Archive mailboxes during migration to O365

You are on the right track Wes. You will need those licences you have mentioned, assigned to the ex-employees as part of your migration.  These are needed for as long as you need to apply the Litigation Hold or an Office 365 retention policy to take place.  After this, you can delete the user accounts in question, then you can assign these licences once that all goes through, to your active users.  

"To make a mailbox inactive, it must be assigned an Exchange Online Plan 2 license so that a Litigation Hold or an Office 365 retention policy can be applied to the mailbox before it's deleted. Exchange Online Plan 2 licenses are part of an Office 365 Enterprise E3 and E5 subscriptions. If a mailbox is assigned an Exchange Online Plan 1 license (which is part of an Office 365 Enterprise E1 subscription), you would have to assign it a separate Exchange Online Archiving license so that a hold can be applied to the mailbox before it's deleted. For more information, see Exchange Online Archiving."

"The license associated with the deleted Exchange Online mailbox will be available after you delete the corresponding Office 365 user account. You can then assign that license to another user."

https://support.office.com/en-us/article/Overview-of-inactive-mailboxes-in-Office-365-1fbd74e8-7a60-4157-afe8-fe79f05d2038

https://support.office.com/en-us/article/Manage-inactive-mailboxes-in-Office-365-296a02bd-ebde-4022-900e-547acf38ddd7