Termination without cause occurs when an employer does not assert that it has a legal justification for terminating the individual’s employment without notice or compensation in lieu of that notice. Employers are entitled to terminate an employee without cause, but they must ensure that they either give reasonable notice to the employee or pay out this period as compensation.
Length of service is a relevant factor in calculating this period of notice. This article looks at whether a sale of the business by the employer interrupts an employee’s length of service for the purpose of later calculating the period of reasonable notice. We also look at a recent decision of the Court of Appeal for Ontario, in which an employee was rehired after the business was sold through a share purchase agreement.
Employees are entitled to reasonable notice when being terminated without cause
Firstly, the Employment Standards Act 2000 (ESA) guarantees a minimum period of reasonable notice prior to termination, in writing, for all employees continuously employed for three months or more, unless they have been given pay in lieu of such notice.
However, the period of notice required by the ESA may be shorter than that required by common law. This is because reasonable notice periods under the common law may be longer. However, it is also possible that an employment contract may seek to remove an employee’s entitlement to common law notice.
Length of service is a factor in determining length of reasonable notice period
Under the ESA, the minimum notice period is solely dependent on how long the employee has been employed, with longer notice periods specified for those with longer periods of service.
As we have previously reported, when courts are called upon to decide the period of reasonable notice in a wrongful dismissal claim, they apply the common law. In order to do this, the courts apply the “Bardal factors” to determine the length of the notice period.
One of these factors is the length of the employee’s service. Generally speaking, the longer the duration of employment, the longer the reasonable notice period.
There is a “sharp distinction” between the rights of employees under the ESA and common law when business ownership changes
Under section 9(1) of the Employment Standards Act, if an employer sells a business and the purchaser employs an existing employee, the employment of the employee is deemed not to have been terminated for the purposes of the Act. In other words, employment is deemed continuous for the purpose of subsequently calculating the employee’s length of employment.
However, according to the case law, there is a “sharp distinction” between the ESA and the common law. Under the common law, it has been held that when an employer sells the business and there is a change in the identity of the employer, the employer is terminated by the seller, breaking the period of employment.
Employer re-hires employee after sale of business by share purchase
In Antchipalovskaia v Guestlogix Inc., the plaintiff started her employment in 2011. In 2016, the company obtained a protection order from its creditors under the Companies’ Creditors Arrangement Act (CCAA). A group of investors later purchased the shares in the company.
As part of the CCAA proceedings, the company notified the plaintiff that it intended to terminate her employment and offer to rehire her on the same terms. It told her that she could submit a proof of claim in the CCAA proceedings for payment of severance and termination. She submitted a claim and as a creditor, voted in favour of the plan. The court made an order providing for the payment of creditors and explicitly releasing any claims against the company.
The plaintiff then signed a new employment contract. In 2019, almost three years after the reset start date, the plaintiff was terminated without cause.
Motion judge decided on a twelve-month notice period
The key issue was the plaintiff’s entitlement to common law notice. The motion judge held that the plaintiff’s employment should be treated as continuous from 2011 to 2019. Her Honour noted that the company issued an employment record that identified the plaintiff’s first day of work as one in 2011. The company also calculated the plaintiff’s ESA entitlements on the basis of an eight-year period of employment.
Applying the Bardal factors, her Honour settled on a twelve-month notice period, less the amount of the plaintiff’s CCAA claim.
Court of Appeal reduces notice period
Justice of Appeal Favreau explained that, under the common law, the sale of the business to a new employer constitutes termination. However, her Honour also said that:
…even where an employee starts a new period of employment with a successor employer, that employee’s prior years of employment can be taken into account in determining the appropriate notice period upon a subsequent termination. This is because the experience a long serving employee brings to a new owner is relevant when applying the Bardal factors.
Her Honour decided that the motion judge erred in treating the period of employment as continuous. Even though the identity of the employer did not change because the sale was by share purchase agreement, the company terminated and rehired the plaintiff. Further, the court in the CCAA proceedings made an order releasing claims against the company up to the plan implementation date.
Justice of Appeal Favreau decided that a seven-month notice period was appropriate, which was longer than the plaintiff would have been entitled to if she had first started her employment in 2016 to acknowledge the benefit the company received from her previous period of employment but also recognized the effect of the court-ordered release in the CCAA proceedings.
In addition, the Court of Appeal decided not to deduct the plaintiff’s claim in the CCAA proceedings from the seven-month notice period because that claim related to the initial period of employment and the entitlement to common law notice was based on the second period of employment.
Contact Grosman Gale Fletcher Hopkins LLP in Toronto for Guidance on Employee Termination
If you are an employer or an employee going through the termination process, contact Grosman Gale Fletcher Hopkins LLP. Our employment and labour lawyers have helped workplace parties with their most challenging employment-related matters for more than three decades. We assist employers to manage risk when seeking to terminate employees without cause. We also help employees secure all their entitlements in the event of termination.
We are one of Canada’s most recommended labour and employment law firms. If you need guidance with a workplace-related issue, contact us online or at 416.364.9599.
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