contravention, independent of anything Agency X did wrong.
Second, and more expensive: in week seven of the lapse, Agency X missed a full pay period’s wages across its entire client roster — $186,000 in unpaid regular, overtime and premium pay. Nobody had priced that as the target’s problem, because on paper the unpaid wages were Agency X’s debt, not the target’s.
Across that pay period, Agency X billed 9,700 assignment-employee hours to its full client roster. The target accounted for 2,150 of them — 22.2%. Applied to the $186,000 shortfall, the target’s apportioned exposure was $41,300, a real, quantifiable pre-closing liability discovered mid-diligence, not a contingent risk.
Section 74.18 does not ask whether the client did anything wrong. Subsection (1) provides that “if an assignment employee was assigned to perform work for a client of a temporary help agency during a pay period, and the agency fails to pay the employee some or all of the wages described in subsection (3) that are owing to the employee for that pay period, the agency and the client are jointly and severally liable for the wages.” Where more than one client used the agency in that period, subsection (2) apportions the liability: “each client is jointly and severally liable with the agency for a share of the total wages owed to the employee that is in proportion to the number of hours the employee worked for that client during the pay period relative to the total number of hours the employee worked for all clients during the pay period.”
Read the unit. Liability is not keyed to the client’s conduct, its knowledge of the shortfall, or even — for the wage debt itself — the licence lapse. It is keyed purely to hours worked for that client in that pay period. Subsection (4) confirms the agency stays primarily responsible but the client can be pursued regardless: “the temporary help agency is primarily responsible for an assignment employee’s wages, but proceedings against the agency under this Act do not have to be exhausted before proceedings may be commenced to collect wages from the client of the agency.” An employment standards officer can go straight to the client.
The licence lapse is a separate, second exposure sitting alongside the wage debt, not folded into it: s.74.1.1(2)’s client offence for knowingly using an unlicensed agency. And a related regulation is worth knowing even though it does not run to the client here: O. Reg. 288/01 s.2(4) provides that where an assignment employee’s employment ends “because the Director has refused to issue or renew, or has revoked or suspended, a licence to operate a temporary help agency or a licence to act as a recruiter… the contract of employment has not become impossible to perform or been frustrated.” That protects Agency X’s own assignment employees from losing their ESA termination and severance entitlements when a licence problem ends their placement — it is the agency’s obligation to its own workforce, not a rule the client can rely on or needs to worry about. The client’s exposure runs through s.74.18 alone.
The parties treated the $41,300 as a known, quantified liability rather than a warranty item: the purchase price was reduced dollar for dollar, and the seller funded payment directly to the affected assignment employees before closing so the exposure would not follow the corporation. Separately, the share purchase agreement carried an uncapped, basket-free indemnity for any further employment standards officer order arising from Agency X engagements during the licence lapse, since s.111(1) lets an officer reach back and order wages for up to two years before a complaint is filed — the exposure was not fully closed by the one payment already identified.
Going forward, the buyer added a standing diligence and integration step for every portfolio company: confirm a staffing supplier’s licence status against the public record before every renewal, not just at onboarding.
Nothing in s.74.18 caps the client’s exposure at a single, discoverable historical figure the way a normal commercial indemnity would anticipate — the liability is generated fresh by every pay period the agency relationship continues, apportioned by that period’s hours. Had the buyer closed without pricing this and Agency X’s licence lapsed again post-closing (a real risk, since nothing about the target’s own booking practices had changed), the acquired business would have inherited an open-ended, recurring joint-and-several exposure rather than a one-time historical figure it could underwrite once and move past.
The seller’s general representation — that the corporation held all licences and permits necessary to carry on its business — was true and useless. The target does not need its own temporary-help-agency licence to use one; s.74.1.1(2) regulates the client’s choice of supplier, not the client’s own licensing. A generic licence representation will never surface this. The specific question that mattered was narrower: is every third-party labour supplier currently licensed, and has it been continuously licensed for the whole engagement?
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