Sale of Assets and Termination Notice

Businesses’ assets are regularly bought or sold, but what happens to an employee’s length of service and reasonable notice common law entitlement?

Normally, when an employee is dismissed without cause and without a valid employment agreement limiting their termination entitlements, the employee is owed common law reasonable notice based on Bardal factors, which includes length of service.

Recently in Manthadi v ASCO Manufacturing, 2020 ONCA 485, the Ontario Court of Appeal clarified how common law reasonable notice is affected by a sale of a business’s assets.

The Motion for Summary Judgment Decision

In Manthadi v ASCO Manufacturing, 2019 ONSC 5572, the employee, Ms. Manthadi, was employed by 63732 Ontario Ltd. (“637”) for around 36 years. Down the road, this company was purchased by 2603420 Ontario Inc, who also took the name ASCO Manufacturing Ltd. (“ASCO”). Upon selling its assets, 637 provided Ms. Manthadi with a termination package in exchange for a signed release.

As the transaction was an asset sale, there was no legal obligation for ASCO to hire 637’s employees. ASCO did hire Ms. Manthadi, but effectively dismissed her one month later.

Ms. Manthadi sued ASCO for wrongful dismissal. ASCO commenced a third-party claim against 637.

Relying on section 9(1) of the Employment Standards Act, 2000 (“ESA”), the motion judge held the employee had been continuously employed, and that ASCO was liable to pay the plaintiff twenty (20) months of reasonable notice due to the combined length of service. ASCO appealed.

The Ontario Court of Appeal’s Decision

The Ontario Court of Appeal held the motion judge had erred in finding  Ms. Manthadi’s employment had been continuous. The Court relied on Addison v M Loeb Ltd (1986), 53 OR (2d) 602 to distinguish between employees who are dismissed by a successor employer under the ESA and under the common law. Under the latter, an employment agreement cannot be assigned to a new employer without their consent.

In addition, while calculating the appropriate notice period does not simply mean combining the service periods with the vendor and the purchaser together, special consideration must be given to a long-term employee who has been dismissed after an asset purchase, but provided services to the purchaser.

Typically, these employees are caught in a rock and a hard place, where they must accept the purchaser’s employment to properly mitigate, but then the mitigation robs them of constructive dismissal damages they could seek from their previous employer.

Therefore, such employees should receive recognition for their experience with the predecessor employer, unless there is an explicit agreement to the contrary. Courts are required to consider the added value of the employee’s experience when determining the appropriate notice period.

Take Away for Employers

Even in asset sales, an employee’s previous experience with the vendor may increase the notice period. Employers of purchasing companies who rely only on the employee’s length of service with the purchaser risk being sued for wrongful dismissal. Employers of vendor companies also risk being sued where they provide inadequate termination package.

Prior to buying or selling a business or dismissing employees, it is crucial to consult with a legal professional who can examine all the factors in your matter to ensure you are complying with the law. Legal professionals can also draft or review your purchase agreements to ensure it is clear exactly which company is liable for what.

Take Away for Employees

For employees—your notice period might not be as significant as you think, despite your lengthy years of service. Before signing anything or accepting anything, you should review your matter with a legal professional to ensure you are not giving up your legal rights, and to ensure you are fulfilling your own obligations. For example, a failure to mitigate can disentitle you from damages you might otherwise have received.

Contacts Us for Help

If you are a employer who is selling or buying a business, or will be dismissing an employee, or an employee who wants to know your legal rights, our team of experienced legal professionals at Achkar Law can help. Contact us by phone toll-free at 1 (800) 771-7882 or email us at [email protected] and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support, visit our CLO program page for our strategic solutions.

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Disclaimer: This blog is not intended to serve as, or should be construed as legal advice, and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call 1-(800)771-7882, or email [email protected].

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