What Happens When The Company You Work For is Sold?
Companies can often change hands as a result of a sale of the business’ assets or shares. While these changes sometimes lead to employee terminations, sometimes employees are hired by the purchaser company, and their service is uninterrupted. A recent decision from the Ontario Court of Appeal, Ariss v NORR Limited Architects & Engineers, 2019 ONCA 449, provides insight to employees about what happens when a business is sold and an employee is hired by the new employer but is later terminated.
Mr. Ariss was an architect who worked with Dominik Thompson Mallette, Architects, and Engineers Inc. (“DTM”) for 16 consecutive years, from 1986 to 2002. In September of 2002, DMT was sold to NORR Limited Architects & Engineers (“NORR”), for whom Mr. Ariss began working. Throughout his 14 years of employment at NORR, Mr. Ariss signed three different employment contracts, each of which were at issue in the case.
Prior to signing his first employment contract with NORR, Mr. Ariss was informed that he was being terminated by DTM. That very same day, Mr. Ariss was provided with his first employment contract with NORR. This 2002 contract contained a termination clause that limited Mr. Ariss’s compensation upon termination to ESA minimums.
Several years later, Mr. Ariss began to work longer hours. He signed a new contract with NORR in June of 2006. Again, the contract stipulated that upon termination, Mr. Ariss would only be entitled to ESA minimums.
In 2013, seven years later, Mr. Ariss wanted to begin working part time. NORR was reluctant to allow him to do this, and the two parties engaged in prolonged negotiations regarding compensation and hours. As a result of these negotiations, in July of 2013, Mr. Ariss resigned from his employment, entered into a new employment agreement with NORR, and signed his third employment contract, which permitted him to work part time. This contract contained a waiver stating that any notice and severance he had accumulated as a result of his past years of employment with NORR would not form part of the new terms of employment.
In 2016, Mr. Ariss was terminated by NORR. NORR gave him 3.5 weeks’ notice of termination based on his service from July 2013 and offered to continue Mr. Arris’ benefits for two weeks following the effective date of termination. He was provided with no severance pay on termination.
The issue discussed at trial and in the appeal was whether a clause that purports to waive an employee’s years of service for the purposes of severance/notice pay is enforceable. The court also explored whether Mr. Ariss, at any time, contracted out of his common law entitlement to reasonable notice of termination.
Mr. Ariss’s 2002 employment contract with NORR was found to violate sections 5 and 9 of the Employment Standards Act, as his firing and subsequent re-hiring was an attempt to contract out of the ESA. Section 5 stipulates employers and employees cannot contract out of the ESA, while section 9 deals with the ESA in the context of a sale of a business. The motion judge therefore found that Mr. Ariss’ employment was not terminated and that his employment with NORR was merely a continuation of his employment with DMT.
Similarly, according to the motion judge, Mr. Ariss’s resignation in 2013 was “an entirely artificial attempt to create an interruption in employment when in fact there was none.” The requirement that he resign in exchange for continued employment on a part-time basis was therefore found to be unenforceable. Rather than there being a break in employment, the motion judge found that the 2013 employment contract was just an amendment to the 2006 employment contract.
The motion judge therefore found that Mr. Ariss’ employment with NORR had been continuous and uninterrupted since 1986.
However, the 2006 employment contract was found to be enforceable. The contract’s termination clause, which waived Mr. Ariss’s common law notice entitlements, was clear and unequivocal, thereby effectively rebutting the assumption of common law entitlements. Accordingly, Mr. Ariss’s notice and severance entitlements were limited to the Employment Standards Act minimums.
The motion judge ruled that Mr. Ariss was entitled to 8 weeks’ notice of termination and 26 weeks of severance pay under the Employment Standards Act. This determination was upheld by the Court of Appeal.
Employees should be wary of what they sign, particularly if their employer is being sold, as a new employment contract may contain clauses that limit their rights. However, this time of transition is also an ideal time to modify and re-negotiate one’s contract – employees should take advantage of the opportunity and consider speaking with a lawyer to discuss how improved benefits, vacation, or pay could potentially be negotiated. If you would like to speak to a lawyer at the MacLeod Law Firm, you can reach us at [email protected] or by phone at 647-204-8107.