Ontario Court of Appeal decides that Offer of Employment by Purchasing Company Is Valid Consideration

Written by on September 17, 2018 in Blog, Focus on Canadian Cases
Frustrated Employee

 

In an asset transaction, is an offer of employment from a purchaser considered new employment? Does such an offer constitute fresh consideration? In Krishnamoorthy v. Olympus Canada Inc., Ontario’s Court of Appeal reaffirmed that the answer to these questions is “yes”.

In May 2000, Nadesan Krishnamoorthy began employment as a senior financial analyst with Carsen Group Inc. About five years later, Olympus Canada Inc. agreed to purchase some of the assets of Carsen and offered employment to most of Carsen’s employees, including Krishnamoorthy, who was then Director of Finance.

Olympus and Krishnamoorthy executed a written employment agreement, the terms of which were substantially similar to those Krishnamoorthy had with Carsen, except for two new provisions: (i) a termination clause, which limited Krishnamoorthy’s notice entitlements upon termination without cause; and, (ii) a clause stipulating that Krishnamoorthy would be treated as a new employee with no recognition for his previous service with Carsen, except as required by legislation.

Olympus did not offer and did not provide Krishnamoorthy with any additional consideration.

In May 2015, Olympus terminated Krishnamoorthy’s employment without cause and provided him with notice in accordance with the termination clause in his employment agreement.

Krishnamoorthy sued Olympus for wrongful dismissal.

On a motion for summary judgment, Krishnamoorthy argued that his employment with Carsen and then Olympus was deemed to be continuous pursuant to section 9(1) of the Ontario Employment Standards Act, 2000 (the “ESA”) and that Olympus’ failure to provide him with fresh consideration rendered the new terms of his employment agreement unenforceable. That provision of the ESA stipulates:

If an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment.

The motion judge agreed with Krishnamoorthy’s position and awarded him $310,040.88 – the equivalent of 19 months’ pay in lieu of notice– in damages for Olympus’ failure to provide adequate reasonable notice of the termination of his employment.

The Court of Appeal disagreed.

As Justice Pepall explained, the application of section 9(1) is limited to deeming employment continuous only “for the purposes of this Act”, and does not displace the common law rule that an offer of employment by the purchaser of assets of a business is valid consideration for a new employment agreement. Accordingly, Krishnamoorthy could not rely upon the provision for the purpose of establishing that the new terms of his employment agreement were unenforceable for lack of consideration.

On August 2, 2018, the Supreme Court of Canada refused Krishnamoorthy’s application for leave to appeal, leaving this decision intact.

Lessons for Employers and Employees

Where the purchaser of all or part of the assets of a business offers employment to a seller’s employee, and the employee accepts, the employee’s employment with the seller is constructively terminated, and a new contract of employment is entered into with the purchaser. Krishnamoorthy affirms that a purchaser’s offer of employment is valid consideration for the new contract of employment between the purchaser and employee, even if the new contract of employment differs from the employee’s previous employment agreement with the seller.

Purchasers must still ensure that all terms in the new employment agreement comply with minimum standards of applicable employment standards legislation, taking into account the employee’s period of service with the seller. The Court of Appeal did not decide the question of whether the termination clause in Krishnamoorthy’s employment agreement was invalid for failing to comply with section 9(1) of the Employment Standards Act, 2000, remitting the matter to the lower court for determination. However, if a termination provision in a new employment agreement with a purchaser fails to provide for the legislated minimum requirement for termination notice, pay or benefits, then the termination provision may be found to be invalid, and the employee may be entitled to reasonable notice at common law.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.

Sign up for our e-Newsletter for the latest updates and case studies in employment law.

 

Comments are closed.