Can a successor employer offer a person lessor termination pay than the original employer?

Can a successor employer offer a person lessor termination pay than the original employer?

This issue was addressed by Ontario’s Court of Appeal in Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA 873

Facts:  Carsen Group Inc. was the exclusive Canadian distributor for Olympus America Inc. Olympus America decided to terminate its distribution agreement with Carsen, and started a related company, Olympus Canada Inc. to distribute its Canadian products. In July 2006, Olympus America terminated its distribution agreement with Carsen and offered employment to one of Carsen’s employees, Nadesan Krishnamoorthy .  

Olympus Canada provided an offer of employment to Mr. Krishnamoorthy. The terms of the employment agreement limited the notice of employment he was entitled to receive to Employment Standards Act (“ESA”) minimums.  When Mr. Krishnamoorthy accepted Olympus Canada’s offer, he did not receive a signing bonus or any other additional compensation for entering into an employment agreement with Olympus Canada.  

Ten years later, Olympus Canada terminated Mr. Krishnamoorthy’s employment  without cause. Olympus Canada offered him the termination pay he was owed under his employment agreement.  Mr. Krishnamoorthy refused the offer claiming  the termination clause was unenforceable because Olympus Canada had not provided him with any legal consideration.

Issue on appeal: Did the motion judge err in concluding that the termination clause in the parties’ employment agreement was unenforceable due to a lack of consideration?

Decision: The Court of Appeal reversed the motion judge’s decision and ruled that Olympus Canada’s offer of employment amounted to consideration for the termination clause.

Mr. Krishnamoorthy relied on a provision of the Employment Standards Act which deems there to be continuity of employment where an employer sells his business to a purchaser who employs an employee of the employer. However, the Court ruled that this statutory provision  can not be used to claim rights or entitlements on which the ESA is silent. For example,  it does not require the purchaser of a business’ assets to offer employment to employees of that business on the same terms as their original contracts as claimed by Mr. Krishnamoorthy.  Olympus Canada became a new employer upon its purchase of some of Carsen’s assets, and the fact that Mr. Krishnamoorthy’s day-to-day job did not materially change after the sale was not relevant. As such, the Court of Appeal found that Olympus Canada’s offer of employment amounted to consideration for the termination clause.

Lessons to be learned:

1. If your organization purchases the assets of another business you can offer employees of that business lessor terms of employment such as a lower pay rate and less termination pay.
2. The employee is generally not required to accept substantially lesser terms of employment.
3. If the employee accepts lesser terms of employment then a court will generally enforce the lesser terms of employment provided the contract is drafted properly and the terms comply with the Employment Standards Act.