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28 April 2021
In a recent decision, the Ontario Court of Appeal commented on the state of the law in Ontario regarding an employee's entitlement to reasonable notice of termination when their employer sells its business and the successor employer subsequently terminates the employee.(1) The court confirmed that an employee's length of service with the vendor employer will be considered, together with their prior experience and the benefit of that experience to the successor employer, when determining the appropriate reasonable notice period.
While various issues relating to the original summary judgment motion were appealed, the emphasis of the Court of Appeal's decision was to reiterate how the common law treats long-service employees who are terminated by the successor employer following a sale of business. At the heart of this issue is the distinction between the treatment of the employee under the Employment Standards Act (ESA) 2000 and the common law. Under the ESA, the employment of employees of the vendor of a business who are employed by the purchaser are deemed not to be terminated for the purposes of the ESA. However, the common law takes the exact opposite approach: that is, where the assets of a business are sold, the employment relationship is deemed terminated unless the employees accept offers of employment made by the purchaser.
The common law approach to reasonable notice recognises the difficult circumstances in which employees are placed when their employer sells their business and the successor employer offers to employ them on an indefinite basis. In general, long-term employees who are terminated without reasonable notice can expect a substantial payment of damages in lieu of notice. However, terminated employees have a duty to mitigate their damages. In the circumstances of a sale of business, if the employee refuses to accept their new job offer from the purchaser, generally the doctrine of mitigation will limit any claimed damages resulting from the termination.
The Ontario Court of Appeal recognised this issue, stating that:
long-term employees, who are employed by the purchaser of their employer's business, have little prospect of obtaining damages for the termination of their employment. Damages aside, the court noted that people need jobs and as a result employees terminated by the sale of a business often have no realistic option other than to accept the offer of a new contract of employment with the purchaser if such is offered. If they are subsequently terminated by the purchaser, the new start date of their term of service weighs in favour of a shorter notice period than had the business not been sold.
This predicament has been the subject of many cases in Canada. In this case, the Ontario Court of Appeal reiterated that the longstanding approach in Ontario previously outlined in Addison v M Loeb Ltd (1986 CanLII 2474 (ON CA)) will continue to apply. In Addison, the court resolved this predicament by giving "some recognition" to the period of employment with the predecessor employer when determining the length of the notice period unless there is "an express understanding to the contrary". In doing so, the court will attach appropriate weight to the employee's "experience" with the vendor employer, one of the factors in the generally accepted formulation for the determination of reasonable notice
This is not to say that it is appropriate to 'stitch together' the length of employment that the employee had with the vendor employer to that of the successor employer as is the case under the ESA. Rather, length of service with the vendor employer will be a factor to consider, together with the employee's prior experience and the benefit of that experience to the successor employer, when determining the reasonable notice period.
Common law notice entitlements can catch purchasers off guard. Determining the possible extent of a successor employer's obligations to long-service employees is an important component of any transaction. This decision clarifies that an employee's common law entitlements are not ascertained simply by adding the length of service with the vendor employer and the successor employer together. Instead, the court will consider the value of the employee's experience, along with all of the other factors that are traditionally considered when determining the reasonable notice period.
For further information on this topic please contact Lisa Cabel, Richelle Pollard, Kaley Dodds or Derek Klatt at KPMG Law by telephone (+1 416 777 8000) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The KPMG Law website can be accessed at www.kpmg.com.
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