Key employee

How BC law treats it

Key employee is a commercial term, not a legal category. A key employee has the same rights as any other employee under the Employment Standards Act and the common law, including reasonable notice of termination without cause unless a valid contract term limits it. The label matters mainly in transactions and financings. In a share purchase, employment continues with the same employer, so the buyer inherits existing contracts. In an asset purchase, Employment Standards Act s. 97 treats employment as continuous with the buyer for statutory purposes. Either way, a buyer worried about losing key people will usually make signed retention or new employment agreements a condition of closing, sometimes with retention bonuses, earn-out participation or equity that vests over time. Restrictive covenants must be drafted with care. BC courts rarely enforce non-competition clauses in employment contracts: a covenant must be reasonable in time, geography and scope and unambiguous, and the court will not rewrite an overbroad clause (Shafron v KRG Insurance Brokers (Western) Inc, 2009 SCC 6). Non-solicitation and confidentiality clauses are usually the more enforceable tools. Where a key employee is also a selling shareholder, a non-compete given as part of the sale of the business is assessed under a more lenient test (Payette v Guay inc, 2013 SCC 45).

What it means for your business

In many BC small and mid-market deals, the value of the business depends on a few people. Buyers price that risk and protect against it with retention arrangements, holdbacks or earn-outs, while sellers need to manage expectations so key staff do not leave mid-deal. Founders raising capital face similar investor requirements. Well drafted confidentiality, IP assignment and non-solicitation agreements, signed well before a sale, make a business more valuable and easier to sell. Example: A buyer of a Vancouver digital agency makes it a closing condition that the agency's two lead developers sign new employment agreements with non-solicitation and confidentiality terms and a retention bonus payable 12 months after closing.

Risks and common mistakes

Relying on a broad employee non-compete that a BC court is likely to strike down entirely. Failing to have key employees sign intellectual property assignment and confidentiality agreements before a sale. Telling key staff about a sale too late or too early, leading to departures that hurt the deal. Assuming an asset purchase lets the buyer reset employees' service for termination purposes. Paying retention bonuses up front with no clawback or vesting condition.