Can an employee extinguish his statutory right to severance pay by way of a full and final release signed in the context of a share sale?
According to a 2018 decision of the Court of Appeal for Ontario, Kerzner v. American Iron & Metal Company Inc., 2018 ONCA 989 (CanLII), the answer to that question is a resounding “no.”
The case has real implications for those who practice employment law in the context of the sale of a business.
What happens in an asset sale transaction, if the purchaser / new employer neglects to give actual notice to an employee of the vendor, whom the purchaser intends to employ, that the employee will not be credited for his past years of service with the former employer/vendor once he becomes an employee of the purchaser?
According to a 2018 decision of the Ontario Superior Court of Justice sitting at Ottawa, Ariss v. NORR Limited Architects & Engineers, 2018 ONSC 620 (CanLII), the answer is:
In the absence of notice from new employer/purchaser that an employee will not be credited for his years of service with former employer/vendor, recognition of that service is deemed to be part of employee’s contract of employment with purchaser – regardless of any letter of termination actually received by the employee from the vendor.
Is an employee who is slated to lose his or her employment as a result of the sale of part of his or her company required to accept an offer of employment from the purchaser, if that offer of employment is on substantially less favourable terms?
If the employee reasonably rejects that offer, then what is the maximum amount of ‘severance’ to which a wrongfully dismissed employee can be entitled? While many will tell you that 24 months is the most a court will ever award for reasonable notice, as this blog has noted on more than one occasion, see e.g. What is the Maximum Amount of Reasonable Notice Under Ontario Law? and Is Twenty-Six the new Twenty-Four? Taking the 'Cap' off the Limit on Reasonable Notice, and as the Honourable Justice Lois Roberts (now of the Court of Appeal for Ontario) said in the case of Hussain v. Suzuki (2011), 209 A.C.W.S. (3d) 101 (ON SC):
There is no cap on the amount of reasonable notice of employment termination to which an employee may be entitled.
On February 20, 2018, the Ontario Superior Court of Justice in its decision in Dussault v. Imperial Oil Limited, 2018 ONSC 1168, once again confirmed that there is no such thing as a “hard cap” at 24 months and took a good, hard look at the obligations of an employee to mitigate his or her damages by accepting a substantially less lucrative offer of employment from the purchaser in an asset sale arrangement.
In an asset-sale transaction, if the purchaser offers to employ an employee of the vendor, can the purchaser vary some (or all) of the fundamental terms of the employee’s employment contract and rely on the offer itself as sufficient legal consideration for such changes?
In the case of Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA 873, Ontario’s top court ruled that it can.
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A typical term of any significant asset purchase agreement, which sees the employees of the vendor continue in employment with the purchaser, is that the purchaser will make offers of employment on substantially similar terms to the vendor’s employees. As is more fully explained in my post Continuity of Employment Following the Sale of a Business, pursuant to the provisions of Part IV of the Ontario Employment Standards Act, 2000:
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.
But what if one (or more) of the employees (unreasonably) refuses the purchaser’s offer? Is that employee still entitled to ‘severance’ pay? The answer will surprise most employers.
Taking on the employees of another business can create unexpected financial obligations for employers. For example, this blog has previously looked at cases of employers being found responsible for an employee's past year of service when that employer takes over or otherwise acquires a business, see Two Employers Under One Umbrella Both Get Soaked by Judge.
Those cases beg the question: When will an employer not be deemed responsible for an employee's past years of service with another company? While the answer to that question is simple - when the two companies are wholly unrelated to one another - as the case of Paul Amaral v Verona Floors Inc., 2016 ONSC 5763 (CanLII) demonstrates, sometimes knowing when two companies are unrelated is a complicated question.
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”What are we doing about the employees?” That is the all-too-familiar question asked in the purchase and sale of a business. Are all the employees fired on closing? What happens if they continue working for the purchaser? Who is responsible for paying them severance?
In fact, there are a lot of questions concerning employees in the context of a purchase and sale of a business; presuming that the business has employees.
The purpose of this post is to look at some of the issues and legal implications involved in selling or buying a business, which is also an employer.
For many, the prospect of retirement is a welcome thought. Perhaps you will finally have more time to spend with your spouse, children, or grandchildren. For others, retirement is an opportunity to catch up on golf, travelling, or just plain doing nothing.
For many business owners, including professionals such as doctors, lawyers, and accountants, the means by which to finance such a retirement have often come by way of a sale of one’s business or practice. A book of business can have incredible value to a willing purchaser and certainly our firm has helped several professionals successfully sell their business.
While my colleagues in Kelly Santini LLP's business law group would be more than happy to be of service to you with respects to the legalities of such a sale, the purpose of this post is to consider the employment law considerations of selling a business; because, in addition to being a successful business owner and professional, most such individuals are also employers.
Something that most business owners fail to appreciate is that, while, for all the years that one’s loyal staff has been an asset, for potential purchasers, long-service employees can be an costly liability.
This post will look at:
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.
