The Oddities of Connected Employment

Written on behalf of Peter McSherry

Take a very common fact situation. Company A is the long-term employer of a 64-year-old welder who has worked for Company A for 36 years. Company A is now being sold to Company B. Company A agrees to pay the employee the statutory notice which in this case amounts to 8 weeks. The employee signs a release in favour of Company A.

On the date of the closing of the sale to Company B, Company B hires the plaintiff. A few months later, the employee is terminated.

These are the facts in a recent decision, in which the employee brought a claim against Company B for wrongful dismissal. The central issue became the length of the employee’s employment with Company B to establish the proper common-law notice period.

Continuous Employment Found

The trial judge found in favour of the employee and counted the entire length of employment history with both companies to establish the common-law notice period. An award of 20 months’ severance was allowed, interestingly without any credit for even the 8 weeks’ notice originally paid by Company A.

The judge looked to a provision in the Employment Standards Act which counts employment history between connected companies on a sale. This provision is intended, however, for statutory notice and not common law entitlement.

The judge concluded that as there was an absence of any term in the hiring documents which stated that past service would not be credited, therefore it was presumed to be tacked on to the service record with Company B.

The outcome of this case no doubt was a surprise to Company B, which presumably believed that it was hiring a new employee with a short track record at the time of dismissal.

Takeaways for Employees and Employers

The hiring documents can be critical. In this case, had the employee been aware that she was to be treated as a new hire for common-law purposes, she may well not have signed the release in favour of Company A.

She would, in that context, have been well-advised not to sign the release until she was aware of how long her relationship with Company B would last. If for example, she was terminated by Company B after 4 months, she would have been able to sue Company A for the balance of the common-law notice period, which in this case would have been 16 months.

These decisions made by employees on the sale of a business are difficult, as they do not usually know the buyer or its true intentions.

The time for an employee to seek legal advice would have been upon the offer of severance made by Company A and when the offer of new employment was made by B. Even then, there may have been some guesswork involved, but legal advice must be the underpinning of any strategic employment decision.

Ironically, in this context Company A had no obligation to offer even the statutory severance pay that it did, as the employee’s employment was deemed continuous. It was smart, however, to do so because it removed itself from the liability of a lengthy severance sum as it would likely have also been sued.

This may not be the last word on this case, as it remains questionable whether the decision on connected employment based on the statutory term is correct.

Legal Advice Can be Critical

This issue is regrettably complex. If you are facing questions about this issue or any employment law question, get advice. Know your rights. Contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation.