Ontario Court of Appeal confirms offer of employment is consideration after an asset sale

November 22, 2017 Simon Heath, BA, MIR, LLB, Heath Law Employment/Labour Standards, Human Resources, Notice, Damages and Settlements, Payroll, Recruiting and Hiring

In order for employment contracts to be binding they require consideration – something of value that is transferred from the employer to the employee. Often time’s employers run into legal trouble when they have employees sign new contracts mid-employment without fresh consideration. However, if a business is sold by way of an asset sale what consideration must the purchaser offer to an employee of the vendor to have a new contract be considered binding? Is the offer of employment sufficient consideration?

In the decision Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA 873, the Ontario Court of Appeal recently examined the issue of whether or not a purchaser’s offer of employment, in and of itself, constituted sufficient consideration to make a new offer of employment to an employee of a vendor’s business sufficient after an asset sale. The Court of Appeal confirmed that the offer of employment was sufficient consideration after an asset sale.

In this case the Employee worked for Carsen which was a distributor of Olympus America’s products in Canada. Olympus terminated its distribution agreement with Carsen. Olympus America created Olympus Canada to carry on its business by buying some of Carsen’s assets.

As part of the asset sale, Olympus Canada offered most of Carsen’s former staff, including the Employee, new jobs. The Employee was offered employment with Olympus Canada in return for signing an employment contract with a termination clause limiting his entitlements to the Employment Standards Act, 2000 (the “ESA”). The Employee signed the agreement.

Ten years later the Employee was terminated without cause and offered his minimum entitlements per the contract. The Employee brought a motion for Summary Judgement and argued that his employment had been continuous by virtue of s. 9(1) of the ESA. Setion 9(1) governs “continuity of employment” of employees between the sale of a business from a vendor to a purchaser. The Employee argued that because his employment was continuous by virtue of s. 9(1) there was no consideration for making the contract enforceable. The Motions Judge agreed and awarded the Employee 19 months of damages in excess of $300,000.00.

The Court of Appeal held that the Motion’s Judge had made an error in law and improperly relied upon case law involving consideration for contracts of employees with one employer, “The motion judge erred in disregarding the new contract of employment with Olympus Canada, who was a new employer upon its purchase of some of Carsen’s assets. That the Employee’s day-to-day job did not materially change after the sales does not change that fact”.

The Court of Appeal held that section 9(1) of the ESA was limited to ensuring that the minimum entitlements of the ESA were protected in a sale of business and nothing else. The Court of Appeal held that Section 9(1) does not deem the employment contract between an employee and employer to bind a subsequent purchaser of some of the employer assets nor does it require the purchaser of a business to offer employment on the same terms as the original contract.

Consequently, the Court of Appeal held that Olympus Canada was not obligated to offer the Employee employment. When Olympus Canada did offer employment, this offer constituted consideration to make the subsequent employment contract and termination clause enforceable.

The Court of Appeal ordered the action to trial for the alternative arguments to be heard.

This case is a useful reminder that in asset sales, as opposed to share purchases, the purchasing employer is not obligated to hire all the vendor’s employees. Further, the purchaser can offer employment to some of the vendor’s employees and the offers will constitute consideration to make the contracts enforceable.

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Simon Heath, BA, MIR, LLB, Heath Law

Employment Lawyer and principal at Heath Law, Employment Lawyers

Simon Heath, BA, MIR, LLB, is the Principal of Heath Law, Employment Lawyers in Mississauga, Ontario. Simon represents both public and private-sector employers and employees (unionized and non-unionized) at all stages of the employment relationship with a focus in the areas of employment law, labour law and human rights law; these representations are made at all levels of courts and all administrative tribunals. Read more