Anonymised, illustrative composite. The purchase agreement made pre-closing wage claims a vendor indemnity backed by a twelve-month holdback. The Act respecting labour standards made the buyer solidarily liable for them anyway, on a clock that runs from each pay date rather than from closing.
At a glance
A Toronto-based food group bought the assets of a Montreal contract packer for $6,750,000. The target employed 46 people, most of them hourly, on a shift pattern that generated a lot of overtime. Diligence on employment was run from an Ontario precedent: a representation that all wages and vacation pay had been paid to closing, an indemnity capped at 15% of price and subject to a $75,000 basket, and a $250,000 holdback released twelve months after completion.
That package is a competent answer to an Ontario risk. In Quebec it answers only half the question, because it allocates loss between the vendor and the buyer and says nothing about who the employees can sue.
Fourteen months after closing the Commission des normes, de l’équité, de la santé et de la sécurité du travail opened an inquiry into overtime calculation at the plant and reconstructed the payroll for the two years before completion. It found $198,400 of unpaid overtime and vacation pay, all of it referable to pay periods that had closed before the buyer owned anything.
The buyer’s first answer was the agreement: those are pre-closing liabilities, they belong to the vendor, here is the indemnity. Its second answer was the holdback, which it had released on schedule at month twelve. Its third answer was the vendor, which had distributed the proceeds and been dissolved.
None of the three mattered, because s.96 of the Act does not care what the agreement says: “The alienation or concession of the whole or a part of an undertaking does not invalidate any civil claim arising from the application of this Act or a regulation which is not paid at the time of such alienation or concession. The former employer and the new employer are bound solidarily in respect of that claim.”
$198,400 across 46 employees, of which $61,300 related to pay periods whose due dates fell in the three months immediately before closing. The buyer paid all of it, plus $21,800 in professional fees answering the inquiry.
Recovery from the vendor was nil. What made that outcome avoidable is a date arithmetic the buyer never ran. Section 115 provides that “A civil action brought under this Act or a regulation is prescribed by one year from each due date.” Not one year from closing — one year from each due date. A wage that fell due three weeks before completion was still actionable eleven months into the buyer’s ownership. Section 116 then adds that “A notice of inquiry sent by the Commission to the employer by registered mail suspends prescription in respect of all his employees for six months from the date of mailing.”
So the outer edge of the buyer’s solidary exposure sat around eighteen months after the last pre-closing due date. The holdback had been sized against a round twelve months from closing. The two windows were measured from different events and the shorter one ran out first.
Section 96 governs the claim, not the contract. It leaves the indemnity entirely intact as between vendor and buyer — it simply gives the employee, and the Commission acting for the employee under s.98, a direct right against the purchaser that no agreement between vendor and buyer can qualify. The buyer’s indemnity was never a defence; it was a recourse over, and a recourse over against a dissolved company is a right without a remedy.
There is no Ontario equivalent, and the near-miss is instructive. ESA s.4(5) does create joint and several liability — “Persons who are treated as one employer under this section are jointly and severally liable for any contravention of this Act and the regulations under it and for any wages owing to an employee of any of them.” — but only between persons already treated as one employer under s.4, which applies where “associated or related activities or businesses are or were carried on by or through an employer and one or more other persons”. That is a finding about common control, not a consequence of a sale. An arm’s-length Ontario asset buyer does not become jointly liable for the vendor’s unpaid wages by buying the business.
Quebec adds a second layer the buyer also had not modelled: s.97 provides that an alienation “does not affect the continuity of the application of the labour standards”, and it is that provision, rather than anything in the agreement, that carries the employees’ service into the buyer’s hands.
The buyer paid the $198,400, met the assessment and closed the file. It then rewrote its Quebec template: the holdback is now sized to eighteen months from the last pre-closing pay date rather than twelve months from closing, and the release condition is a payroll reconstruction for the final year rather than the passage of time.
It also stopped treating the Quebec subsidiary’s employment diligence as a translation exercise. Overtime reconstruction for the last four quarters before closing is now a scoped workstream on every Quebec deal, priced at roughly $18,000 and run before the holdback is negotiated rather than after. See what happens to the staff when the business is sold for the general position, and the glossary entry on the holdback for the instrument itself.
Holding $250,000 for a further six months would have covered the whole claim. At the vendor note rate the parties had already agreed, six months of carry on $250,000 is under $8,000 — against $220,200 of claim and fees actually borne.
The alternative protection people reach for does not exist here. There is no clearance-certificate procedure under the Act by which a purchaser can extinguish s.96 exposure; the only certificates the statute creates are a work certificate for a departing employee under s.84 and a Revenu Québec compliance certificate that placement agencies need for licensing. A buyer’s protection in Quebec is contractual, and a contract only protects to the length of the money it holds.
The employment section of the agreement had been lifted from an Ontario precedent and translated. It recited a representation, an indemnity and a holdback, and it did not mention s.96 once — which is the single provision a Quebec employment schedule exists to answer.
A second tell sat in the holdback release condition: twelve months, with no reference to any statutory period. A holdback period that is a round number rather than a derived one is a sign that nobody asked what limitation or prescription window it was supposed to cover.
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