March 13, 2018

What Happens to Employment When an Employer Sells its Assets?

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The issue of continuity of employment relationships upon the sale of the assets of a business was recently considered by the Ontario Court of Appeal in Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA 873.

The Plaintiff commenced employment with Carsen Group in May of 2000. In 2005, an unrelated company, Olympus Canada, purchased most, but not all, of the assets of Carsen Group. Additionally, Olympus Canada offered employment to 122 of the 125 Carsen Group employees, one of which was the Plaintiff.  The Plaintiff received a written offer of employment (the “Employment Contract”), the terms of which were substantially similar to those he had with Carsen Group, with a few exceptions. The offer of employment from Olympus Canada:

  1. Included a termination clause which limited his entitlements in the event that he was terminated without cause.
  2. Expressly stated that the plaintiff would be treated as a new employee and that his service with his previous employer would not be recognized, except as required by the applicable legislation.

The Plaintiff accepted the offer of employment. His employment with Carson Group ceased on July 31, 2006 and commenced with Olympus Canada on August 1, 2006. Less than ten years later, the Plaintiff’s employment with Olympus Canada was terminated without cause.

Upon termination, Olympus Canada offered the Plaintiff the compensation he was entitled to pursuant to the Employment Contract. The Plaintiff refused the offer and filed an action for wrongful dismissal wherein he claimed the termination provision was unenforceable for want of consideration. Specifically, the Plaintiff argued that his employment with Carsen Group and Olympus Canada was continuous and Olympus Canada could not remove his common law entitlement to reasonable notice of termination without providing him with fresh consideration. The Plaintiff relied on section 9(1) of the Employment Standard Act that, upon the sale of a business, his employment was deemed to be continuous for the purposes of the Act.  Olympus Canada argued that the termination clause was contained in a new offer of employment from a new employer and was therefore binding.

The matter proceeded to a summary judgment motion. The motion judge held that the Plaintiff’s employment was continuous and, as a result, he was required to receive fresh consideration for the modification to the terms and conditions of his employment to be enforceable. This decision was appealed by Olympus Canada.

The Court of Appeal overturned the decision of the motion judge. It held that the Employment Contract from Olympus Canada was a new employment contract by a new employer and, accordingly, the offer of employment itself constituted sufficient consideration to be legally binding. The fact that the employee’s day-to-day job did not change materially after the sale of the assets did not change that fact.

The Court of Appeal clarified that although section 9(1) of the Act deems there is to be continuity of employment for the purposes of the Act, it does not deem there to be continuity for all purposes.

What This Means For Employers

The law has long distinguished between the sale of assets and the sale of shares. Where there is a sale of shares, there is no change in the employer and the employment of employees will be continuous. Any changes to the employment contract following the sale of shares must be accompanied with fresh consideration for them to be legally enforceable.

When there is a sale of assets, the purchaser of the assets may offer the seller’s employees employment on terms and conditions that differ from those in place prior to the sale. The purchaser is considered a new employer and therefore is not legally obligated to maintain the same terms and conditions of employment as had been in place prior to the sale. There is, however, a caveat to this.

Section 89 of the New Brunswick Employment Standards Act (like section 9(1) of the Ontario Employment Standards Act discussed above) provides that where there is a sale of business (including a sale of assets) and employment is continued, the employee will be deemed to have been continuously employed by the new employer and his/her prior years of service with the seller will be attributable to the new employer for the purposes of the Act. Essentially, what this means is that for the purposes of determining the amount of pay in lieu of notice and vacation an employee is statutorily entitled to, they can rely on their prior years of service with the seller. However, this provision does not prevent the new employer from modifying other terms and conditions of employment so long as they are in compliance with the Employment Standards Act.

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What Happens to Employment When an Employer Sells its Assets?

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