Buying a Canadian Business with Foreign Workers: Essential Considerations for Entrepreneurs/Investors

When assisting clients with the purchase of an existing Canadian business, one recurring topic of concern is navigating compliance with foreign worker regulations. This issue often arises because corporate transactions, such as mergers, acquisitions, or restructurings, can directly impact the status of foreign workers employed by the business. For anyone in the process of business acquisition, understanding how to manage this aspect is critical—not only to protect your investment but also to avoid potential regulatory violations.

In this guide, we explore the critical considerations for acquiring businesses with foreign workers, including work permit requirements, compliance risks, and practical steps to ensure a smooth transition.

Corporate Transactions and Foreign Worker Compliance: Why It Matters

Canada’s Temporary Foreign Worker Program (TFWP) and International Mobility Program (IMP) allow businesses to hire foreign nationals to address labor shortages or facilitate intra-company transfers. However, these programs come with strict regulatory requirements. When businesses employing foreign workers undergo mergers, acquisitions, or restructurings, buyers must address two primary concerns:

1. Do foreign workers need new work permits to continue their roles?

2. Will the new employer be liable for past non-compliance of the previous employer?

The answers depend largely on whether the acquiring entity qualifies as a “successor in interest,” as defined by Canadian immigration regulations.

Successor in Interest: The Defining Factor

The term “successor in interest” refers to an entity that assumes the assets, obligations, and liabilities of the original business and continues operating the same type of business. This designation is crucial because it determines:

• Whether existing work permits remain valid under the new employer.

• Whether the new employer inherits responsibility for past compliance issues.

To qualify as a successor in interest, the new entity must have substantially assumed the interests of the original business. This includes assets, liabilities, human resources, intellectual property, and business operations. If the purchasing company is deemed a successor in interest, it assumes both the compliance responsibilities and potential liabilities tied to foreign worker employment.

Work Permit Requirements Post-Acquisition

The impact of a corporate transaction on foreign workers depends on the nature of the business change and the work permit program under which the employees are hired.

1. Temporary Foreign Worker Program (TFWP)

The TFWP requires employers to obtain a Labour Market Impact Assessment (LMIA) before hiring foreign workers. After a merger or acquisition, the new employer must:

• Notify Employment and Social Development Canada (ESDC) about the change.

• Determine whether a new LMIA is needed. This is required if there are significant changes to wages, job duties, or job locations for foreign workers.

2. International Mobility Program (IMP)

Foreign workers under the IMP, including intra-company transferees, are not subject to LMIA requirements but must still adhere to specific conditions on their work permits. After a corporate transaction, employers must:

• Update their information in the IRCC Employer Portal to reflect any changes to the company’s name, address, or Canada Revenue Agency (CRA) business number.

• Ensure that the qualifying relationship between the foreign and Canadian entities continues to exist for intra-company transferees.

In both programs, if the restructuring results in substantial changes to employment conditions, new work permits may be required before foreign workers can continue their roles.

Liabilities and Risks of Non-Compliance

The liabilities for non-compliance depend on whether the new entity is a successor in interest:

• Successor in Interest: If the buyer substantially assumes the interests and obligations of the original employer, it inherits responsibility for past compliance breaches.

• Non-Successor in Interest: If the buyer does not qualify as a successor in interest, it is only responsible for compliance on a go-forward basis and does not inherit liabilities related to past non-compliance.

However, even non-successor entities face risks if compliance issues are not addressed. Penalties for non-compliance include fines, bans on hiring foreign workers, and revocation of work permits—potentially disrupting business operations.

Steps to Ensure Compliance in Business Acquisitions

To minimize risks and ensure compliance, buyers should take the following steps when acquiring businesses that employ foreign workers:

1. Conduct a Compliance Audit Before Finalizing the Deal

A thorough audit is essential to identify potential liabilities. Buyers should:

• Request a list of foreign workers employed over the past six years (the period the government assesses for compliance).

• Review LMIA and IMP conditions to ensure the business adhered to wage, duty, and job location requirements.

• Identify any compliance gaps or violations.

2. Negotiate Indemnity Clauses in the Purchase Agreement

Include provisions in the purchase agreement to protect against past non-compliance. These clauses can:

• Indemnify the buyer for penalties resulting from previous compliance breaches.

• Cover legal costs for addressing non-compliance, including voluntary disclosures to IRCC or ESDC.

3. Notify Relevant Authorities Post-Acquisition

After the transaction, update the company’s information with IRCC and ESDC:

• Use the IRCC Employer Portal to reflect name, address, or CRA number changes.

• Notify ESDC of changes affecting LMIA-based positions.

Proactively updating this information ensures continuity in employer compliance and prevents unnecessary delays in work permit processing.

4. Address Non-Compliance Through Voluntary Disclosures

If non-compliance is discovered, take immediate action:

• Maintain detailed records of compliance issues.

• Make a voluntary disclosure to ESDC or IRCC to potentially reduce penalties and demonstrate good faith.

Voluntary disclosures can mitigate the consequences of non-compliance and protect the business from harsher penalties during audits.

Real-World Implications of Non-Compliance

Failure to address compliance risks can lead to severe consequences. For example, imagine purchasing a restaurant where all cooks are foreign workers employed under non-compliant conditions. The government could revoke their work permits, impose fines, or ban the employer from hiring foreign workers, effectively crippling the business.

Similarly, acquiring a manufacturing company with LMIA-based employees without addressing past violations could result in substantial financial penalties and disruptions to operations.

Wrapping Up

Whether you are acquiring a small business or a multinational corporation, understanding the implications of employing foreign workers is vital. The consequences of non-compliance extend beyond legal penalties—they can undermine the financial and operational stability of your business.

Acquiring a Canadian business with foreign workers requires more than standard due diligence. By understanding the concepts of “successor in interest,” addressing compliance risks, and proactively updating authorities, buyers can mitigate liabilities and maintain regulatory compliance.

If you’re in the process of acquiring a business and want reliable guidance on navigating these issues, contact Blacksy Immigration Law Firm. We specialize in business immigration, helping clients confidently manage every aspect of foreign worker compliance during mergers, acquisitions, and restructurings.

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About the Author

I’m Ahmet Faruk Ocak, a Canadian immigration lawyer and the founder of Blacksy Immigration Law Firm 🌊. 

At Blacksy, we specialize in providing honest, straightforward, and tailored immigration solutions to individuals and businesses worldwide. Our brand promise is simple: no unnecessary fuss, no false hopes, and no empty promises—just realistic, reliable guidance to help you achieve your immigration goals.

Whether you’re expanding your business to Canada, transferring top talent, or planning your future here, we’re here to guide you with precision, transparency, and care.

Visit us at www.blacksyimmigration.com to learn more or to start your journey.