Canadian provinces and territories all administer some form of a workers' compensation system within their jurisdiction. Funded by employer-paid premiums, these no-fault insurance systems provide wage replacement and medical benefits to injured employees who relinquish their right to sue their employer for losses arising from their injuries. In Ontario, for example, the relevant legislation is the Workplace Safety and Insurance Act (WSIA).
Why is workers' compensation relevant to M&A?
When acquiring a business, it is important to be aware of the seller's record under the applicable workers' compensation legislation. In Ontario, for example, when an employer sells its business, the buyer may be liable for all amounts owed by the seller under the WSIA immediately before the disposition. Unless the buyer is a person who falls within the persons excluded from this provision, the buyer will inherit the seller's work record, which will in turn affect the amount of the buyer's contributions under the WSIA.
Liabilities are unpleasant surprises, and inquiring into the seller's record can help buyers eliminate one source of such surprise. In Ontario, again, as an example, buyers can obtain a "purchase certificate" from the Workplace Safety & Insurance Board (WSIB), the agency that administers the province's workers' compensation system. A valid purchase certificate verifies that the seller has WSIB coverage and that there are no outstanding debts on the seller's account. In effect, the purchase certificate waives the buyer's liability for any amounts charged to the seller's account, up to the date of the sale.
As always, when buying an employer's business, proper inquiries can help buyers steer clear of acquiring unwanted liabilities.
The author would like to thank Blanchart Arun, Articling Student, for his assistance in preparing this legal update.
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