• First Reference
  • About us
  • Contact us
  • Blog Signup 📨

First Reference Talks

Discussions on Human Resources, Employment Law, Payroll and Internal Controls

  • Home
  • About
  • Archives
  • Conference
  • Resources
  • Buy Policies
You are here: Home / Employee Relations / Learn the latest! — Specific termination provision upheld after sale of business

By Stringer LLP | 3 Minutes Read May 8, 2013

Learn the latest! — Specific termination provision upheld after sale of business

When a company purchases another business, it is important to consider the legal implications respecting the status of employees. The Ontario Superior Court recently decided a case regarding the validity of an employment contract where an employee had signed an agreement with his former employer but never executed a new agreement when the company was purchased by another business. The plaintiff argued that the employment contract only governed the previous employment relationship. The Court disagreed, finding that the terms of the employment contract still applied.

The Plaintiff was employed by Centricity which was purchased by Open Text. The Plaintiff had signed an employment contract with Centricity which provided him with notice of termination under the Employment Standards Act (the “ESA”), plus an additional four weeks. He also received a one month sabbatical every five years. When Centricity was purchased by Open Text, the Plaintiff was not asked to execute a new employment contract but he did sign a new non-competition and non-solicitation agreement. All of his other terms and conditions of employment remained the same except Open Text did not offer the one month sabbatical.  Although the Plaintiff was displeased that Open Text would not be offering the sabbatical, he never raised this concern with the company.

When the Plaintiff’s employment was terminated by Open Text he was provided with ESA notice plus an additional four weeks as provided in the terms of the employment contract. The question for the Court was whether he received sufficient notice of termination. The court looked at three issues: (1) Whether the contract was binding, (2) Whether it continued in effect after the takeover of Centricity, (3) Whether the Defendant could rely on its terms. The Court found that the employment contract was binding. The employment contract had a clause which provided that the agreement could be assigned by the Company to any affiliate of the Company, and that it would be binding on the parties and their respective successors and assigns. The Court found that the employment contract was binding on Open Text as a successor to Centricity. Although the Plaintiff had signed a new non-competition and non-solicitation agreement provided to him by Open Text, this did not constitute a new employment agreement.

The next consideration was the effect of the takeover of Centricity by Open Text on the employment relationship. The Court determined that the employment relationship remained unchanged. The transaction was an amalgamation, which, unlike an acquisition, does not change the corporate identity of the employer. The Court cited well established case law regarding the distinction between share and asset purchases with respect to employment status, which provides that since a sale of shares does not change the corporate identity of the employer, it does not automatically lead to the termination of the employment relationship.

Finally, although Open Text changed one term in the employment contract, the offer of a sabbatical, this was never challenged by the Plaintiff and it was not argued at trial that this represented a fundamental breach of the employment contract. As such, Open Text was able to rely on its terms when it terminated the employment relationship.

Written employment contracts are a valuable asset to an employer and can significantly reduce the potential liability upon the termination of employment. An employment contract can be used to clearly spell out the terms and conditions of employment, including an employee’s entitlement to notice when employment is terminated. A well drafted employment contract can protect an employer from costly litigation. Additional considerations may apply when a company is considering the purchase of another business. The nature of the transaction will affect the employment status of employees in the business being purchased. For instance, had there been as asset purchase in this case, the employer would have needed, at a minimum, to have the employees’ consent to the assignment of their employment  on the same terms and conditions. Companies should always seek legal advice on the potential liabilities associated with employees prior to entering a transaction.

At the 2013 Ontario employment law conference, employment lawyer Allison Taylor will discuss and provide you with strategic guidance so you can prepare effective employment contracts. The session includes tips on:

  • How to prepare and implement enforceable employment contracts,
  • How to incorporate language restricting notice on termination of employment without offending quality recruits, and
  • How to craft enforceable non-competition and non-solicitation agreements.

Register for the 2013 Ontario employment law conference—and Learn the latest! (Registrations now closed)

Stringer LLP
www.stringerllp.com

 

  • About
  • Latest Posts
Follow me
Stringer LLP
Employment and Labour lawyers at Stringer LLP
Stringer LLP is a leader in Canadian HR law. For over 50 years, they have taken a client-centered approach to responsive service, representing employers with labour relations and employment problems. Their firm’s practice covers a broad spectrum of HR law, including employment law, occupational health & safety, labour relations and arbitration, human rights, workers’ compensation, pay equity and corporate immigration, as well as issues under the Accessibility for Ontarians with Disabilities Act. They also provide training, seminars and conferences on the above topics.
Follow me
Latest posts by Stringer LLP (see all)
  • Ontario legislature passes Bill 186 – Employment Standards Amendment Act (Infectious Disease Emergencies), 2020 – Job protection for workers due to COVID-19 - March 24, 2020
  • A wrongful dismissal time warp – When is two years really six? - December 23, 2019
  • Embracing the #MeToo movement - October 29, 2019

Article by Stringer LLP / Employee Relations, Employment Standards / 2013 Ontario Employment Law Conference, breach of the employment contract, business being purchased, company purchases another business, employment agreement, employment contract, employment contracts, employment law, employment relationship, employment standards act, ESA notice, First reference, Learn the latest, non-competition, non-solicitation agreement, Notice of termination, one month sabbatical, restrictive covenants, Stringer LLP, sucessor employer, sufficient notice of termination, Termination clause, termination of employment, terms and conditions of employment, terms of the employment contract

Share with a friend or colleague

Get the Latest Posts in your Inbox for Free!

About Stringer LLP

Stringer LLP is a leader in Canadian HR law. For over 50 years, they have taken a client-centered approach to responsive service, representing employers with labour relations and employment problems. Their firm’s practice covers a broad spectrum of HR law, including employment law, occupational health & safety, labour relations and arbitration, human rights, workers’ compensation, pay equity and corporate immigration, as well as issues under the Accessibility for Ontarians with Disabilities Act. They also provide training, seminars and conferences on the above topics.

Footer

About us

Established in 1995, First Reference is the leading publisher of up to date, practical and authoritative HR compliance and policy databases that are essential to ensure organizations meet their due diligence and duty of care requirements.

First Reference Talks

  • Home
  • About
  • Archives
  • Conference
  • Resources
  • Buy Policies

Main Menu

  • About First Reference
  • Resources
  • Contact us
  • 1 800 750 8175

Stay Connected

  • Facebook
  • LinkedIn
  • Twitter
  • YouTube

We welcome your comments on our blog articles. However, we do not respond to specific legal questions in this space.
We do not provide any form of legal advice or legal opinion. Please consult a lawyer in your jurisdiction or try one of our products.


Copyright © 2009 - 2022 · First Reference Inc. · All Rights Reserved
Legal and Copyright Notices · Publisher's Disclaimer · Privacy Policy · Accessibility Policy