Saturday, 7 April 2018

Everything New is Old Again: Continuity of Employment in an Asset Sale at Common Law

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), authored by Kelly Santini alumna, the Honourable Madam Justice Sylvia Corthorn, 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.

Facts

The case concerned a claim made by John Arris against his former employer, NORR Limited Architects & Engineers (“NORR”)

Mr. Arris’ career as an architect in the Kingston area began in February 1986. He was hired by Dominik Thompson Mallette, Architects and Engineers Inc. (“DTM”), as an architect on a full-time basis. He remained with DTM and, in 1993, was promoted to the position of a Director and Partner within the firm. In that role he fulfilled managerial responsibilities and continued his work as an architect.

In the fall of 2002, DTM sold its business assets to NORR. DTM’s business operations were wound up as of November 4, 2002. As between DTM and NORR, the intention was that a number of the DTM employees would, once DTM ceased operating, become employees of NORR. The plaintiff, Ariss, was one of those individuals. Ariss described the change from DTM to NORR as a “transfer” of his employment from the former to the latter.

In January 2016, NORR terminated Ariss’ employment. They gave Ariss 3.5 weeks’ notice of termination and offered to continue Ariss’ benefits for a period of two weeks following the effective date of termination. NORR did not provide Ariss with severance pay.

Ariss sued and then brought a motion for summary judgment.

Issue and Arguments

Among the issues that the court was asked to resolve in this case was whether Ariss’ employment with DTM was terminated by the sale of the business in 2002, or whether Ariss’ service with DTM was continuous with his service with NORR.

Ariss argued that his employment was never legally terminated and that his service with DTM was to be counted in the computation of his total years of service with NORR.

NORR’s position was that Ariss’ employment with DTM was terminated effective Friday, November 1, 2002, and Ariss accepted an offer of employment with NORR commencing Monday, November 4, 2002.

Decision

In deciding that Ariss’ service as an employee with NORR was deemed to have commenced in February 1986, i.e. when Mr. Ariss commenced his employment with DTM, the Honourable Madam Justice Sylvia Corthorn of the Ontario Superior Court of Justice sitting at Ottawa reasoned as follows:

[34] Section 9(1) of the [Employment Standards Act, 2000] provides protection to employees with respect to continuity of service when a business is sold:

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.

[35] There are two pre-conditions to be met for the operation of section 9(1). The pre-conditions are straightforward: “(1) that an employer sells his business to a purchaser; and (2) that the purchaser employs an employee of the employer” (Ontario (Employment Standards Officer) v. Equitable Management Ltd. (1990), 1990 CanLII 6973 (ON SC), 75 O.R. (2d) 506, 40 O.A.C. 334 (Div. Ct.)).

[36] I find that the two pre-conditions for the operation of section 9(1) are met in the matter before me. First, DTM (the employer) sold its assets to NORR. In section 9(3) of the ESA, “sells” is defined as “leases, transfers, or disposes of in any other manner.” I find that the sale of DTM’s assets to NORR in September 2002 falls within the meaning of “sells a business or a part of a business” in section 9(1) of the ESA. Second, in its capacity as the purchaser, NORR employed Ariss (the employee).

[37] With the two pre-conditions met, two results follow. First, regardless of the letter of termination received from DTM, Ariss’ employment was not terminated. Second, for the purpose of notice of termination, vacations, and other subjects addressed in the ESA, Ariss’ service with NORR is deemed to have commenced in February 1986 (when Ariss was hired by DTM).

[38] If the statutory protection were not enough, Ariss also has the protection provided by the common law. There is nothing in any of the documents executed in 2002 to suggest that NORR intended that former DTM employees would not be credited for their years of service with DTM. Most important, there is nothing to that effect in the offer letter signed by Ariss. In the absence of notice from NORR that Ariss would not be credited for his years of service with DTM, recognition of that service is deemed to be part of Ariss’ contract of employment with NORR (Vinette v. Delta Printing Limited, 2017 ONSC 182, 278 A.C.W.S. (3d) 756, at para. 21).

Commentary

Of all of Justice Corthorn’s findings, her comment that “In the absence of notice from NORR that Ariss would not be credited for his years of service with DTM, recognition of that service is deemed to be part of Ariss’ contract of employment with NORR” strikes me as the most provocative.

In making such a statement of law, Justice Corthorn cited the earlier decision of Vinette v. Delta Printing Limited, 2017 ONSC 182, 278 A.C.W.S. (3d) 756, a 2017 decision of Justice MacLeod, also of the Ontario Superior Court of Justice sitting at Ottawa.

Justice MacLeod, in his reasons for decision, made a similar statement, which was itself based upon the decision of Violo v. Delphi Communications Inc., 2014 ONSC 7008, which had adopted the reasoning of the British Columbia Court of Appeal in Sorel v. Tomenson Saunders Whitehead Ltd. (1987), 16 C.C.E.L. 23 (BC CA).

In short, it would appear that, purchasers of assets, who intend to make offers of employment to new employees, would be prudent to give clear notice of their intention to form new agreements and not give credit for past years of service if such is their actual intention. If the employer fails to waive such a banner, the court can and will impute such years of service on the unwitting purchaser.

For decisions going to other way, and finding that a new employer creates a whole new relationship, see the decision of the Honourable Justice Ray in Drake v. Blach, 2012 ONSC 1855, about which I blogged in my post The Law can be an Asset Sale.

Takeaways for Employees with Labour Pains

The takeaway for employees with labour pains is that if you work at a business, and your employer changes, be mindful of what, if anything, you are asked to sign. As I blogged about in my post, Brave New World: ONCA Says that in Asset Transaction, an Offer of Employment is Sufficient Consideration for Material Changes, a change in owners is a great time for changes to one’s employment contract and employees need to be aware of such changes.

The good news is that if that new agreement is silent on the issue of credit for past service, there is a compelling argument that all past service should be looked at if and when it comes time to calculate one’s entitlement to notice and severance.

If you are an individual looking for assistance with respect to the interpretation or enforceability of the terms of your employment contract, contact the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP; we would be happy to be of service to you.

Takeaways for Employers with Labour Pains

The takeaway for employers, especially those who are looking to complete an asset purchase is to ensure that you are using good, professionally drafted, contracts of employment. Those agreements should not only limit your obligations on termination, but should also make plain that you do not intend to give credit for any past years of service with the previous employer (if the same be your intention.)

If you are an employer and you need to make changes to the terms of your employee’s employment, or if you want to introduce written employment agreements with your staff, the professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP would be happy to be of service to your business or organization.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

Sean P. Bawden is a partner with Kelly Santini LLP, located in Ottawa, Ontario, Canada. He practices in the areas of employment law and civil litigation. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.

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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.

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