Employers: Selling Assets or the Entire Business?

Written on behalf of Peter McSherry

Employees who work for a company that has been sold may experience some anxiety over what that means for their future as an employee with the company. In some situations, the buyer of a business may look to continue operating it, perhaps even under the same name as the previous owner. In other situations, the purchaser may only be looking to buy the assets of the business.

Depending on the type of sale, employees may be subject to significant implications once the business has changed hands. In a recent decision from the Ontario Superior Court of Justice, an employee who was laid off claimed she was entitled to more severance pay than the employer offered to provide her with. The employee claimed that the business was still operating under the new ownership, while the employer argued they had only purchased the assets from the old employer and had no intention of hiring the employee.

Employer business changes hands

In the matter of Manthadi v ASCO Manufacturing, the employee, who was 69-years-old at the time of the hearing, started working for her previous employer (referred to as “637”) in 1981. She was a welder for the employer who manufactured tables and desks. In November 2017, the business was purchased by a new company referred to as “260”. 260 purchased all of 637’s tangible and intangible assets, excluding accounts payable and accounts receivable.

The employee claimed that she was offered, and accepted, continued employment with 260 in the week following the closing of the business sale. However, 260 claimed that they offered the employee a fixed-term contract to work as a general labourer and help move 637’s assets to its own property. 260 stated that the plan was always for the employee’s employment to end after completing this task.

Summary judgment granted in favour of the employee

A decision was issued by summary judgment in 2019, in which the judge determined that, in accordance with the Employment Standards Act, the employee’s employment was continuous for 36 years through the purchase of the business and up to her termination. Therefore, the Court found that she was entitled to damages of $66,391 for wrongful dismissal.

260 successfully appealed this decision before the Court of Appeal for Ontario, who set aside the summary judgment and ordered that the matter proceed to trial.

At trial, there were several issues before the Court, including whether a release signed by the employee prohibited her from seeking damages from 260. If the Court found that the answer to this question was “no,” then the Court would be required to consider whether she was hired, and if so, whether she was entitled to damages from the start of her employment with 637, or only from the start of her employment with 260.

Affidavit evidence inadmissible

The Court began its analysis by noting that some of the evidence put forward in the affidavits leading up to the summary judgment would not be admissible, including the employee’s statement that she was told, by a colleague, that she would be offered continued employment. The employee also wrote that on or about November 6, 2017, she was offered and accepted continued employment with 260, however she was not able to identify who made that offer.

The affidavit from the owner of 260 also contained a number of statements that were not admissible.

Employee believed release pertained to previous employer

The Court acknowledged that the employee had signed a release agreement, but the employee argued that she did not sign it, nor did she accept a payment of $5,900 until after she had accepted continued employment with 260. She told the Court that she was under the impression that the release and payment were from 637, and had no direct relation to her continued employment with 260.

The Court considered the employee’s work situation following the sale of the business, noting that she was not asked to submit a resume or interviewed. Further, there was no written agreement between the parties. The owner of 260 argued that it was never his intention to offer permanent employment to the employee or any other existing employees as their business already had a sufficient team of staff members.

Employee placed on temporary layoff by new company

The paycheques received by the employee stayed the same when 260 took over, as she continued to work the same amount of hours, and the name on the cheque stayed the same (rather, it remained the same name which the business operated under). However, the employee saw a reduction in her vacation pay rate from 6% to 4%.

The employee claimed that things continued to operate in a normal fashion until she was called on December 11, 2017, and told not to return to work. Two days later, she was advised that she was being placed on a temporary layoff. She said she had exchanged a number of texts with the owner of 260 who told her he would let her know when she could return to work. However, future inquiries from the employee went unanswered.

Eventually, the employee received a Record of Employment from 260 stating that she was employed from November 6, 2017 to December 13, 2017.

New company communication obligations with existing employees

The Court considered the evidence from the owner of 260 and determined that if he had intended to hire the employee on a temporary basis, he was obligated to communicate this to her in order to provide her with the opportunity to accept or decline the offer. Therefore, the Court concluded that the employee’s employment with 260 was indefinite and was not on a fixed-term contract.

The Court was then asked to calculate the employee’s years of service, which included consideration of her time with 637. When determining whether 260 purchased just the assets of 637, or bought it as a “going concern”, the Court considered the following factors:

“a) the nature of the transaction;

b) the portion of the sale price allocated to goodwill;

c) whether the duties of the individual or the terms of the employment with the new company are similar to and of the same character to the duties the individual had performed for the vendor of the business;

d) whether the individual received a substantially reduced salary and no benefits;

e) whether the purchased company had ceased its operation prior to the purchaser and vendor entering into discussions for the purchase and sale of the company;

f) whether the vendor told their employees that the purchaser would not recognize their prior service;

g) whether the purchaser told employees that it would be “business as usual”; and

h) whether the purchaser retained all of the vendor’s employees and the right to use the vendor’s name.”

Was the plaintiff employed, and if so, for how long?

The Court found the facts to be neutral on the first three factors, however, noted that the employee’s salary remained the same following the business purchase as a going concern and 637’s operations remained ongoing following the business purchase by 260. It was also found that 260 did not communicate with 637’s employees as to whether their prior service would be recognized. Finally, the Court found the final two factors to be neutral.

Ultimately, there was enough evidence for the Court to rule that the purchase of 637 by 260 amounted to one of a going concern and awarded the employee with 12 months of pay as notice, which amounted to $39,834.44 based on her 2016 earnings.

Contact Guelph Employment Lawyer Peter A. McSherry for Trusted Advice on Severance Packages and Terminations

Skilled Guelph employment lawyer Peter A. McSherry has extensive experience advising employees on their rights following termination, including whether their circumstances may amount to wrongful or constructive dismissal, and whether a proposed severance package is fair. To ensure that you are equipped with sufficient knowledge and can make informed decisions when looking to move forward, contact us by phone at 519-821-5465 or online to schedule a confidential consultation.