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Old employment contracts can come back to bite you – or help you

A recent decision of the Ontario Superior Court considered the termination of an employee of Open Text Corporation who had been working for Open Text and its predecessor corporations for 17 years. There was no agreement governing his employment with the first company, known as SoftArc Inc. However, when SoftArc was acquired by MC2, the plaintiff was required to sign an employment agreement which provided for notice upon termination equal to the Employment Standards Act (ESA) requirements plus an additional four weeks’ salary. It is important to note that the contract contained a clause that the company could assign the benefits under the contract to an affiliate. Three years later, MC2 was acquired by Open Text Corporation. At that time Open Text required that the plaintiff sign a confidentiality and non-solicitation agreement. The other terms of his employment were unchanged.

On August 25, 2011, the plaintiff was called to a meeting with his supervisor and a representative of human resources and was handed a termination letter and severance package, consisting of his severance entitlement under the ESA plus an additional four weeks’ pay, in accordance with his original contract. The plaintiff sued, taking the position that the original employment contract had been terminated by the series of takeovers of the company, and the plaintiff was therefore entitled to common law notice.

The court rejected the plaintiff’s position and dismissed his claim. The judge reasoned that the plaintiff at no time took the position that the contract was at an end as a result of any of the corporate transactions that took place. Rather, he continued to work for the company in the same capacity for over 10 years through all of the changes. The judge found that the plaintiff, by continuing to work with the series of companies over the years, had accepted the changes to his agreement over time. The judge therefore felt that the original contract continued in full force and effect and therefore restricted the plaintiff’s entitlement to damages.

The judge also relied on the principle of corporate law that, where the shares of a corporation are acquired, the acquisition does not automatically terminate the relationships with its employees. In hindsight, the plaintiff probably should have insisted on a new contract with each corporate takeover, the terms of which should have been more consistent with the evolution of the law in the area of wrongful dismissal damages. The difficulty employees face in such situations is that, depending on their expertise and the conditions of the job market, they may have little bargaining power to negotiate such contracts.

Earl Altman
Partner
Garfinkle, Biderman LLP

The Human Resources Advisor

The Human Resources Advisor

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Earl Altman

Legal consultant at EA Consulting
Earl Altman was a partner at Garfinkle, Biderman and now heads his own consulting firm. Earl has practiced commercial and employment litigation. Earl’s practice focuses on employment disputes, including acting for employees and employers in wrongful dismissal claims, and in breach of contract and breach of fiduciary duty claims. Read more
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