A Purchaser Business Must be Cautious When Hiring Staff From the Vendor

Written on behalf of Peter McSherry
A welder representing an employee who was terminated after her company was sold to a third party
Background Shape/Fill/Blue Shaded

When a person has worked for a business for many years, it is common practice for them to receive a significant amount of notice upon termination. However, the issue becomes more complicated when the business is sold to a third party, and the employee releases their original employer from liability at the time of the sale. If the new owner then terminates the employee after a short period of time, must they consider the employee’s history with the original business? In a recent decision, the Ontario Court of Appeal said yes.

Over 35 Years With Original Employer

The employee in question had been employed as a welder with her original employer since 1981. In 2017, the original company was sold to a third party. At that time, the original company notified the employee that they had been sold, and that she would be employed by the new company. They also provided her with a payment of nearly $6,000 as reasonable notice for her time with the original employer. This amount represented a period of 8 weeks; the statutory minimum amount set out under the Employment Standards Act. At this time, the employee also signed a release relieving the original employer from any further liability.

Employee and Purchasing Company Dispute Terms of Ongoing Employment

The employee was hired by the purchasing company, however the terms of the employment were in dispute. The business claimed it had hired the employee, along with 19 other employees of the original business, on a temporary basis to perform manual labour in order to facilitate the move of the former business’s equipment.

The employee claimed her understanding had been that she would perform this manual labour and then resume her work as a welder, with the new business viewing her employment period as uninterrupted. Her understanding that her seniority would be carried over the new company.

After the move was complete, the employee was laid off, and never recalled to work. She brought an action against the new employer for wrongful dismissal.

Purchasing Company’s Obligations Not Yet Clear

On a motion for summary judgement, the motions judge found in favour of the employee, awarding her a notice period of 20 months. The judge found that the Release signed in favour of the vendor company had no impact on the purchaser’s obligations. The employer appealed the decision.

On appeal, the ONCA found that the matter was not cut and dry, and therefore not suitable for summary judgement. The Court found it was possible that the release signed in favour of the vendor employer could have an impact on the paymnt obligations of the purchaser employer. In other words, it would potentially be unfair to hold the purchaser liable for more notice than the original employer, which the employee had been with for nearly 40 years.

ON the other hand, the Court also considered the possibility that the pay in lieu of notice from the vendor was much less than a long-term employee with her record would normally expect. This may have created an expectation that her years of service would continue uninterrupted with the new employer, therefore creating a greater notice obligation. The Court ordered the matter to trial for a more in-depth consideration of the issues at hand.

We will continue to follow this case and update it as necessary. Either way, it is sure to have an impact on both employees and employers in the case of a business purchase going forward.

The Importance of Clear Employment Terms

No matter the outcome of this case, it is clear that employers need to ensure that the terms of employment are clearly set out in writing. IN the case of a business purchase, any employees being hired from the vendor business must be aware of how their previous years of service will be treated by their new employer, and what the terms will be in the event of any future termination. This is the best way to limit liability. Similarly, employees must be sure they are clear on what to expect from their new employer and their rights on termination. Failure to establish clear terms will most likely result in costly and time-consuming litigation for both parties.

If you are facing questions about this issue or any employment law question, it is important to get the insight of an experienced employment lawyer as soon as possible. Contact the offices of Guelph employment lawyer Peter McSherry for clear and concise advice on any employment law matters. Contact us online or by phone at 519-821-5465 to schedule a consultation.