Written by Daniel Standing LL.B., Editor, First Reference
In a previous First Reference article I wrote on our news service HRinfodesk, the Ontario Superior Court of Justice’s decision in which a successor employer was held liable for a 20-month notice period was written about because of the legislative presumption of continued employment in these circumstances. Readers may refer to that article for an overview of the key facts. Since then, the case was appealed and decided by the Ontario Court of Appeal. In rendering its decision, the court analyzed the common law approach to the calculation of reasonable notice, concluding that the worker’s past experience with the vendor company was a factor in calculating reasonable notice.
Issues on appeal
On appeal, ASCO argued that the motion judge erred in deciding that summary judgment was appropriate when there were material facts in dispute and an outstanding third-party claim. It also took issue with the judge’s characterization of Ms. Manthadi’s employment with ASCO as being a continuation of her employment with 637 for the purposes of calculating reasonable notice. The appellant argued the judge improperly assessed the quantum of damages in lieu of reasonable notice, and finally, it argued that the judge was wrong not to have reduced the damages by the amount paid to Ms. Manthadi by 637 under a settlement and release agreement.
The Court of Appeal’s decision
The court first dealt with the matter of summary judgment, concluding that it was not appropriate in the circumstances. Relying on its past jurisprudence, the court noted that a motion for summary judgment will be appropriate only in exceptional Rule 76 (simplified procedure) proceedings. The court stated two main reasons for this. First, it will often be more efficient to simply proceed to a summary trial, as the simplified procedure rules are designed to get the parties to trial while minimizing time and expense. Second, the simplified procedure rules limit parties’ ability to present evidence on a summary judgment motion and put their best foot forward. The court stated that, as in this case, a summary judgment motion should be discouraged if it would require the parties to prepare for and deal with additional procedures such as examination for discovery or cross-examination on affidavits. In those cases, the parties’ time and money would be better spent preparing for a summary trial.
The bulk of the Court of Appeal’s decision concerns the common law approach to reasonable notice by a successor employer. The court begins this part of its analysis by stating that long-time employees face a difficult choice when, after the sale of their employer’s business, the successor employer offers to employ them. This is because terminated employees have a duty to mitigate their damages, so by accepting employment with the purchaser of their employer’s business, they have little chance of obtaining damages for the termination of their employment. There is often no realistic option other than accepting the new employment. If they are subsequently terminated, the new start date with the subsequent employer would weigh in favour of a shorter notice period. According to the court, this dilemma is resolved by the Addison decision of the Ontario Court of Appeal when, in 1986, the court held that “some recognition” should be given to the period of employment with the predecessor employer when determining the length of the notice period. This, it held, was part of the “experience” factor as set out in Bardal. According to the court in Addison, the successor employer is at an advantage when it inherits employees since it avoids the burden of cost and time involved in having to recruit and train its workforce. However, Addison only went part way toward solving the dilemma since it “did not stitch together the employee’s terms of service with the vendor and the purchaser and consider them one continuous period of employment.
The court stated that while Addison remains the law in Ontario, a court applying the Bardal factors is still capable of fairly dealing with a successor employee situation, “without stitching together the employee’s two terms of service.” The Addison approach, according to the court, does not use “a notional length of service as the yardstick of appropriate notice.” Rather, it allows a court flexibility to deal with many types of circumstances by analyzing the employee’s experience with the vendor employer in crafting a fair outcome, taking account of all of the circumstances.
Next, the court describes the circumstances when the common law recognizes prior service with the predecessor employer. This is the case in a situation where an indefinite employee of the vendor is then employed as an indefinite employee of the successor employer who purchased the business. Although the employee is constructively dismissed at common law when the vendor sells the business, he or she enters a new employment contract with the new employer. As such, the employee’s connection to the ongoing business is continuous. Even if the employee’s job responsibilities are changed, or the purchaser offers the employee a promotion, the essential fact remains constant: Despite the change in the employer’s identity, the employee has maintained an uninterrupted connection to the workplace. In this situation, the common law will recognize the prior service when a calculation of reasonable notice must be done.
Finally, the Court of Appeal dealt with the motion judge’s determination that the settlement and release agreement signed by Ms. Manthadi and 637 was not a relevant circumstance in assessing the length of the notice period. The court disagreed, stating that it was potentially relevant in several ways. For one, the payment made to her under the agreement could be considered relevant to the length of the notice period that was assessed against ASCO. The court states that a payment of any nature that is received by an employee “in respect of the termination of employment for which they are seeking ‘some recognition’ from the successor employer is relevant in determining a remedy that is fair in all the circumstances” to both parties. Another factor that may be relevant is the facts that surround the making of such an agreement: They may influence how the employee understands he or she will be treated on the sale of the business and the terms on which they enter employment with the successor employer. Combined, these factors made the settlement and release agreement relevant, and the motion judge erred in concluding otherwise.
The Court concludes its judgment by returning to the facts of the case and noting the fundamental factual dispute between the parties: Whereas ASCO claims it hired Ms. Manthadi as a general labourer on a temporary basis, Ms. Manthadi claims she was hired as an indefinite employee. The parties also differed in their understandings about whether Ms. Manthadi would be credited with her years of service with 637.
The Court set aside the summary judgment that was granted by the motion judge and ordered that the matter proceed to trial where ASCO would bear the burden of proving that Ms. Manthadi was a fixed-term employee. If it fails to do so, the court stated that ASCO would then have to displace the presumption that Ms. Manthadi’s prior service with 637 should be recognized in assessing reasonable notice. In making that assessment, the trial judge must give due weight to the employee’s prior experience, the settlement and the release agreement.
This case serves as a valuable statement of the common law principles that govern an employee’s rights to reasonable notice from the purchaser of an ongoing business in Ontario. In situations where the employee remains working in the business despite the change in ownership, there is a presumption that his or her service with the predecessor employer will be considered under the heading of “experience” when a judge calculates reasonable notice. For this reason, successor employers must be cognizant that it is not merely the employee’s service after the change in business ownership that will be relevant to such a calculation. While all of the Bardal factors continue to be relevant in calculating reasonable notice, a lengthy total period of service may cause successor employers to think twice before terminating an employee. While the decision represents the state of the law in Ontario, it will be considered persuasive authority in other jurisdictions. Employers are encouraged to seek legal counsel when considering the termination of an employee whose work continuously bridged the gap between predecessor and successor employers to ensure the appropriateness of any period of reasonable notice they are contemplating.