When a company loses a service contract to a competitor, what happens to the employees working under that contract? If the incoming company declines to retain those employees, which employer is responsible for their termination entitlements?

These questions can become complicated in industries where service contracts regularly change hands, such as condominium management, security, maintenance, and cleaning services.

In Kondaj v. Crossbridge Condominium Services Ltd., the Ontario Court of Appeal considered whether an incoming building services provider could be held responsible for an employee’s common law reasonable notice entitlements, despite never having directly employed the individual.

Employee Loses Job Following Change in Property Management Companies

The employee began working for a condominium management company in June 2020 and was assigned to a Toronto property in January 2023. In November 2023, the property awarded its management contract to a different company, effective December 1, 2023. The incoming company learned that the employee was the only individual assigned to the property by the outgoing provider.

Shortly before the transition, the employee expressed interest in obtaining a more senior position with the incoming company. However, the company declined to offer him employment. The outgoing company also confirmed that it would not reassign him to another property.

Consequently, the employee’s employment ended on November 30, 2023.

Employee Receives Statutory Termination Pay but No Common Law Notice

Following the termination, the incoming company paid the employee $4,967.31, representing three weeks of statutory termination pay under Ontario’s Employment Standards Act, 2000 (ESA). It also provided the required benefits coverage.

However, neither company paid the employee any additional compensation for common law reasonable notice. The incoming company argued that the outgoing employer was responsible because it had entered into the original employment contract. Conversely, the outgoing company maintained that the ESA placed responsibility on the incoming provider because it had declined to continue the employee’s employment.

The employee commenced a wrongful dismissal action against both companies.

Lower Court Awards Employee 10 Months of Reasonable Notice

The employee brought a motion for summary judgment. Neither company disputed that he was entitled to common law reasonable notice. The central question was which company was responsible for paying it.

The lower Court concluded that the incoming provider was responsible and awarded the employee $78,925, representing 10 months of common law reasonable notice, together with damages for lost benefits.

The incoming company appealed, arguing that the lower Court had incorrectly interpreted the ESA by extending its statutory termination obligations to common law wrongful dismissal damages.

How Does Ontario’s ESA Address Changes in Building Services Providers?

The appeal centred on sections 56 and 75 of the ESA. Section 56 addresses when employment is considered terminated, including circumstances where an employer dismisses an employee or refuses or is unable to continue employing them.

Section 75 establishes additional obligations when one building services provider replaces another. Under section 75(2), an incoming provider that does not employ an eligible employee of the outgoing company must comply with the ESA’s termination and severance provisions as though it had terminated that employee’s employment. Section 75(3) further deems the incoming provider to have been the employee’s employer for these purposes.

The incoming company argued that these provisions only imposed statutory termination and severance obligations, not common law reasonable notice requirements.

Court Finds Statutory and Common Law Termination Entitlements Are Connected

The Court of Appeal rejected the incoming company’s interpretation and upheld the lower Court’s decision. The Court explained that statutory and common law termination entitlements do not operate independently. Both arise from the termination of employment, and statutory provisions can influence common law obligations.

Although the ESA establishes minimum termination entitlements, employees may also have additional common law rights, depending on their circumstances and employment contracts. The Court found that sections 56 and 75, when read together, established the necessary employment relationship for common law termination liability. The incoming company’s refusal to retain the employee constituted a termination under the ESA, triggering obligations extending beyond the statutory minimums.

Accordingly, the incoming provider was responsible for the employee’s common law reasonable notice entitlements, even though the employee had never entered into a traditional employment contract with that company.

Protecting Employment Continuity Was Central to the Decision

The Court also considered the legislative purpose behind Ontario’s building services provisions. Because building services contracts frequently change providers, employees may face job loss whenever a new company assumes responsibility for a property.

The Court observed that placing common law notice obligations exclusively on outgoing providers could encourage incoming companies to decline to retain existing employees. An incoming provider could otherwise avoid potentially significant future common law termination liability by immediately paying statutory minimums instead of continuing the employment relationship.

The Court concluded that assigning common law notice liability to incoming providers was consistent with the legislation’s purpose of promoting employment continuity. However, the ruling does not require incoming providers to retain every existing employee. Rather, where the statutory provisions apply, declining to continue employment can trigger common law termination obligations.

Previous Service and Employment Information Remain Relevant

The Court also examined how an employee’s previous service is treated when building services contracts change hands. Under section 10(2) of the ESA, employment with an outgoing provider is deemed to be employment with the new provider when calculating the employee’s length or period of employment for subsequent ESA purposes.

The Court considered this continuity provision consistent with imposing common law notice liability when an incoming provider immediately declines to retain an employee.

The Court also noted that section 77 of the ESA allows prospective building services providers to request prescribed employment information before assuming a contract, helping them assess potential termination liabilities.

Court Upholds Costs Award Against Incoming Provider

The incoming provider also challenged the substantial indemnity costs awarded against it. The employee had made settlement offers of $27,600 to each company, both of which were rejected. The eventual judgment substantially exceeded those offers.

The Court of Appeal upheld the costs award, rejecting the incoming company’s argument that the offers failed to satisfy procedural requirements applicable to certain claims involving multiple defendants.

The decision illustrates how disputes over responsibility for termination entitlements can generate substantial litigation costs beyond the wrongful dismissal damages themselves.

Understanding Kondaj’s Impact on Ontario Employment Law

The Court of Appeal’s ruling clarifies that an incoming building services provider may be responsible for common law reasonable notice when it declines to retain an eligible employee of the outgoing company.

Key Termination Principles:

The decision reinforces several important termination principles:

• Statutory termination pay and common law reasonable notice are distinct entitlements: Meeting ESA minimums does not necessarily satisfy all termination obligations.
• A direct employment contract is not always required: The ESA can establish a deemed employment relationship for termination purposes.
• Previous employment service remains relevant: An employee’s service history can affect termination entitlements when building services contracts change hands.
• Changes in service providers do not automatically eliminate termination obligations: The applicable statutory framework determines how responsibility is allocated.

Replacement of Service Providers

Importantly, the ruling concerns the specific provisions governing building services providers. It does not establish that every company replacing another service provider automatically becomes responsible for the former employer’s common law termination obligations.

Ultimately, Kondaj demonstrates how Ontario’s statutory employment protections can shape common law wrongful dismissal liability when employment ends because of a change in service providers.

Haynes Law Firm: Leading Toronto Employment Lawyer for Wrongful Dismissal and Termination Disputes

Led by highly experienced employment lawyer Paulette Haynes, Haynes Law Firm advises employers and employees throughout Toronto and the Greater Toronto Area on wrongful dismissal claims, termination packages, severance pay disputes, and employment litigation. Whether an employee has been dismissed following a change in service providers or an employer is assessing its obligations under Ontario’s Employment Standards Act, our team helps clients understand the applicable termination framework.

Contact Haynes Law Firm online or call (416) 593-2731 to discuss employment termination, reasonable notice, severance entitlements, or wrongful dismissal matters in Toronto and the GTA.