After a company is sold, this can bring some changes to the employment situation of existing employees. Sometimes, existing employees will be kept on, and other times, they may be asked to work temporarily for the new employer. Depending on whether an employee is considered to be on a fixed-term or indefinite-term employment contract, this can affect their rights and compensation to which they may be entitled. The employee’s status may also depend on how the business was sold (i.e. asset or share sale).

In this post, we will provide an overview of the differences between the entitlements of a fixed-term employee vs. an indefinite-term employee. We will examine a recent case, Manthadi v ASCO Manufacturing, 2023 ONSC 3499, which involves the sale of a business. An existing long-term employee, in that case, claimed that they continued employment on an indefinite term, whereas the new employer claimed that the existing employee was on a fixed-term contract, which involved different compensation entitlements. 

Ultimately, the court found that the employee was on an indefinite-term contract. We will discuss how the court came to its conclusion, which will provide helpful insights for employees and employers when an existing employee continues to work for a company after it is sold. 

Fixed-term vs. indefinite-term employment contract 

First, it is important to understand the difference between a fixed-term and indefinite-term employment contract and what rights flow from this distinction. 

Fixed-term employees have the following characteristics:

• The employment term is fixed, meaning that there is a definite start and end; 
• The employee’s duties typically are required to be completed within a specified time period; 
• The employee’s work is meant to assist with a temporary need; 
• The employee does not have permanent status with the employer. 

Indefinite-term employees have a permanent status with the employer and are not hired to deal with a temporary need or project that is to be completed during a set period of time. They are also entitled to reasonable notice or pay in lieu of notice upon termination, which can include minimum standards set out by the Employment Standards Act, compensation required under common law, and any other relevant terms in the employment contract. 

Generally, employers are not required to provide reasonable notice of termination for employees on a fixed-term contract, as the employment relationship ends at the date specified in the contract. There are exceptions to this rule, however, such as if the employee is terminated before the end of the project term as set out in the contract. 

When a business is sold, it can be unclear to an existing employee whether they are now on a fixed-term contract or indefinite-term contract with the new employer. This was one of the issues in the Manthadi case described below. 

Existing employee not informed of temporary basis of employment with new employer 

The employee was a welder working for a company that manufactured tables and desks. She worked with the employer for 36 years until the business was sold to a new owner, ASCO. 

After the business was purchased, the employee claimed that she was offered employment from ASCO to continue her role as a welder. She was terminated one month later and sought damages for wrongful termination. 

ASCO claimed that they hired the employee on a temporary basis to move assets to a new location. They claimed that after this task was complete, her fixed-contract term ended, and she was not entitled to notice or pay in lieu of notice for her termination. 

Existing employee continues to work for new employer without written contract 

After the business sale, the employer did not request a resume or interview from the employee. There was no evidence of a written employment contract between the employee and the new employer. She did, however, continue to work for ASCO. 

The employee claimed that ASCO never informed her that her work would be temporary. She also stated that she understood that employment with ASCO would be ongoing and her many years working at the company would be recognized. 

ASCO claimed they intended to hire other workers from an employment agency to help with the relocation but offered this temporary work to existing employees as a reasonable gesture while they were looking for new positions elsewhere. Also, they claimed that they had enough existing workers to operate the business from their other manufacturing business. It was, therefore, unnecessary to hire any employees working with the previous employer other than to assist with the relocation temporarily. ASCO also claimed that they did not require the employee as a welder because they used a different form of welding in their manufacturing. 

However, ASCO conceded that they did not inform the employee that they were only hiring her temporarily and not on a long-term basis. They should have informed her that her work would end after the relocation. 

The employee continued to work for ASCO as a welder. She worked at the same hourly rate and worked the same hours as her previous role, according to her pay stubs. Her duties also involved more packing to assist with the move. There was no welding station at the new location, but it was her understanding that she would continue welding at the new location. 

The court found no evidence that ASCO informed the employee that her work with this new employer would be temporary. There was no written contract setting out these terms, and there needed to be evidence that she was otherwise verbally informed by ASCO. 

It needed to be more sufficient for ASCO to claim that the previous employer had told the employee she was to continue working on a temporary basis. ASCO was obligated to communicate this to her. 

Ultimately, the court found that the employee was on an indefinite-term contract, and she was entitled to notice or pay in lieu of notice. 

Key Takeaways 

When a business is purchased, it is important for new employers to consider the employment of existing employees carefully. They are obligated to communicate if an offer of employment is temporary or not. Preparing new contracts for existing business employees may be helpful so that the terms can be set out. 

For employees, it is important to note what was communicated regarding an employment offer from a new employer after the business is sold, as it may impact what entitlements flow from a new employment relationship. 

Contact Haynes Law Firm in Toronto for Advice on Fixed-Term vs. Indefinite-Term Employment Contracts 

After a business is sold, the new employer must consider whether to seek work from existing business employees. It is important to clearly communicate whether the new work will be done on a fixed or indefinite term basis, as this affects compensation upon termination. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from termination. For employees, our goal is to ensure that they understand their rights and receive maximum compensation in termination cases. Haynes Law Firm also assists employers in avoiding liabilities arising from terminations not permitted by the legislation. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.