When a company (or part of a company) is purchased by another company, it’s natural for employees to wonder about whether their employment situation will change, including whether they will be able to keep their jobs. The Ontario Superior Court of Justice recently heard a case where two employees of a company (“the employer”) were offered continued employment with the company making the purchase (“the purchaser”), though with less favourable employment terms than they had under previous ownership. The employees rejected the offer, and the question before the court was what amount of severance they were entitled to.
There were two employees involved in the case. The first, a male, worked for the employer for over 39 years and was 63 years old when he was terminated in 2016. He held a number of positions with the employer, and when terminated was serving as Manager, Real Estate Development Ontario which involved developing service stations across the province. His compensation package at the time was as follows:
The female employee had been with the employer for 36 years and was 57 years old when she was terminated. Her last position with the employer was as Territory Manager, which involved overseeing 24 of the employer’s retail sites. Her compensation package when she was terminated included:
In 2015 the employer announced it was looking to sell off its retail arm, which included 497 retail sites across Canada. They told their employees that it would take 12-15 months to complete their assessment on the sale and that employees would be kept informed of progress. On March 8, 2016 the employer announced to its retail employees that it had reached an agreement to sell its retail stores and that many of them would be offered employment with the purchaser. Both of the employees in this case were informed on March 9 that they would be offered employment with the purchaser. They were also told that they would be offered a lump sum payment to cover, for 18 months, the difference between their current benefit plan and the one they would be offered by the purchaser. However, they were not told what the amount of the lump sum would be (it came out during the trial that the male employee would have been given $81,800 while the female employee would receive $67,400). They were also told that if they did not accept the purchaser’s employment offers that they would be entitled to severance pay, though of a reduced amount in light of their passing up an opportunity for continued employment with the purchaser.
The female employee was offered a position as Market Manager and was given three weeks to accept the offer, which included the following terms:
The male employee was offered a position as Real Estate Development Manager with the following terms:
After eighteen months, the employees were told that their salaries would be adjusted to reflect what the purchaser paid for those positions. The female would be making between $56,500 and $69,952 while the male would expect to make between $85,000 and $102,000. Both employees were told that the purchaser would not recognize their years of service with the employer. Both employees rejected the offer from the purchaser. The female was terminated on August 12 and provided with $78,100 in severance, equal to what she was entitled to under the Employment Standards Act. Similarly, the male employee was provided with a severance of $94,800. The employees ultimately decided to retire from the employer, allowing them to keep their severance as well as their pension benefits. The case was resolved by summary judgment, with the following issues before the court:
The employer argued that since the employees had been given over one year’s notice of the employer’s plans to sell the company. However, court found there to be no basis for shortening the notice period. In situations where a shorter notice period is appropriate, employees often know that their employment is coming to an end. In this case, they were told they could expect to keep their jobs with the purchaser. It would not have been reasonable for them to start looking for alternative employment. The court turned to the Bardal Factors, a set of factors that should be considered when calculating severance as outlined in the Supreme Court of Canada’s decision in Bardal v. Globe and Mail Ltd. The Bardal Factors include the character of employment, length of service, age, and availability of similar employment. In applying the Bardal Factors, the court determined:
The employer argued that the employees failed to mitigate their damages by not accepting the new employment offer. The employees’ position was that the offer was not comparable, and as such, they had no obligation to accept. The court ruled it was not reasonable to expect the employees to accept their employment offers. The offer was made before the employees were terminated, rather than afterwards. Furthermore, the court ruled that it was unreasonable to obligate the employees to accept the employment offer in order to mitigate damages, since doing so would prevent them from suing the employer over notice. The court also called out the purchaser’s refusal to recognize the employees’ years of service, writing “it was not reasonable to require the plaintiffs to accept an offer that did not recognize their years of service with (the employer). The evidence on the motion confirms that (the purchaser) purchased (the employer’s) retail business as a going concern. Previous cases have recognized that in circumstances where a new employer has purchased a business as a going concern, there is an implied term that the employees’ years of service will be recognized, unless there is an express term to the contrary. In circumstances where there is an express term to the contrary, the employee has the choice to accept the offer of employment with the purchaser or sue the seller for wrongful dismissal and damages in lieu of notice.” The court also wrote that expecting the employee’s to hide their higher pay from other employees could create an atmosphere of hostility or embarrassment. The Supreme Court of Canada has ruled that terms that could lead to such an environment do not have to be accepted in order to mitigate damages. Finally, the court wrote that while many aspects of the employment offer were similar to what the employees were making, there were substantial differences in salary and benefits. While the employees were told they would be given a lump sum to bridge the gap in these areas, they weren’t told what amount that sum would be until trial. In ruling in favour of the employees, the court determined that the employees were entitled to 26 months of notice. The lawyers of Arbesman Hamilton LLP represent both employers and employees in matters of employment law. We can help employers draft and implement policies aimed at avoiding litigation, while also helping employees and employers understand their rights and obligations in employment matters. Contact us online or call us at 416-481-5604 to schedule a consultation today.