Common law notice periods are based on factors including the employee’s length of service. This raises the question about the appropriate length of notice period for an employee where there has been an interruption in the period of employment due to the sale of the business. 

This article looks at how courts calculate notice periods for employees that have stayed with the business after it has been sold. We also look at a recent decision of the Court of Appeal for Ontario in which a terminated employee brought a wrongful dismissal claim after being re-hired by the company after it was sold in the context of creditor protection proceedings.

Under the ESA, the period of employment continues when the business is sold

Under section 9(1) of the Employment Standards Act 2000 (ESA), if an employer sells a business and the purchaser continues to employ an employee of the seller, “the employee shall be deemed not to have been terminated or severed for this Act, and his or her employment with the seller shall be deemed to have been employed with the purchaser for any subsequent calculation of the employee’s length or period of employment.”

This means that when employers calculate the statutory minimum notice period for employees terminated after a business sale, employees are deemed to have an uninterrupted period of service. Under the ESA, the required notice period is longer for employees with longer lengths of service.

Under the common law, employees are terminated when the business is sold

As we have mentioned previously, notice periods under the common law may be more generous than the statutory minimum notice period under the ESA.

Courts determine the period of reasonable notice by considering the unique circumstances of each case and focus on the four factors laid down in Bardal v The Globe & Mail Ltd (Bardal) – the character of the employment, the length of service, the age of the employee and the availability of similar employment. 

When considering the service length factor in a business sale, the common law is different from the ESA. According to the case law, when the employer sells the business and there is a change in the employer’s identity, the employees are deemed to be terminated by constructive dismissal. This is because a contract of personal services cannot be assigned to a new employer without the parties consent. If the employee accepts employment by the new owner, a new employment contract is entered into.

Experience of a long-standing employee is a relevant factor

This might suggest that the common law results in shorter notice periods for employees after the sale of a business due to a shorter period of service. 

However, this isn’t always the case. Ontario courts have held that an employee’s prior years of employment can be taken into account in determining the notice period upon a subsequent termination. This is because the experience a long-serving employee brings to a new owner is relevant when applying the Bardal factors. The purchaser may benefit by not having to hire new employees and train them to become familiar with the work.

Employee was rehired in the context of creditor protection proceedings

These principles were explored in the recent case of Antchipalovskaia v Guestlogix Inc. 

The employee started working for a technology company that helped airlines provide digital concierge services to passengers in 2011. In 2016, in the context of creditor protection proceedings under the Companies’ Creditors Arrangement Act:

• a group of investors agreed to purchase the company’s shares;
• the Superior Court approved a plan settling and releasing claims against the company;
• the company terminated the employee’s employment;
• the employee made a claim for termination and severance pay under the ESA, which was accepted in the creditor protection proceedings; and
• the employee accepted a new offer of employment with the company and signed a new contract which set the start date for all employment-related matters.

In 2019, the employee was terminated without cause and commenced proceedings for wrongful dismissal. 

Court of Appeal emphasized need to consider effects of the termination and release

The Court of Appeal noted that the Superior Court had made an order that released all claims against the company up to the plan implementation date, including claims made by the employees. 

Under the common law, the employee’s employment had been interrupted by the share sale. Despite the fact that the identity of the employer did not change because the sale of the business was achieved through a share purchase agreement, the company terminated the employee and then re-hired her. 

The Court of Appeal held that the termination and release by the Superior Court were relevant in determining the employee’s length of employment and notice period.

Employee entitled to common law notice period of seven months

Nonetheless, the Court of Appeal decided that a notice period of seven months was appropriate in the circumstances of the case to balance the benefit received by the employer with the fact the employee was re-hired and received a payout in the context of the creditor protection proceedings. 

The Court concluded:

“This notice period is longer than the notice period the [employee] would have been entitled to if she had first started her employment with the [company] in 2016, thereby accounting for the benefit the [company] received from her previous period of employment. At the same time, however, this notice period recognizes and gives effect to the intent of the court ordered release in the [creditor protection] proceedings, which was to release the [company] from liabilities arising prior to the implementation of the Plan.”

Contact Haynes Law Firm in Toronto for Guidance on Employee Termination

Haynes Law Firm helps employers and employees throughout Ontario achieve effective solutions to legal issues and conflict management in employment law and civil litigation. We ensure our employee clients leave nothing on the table when negotiating the terms of their dismissal, so they have the resources they need while they seek new employment. We also help employers manage employee terminations, including in the context of business sales, to limit their exposure to legal claims. Please contact us online or call us at 416.593.2731.