The Law can be an Asset Sale

In an earlier post this blog commented upon the issue of successor companies and severance policies. However, another frequent occurrence is where an employer (what I will call “Old Co.”) only sells the assets of the company. In most cases the employee continues to work for the purchaser of Old Co’s assets, with a company that I will call “New Co.” What happens when the employee is terminated from New Co.? Is the dismissed entitled, for the purposes of calculating her notice and severance entitlements, to treat her employment with New Co. as starting when she started with Old Co.?

The recent decision of the Ontario Superior Court of Justice in Drake v. Blach, 2012 ONSC 1855, a decision of the Honourable Justice Ray may appear to signal otherwise.

Facts

In Drake the employee had worked for a medical clinic starting in 1992 for a Dr. Cox. Dr. Cox retired in 1992 and transferred his practice to Dr. Holdsworth. According to the facts set out in Justice Ray’s reasons for decision, “In September, 1998, Dr Holdsworth told the plaintiff that she was leaving the clinic and that the defendant would be calling her about her continued employment.” The plaintiff’s evidence was that the defendant Blach asked Ms. Drake to continue to work at the clinic.

On the face of it, it would have appeared, at least to Ms. Drake, that this situation would be governed by section 9 of the Ontario Employment Standards Act, 2000, S.O. 2000, c. 41 which provides that:

9. (1) If an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment.

9. (2) Subsection (1) does not apply if the day on which the purchaser hires the employee is more than 13 weeks after the earlier of his or her last day of employment with the seller and the day of the sale.

9. (3) In this section, “sells” includes leases, transfers or disposes of in any other manner, and “sale” has a corresponding meaning.

Reading the above provision one might be left with the impression that Mr. Drake’s length of employment, at least for the purposes of calculating her entitlements under the Ontario Employment Standards Act, 2000, would be that starting in 1992, at the very latest when the practice was transferred to Dr. Holdsworth.

Decision

Although Justice Ray makes no specific reference to section 9 in his reasons for decision, his decision was that Ms. Drake’s employment with Dr. Blach started in 1998 and that she was only entitled to notice and severance in respect of 12½ years of service. Justice Ray’s reasons for decision sets out the following:

[29] I find that the defendant took over Dr. Holdsworth’s office, her patients and equipment. But for him, this was a new office with a new lease. There were no contractual arrangements with Dr. Holdsworth. She left and the defendant moved in. I am not satisfied that there is sufficient evidence to permit me to find that the defendant must be taken to have assumed Dr. Holdsworth’s obligations to the plaintiff. It is unfortunate for the plaintiff because she was likely entitled to a termination or severance allowance from Dr. Holdsworth.

Commentary

A question that must be considered is whether Justice Ray’s approach was correct.

The 2007 Court of Appeal for Ontario decision in Abbott v. Bombardier Inc., 2007 ONCA 233 canvassed the issue of how to approach section 9 of the Employment Standards Act, 2000 at length.

According to the facts set out by the Court of Appeal, in that case:

Bombardier entered into a contract with Conseillers en Gestion et Informatique CGI Inc. (“CGI”) to transfer the Bombardier ITS Group to CGI. Under the terms of the contract, Bombardier transferred significant assets to CGI, including computer servers, a mainframe, as well as desktop and laptop computers while CGI agreed to assume the functions and responsibilities performed by the ITS Group and to offer full-time employment to 194 of the members of the ITS Group, including all of the appellants. Significantly, CGI also agreed to recognize each of the affected employee’s original date of hire with Bombardier both for the purpose of determining notice of termination and severance pay under the applicable employment standards legislation and for common law purposes.

The affected Bombardier employees brought an action against Bombardier claiming that they had been dismissed and thus were entitled to termination pay, essentially doing what Justice Ray suggested Ms. Drake should have done with respect to Dr. Holdworth, i.e. claim that she had been terminated and seek compensation.

In Abbott, however, the Court of Appeal disagreed that the employees had been terminated by Bombardier and thus took the position that they were not entitled to any termination pay from their former employer.

In reaching its decision the Ontario Court of Appeal noted that the meaning of “business” in section 9 of the ESA is to be given an expansive interpretation (para. 20), noting in particular that:

The purpose of s. 9 of the ESA is to protect minimum statutory entitlements that are related to length of employment where the purchaser of a business, or part of a business, continues to employ the employees of the vendor following the sale. Such entitlements include: vacation entitlements, entitlements to pregnancy and parental leaves, as well as entitlement to notice of termination or pay in lieu of notice and severance pay. In our view, this statutory purpose is apparent from the expansive definitions of business and sale that are included in the ESA, the nature of the protections the ESA provides, and the wording of s. 9 of the ESA.

The Court of Appeal decided the issue of whether or not a “sale” of a part of the “business” had occurred with reference to the following test: had the former employer “transferred a specific bundle of tasks and functions performed by an identifiable group of employees?” The answer was demonstrably that yes, Bombardier had. Accordingly, the Court of Appeal in Abbott held that a “sale” had taken place and the Bombardier employees had not been dismissed from their employment; a decision, I would respectfully submit, opposite to that found by Justice Ray in Drake.

Returning to the point at hand, the common refrain from employer counsel when this issue is raised is that the sale from Old Co. to New Co. was one of assets only, and that the employee's remedy is from her previous employer, not the new employer. Justice Ray’s decision in Drake echoes that position.

However, I would respectfully submit that as much is not necessarily always the case and that one must look beyond the simple issue of what was sold to what was really sold. As the decision in Abbott demonstrates, more may have been “sold” than initially meets the eye.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

Sean Bawden, publisher of Labour Pains, can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321.

Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. He is also a part-time professor at Algonquin College teaching Trial Advocacy for Paralegals and Small Claims Court Practice.