When an employee is terminated without cause, they are entitled to reasonable notice. As we have mentioned before, employees are entitled to a statutory period of notice under the Employment Standards Act (the “Act”), the amount of which is based on the length of the employee’s service. They may be entitled to a lengthier period of common law notice, which is based on a range of factors, including the length of employment.

So what constitutes reasonable notice when the identity of the employer changes, such as in the instance of bankruptcy? This article examines how an employer’s bankruptcy can impact an employee’s entitlements following a termination without cause.

Resale in the context of bankruptcy continues the period of service for the purpose of the Act’s statutory notice

Section 9(1) of the Act is relevant to consider when calculating the period of statutory reasonable notice. It provides that if an employer sells a business (or a part thereof) and the purchaser employs an existing employee, the employee’s employment is deemed not to have been terminated for purposes of the Act

This means that, in the event of a business sale, including as a result of bankruptcy, the period of employment is viewed as continuous to calculate the employee’s length of employment. This results in a longer service period, which may equate to a longer notice period under the Act

For common law notice, a new employer breaks the period of employment

When calculating common law notice where an employer has sold the business, and there is a change in the employer’s identity, an employee is likely to be deemed to have been constructively dismissed by the seller. 

If an employee stays on and works for the buyer, their employment restarts, and therefore the length of their employment will be shorter for the purpose of calculating common law reasonable notice. 

However, serving a predecessor employer may be a relevant factor when calculating the period of common law notice

Length of service is one of many factors considered by courts in determining the period of common law reasonable notice. Courts consider other things, including the age of the employee, the character of their employment and the availability of similar employment, having regard to their experience, training and qualifications. 

Courts have also recognized the potential unfairness that may result for long-term employees if their employer sells the business, as they often have no other option but to accept an offer to stay on and work for the buyer.

As a result, courts are sometimes prepared to consider prior service with a predecessor employer when calculating a terminated employee’s reasonable notice period, in recognition of the fact that the employee brings experience to the benefit of the buyer, so is potentially of more value than a new employee.

Employee worked for a new employer after bankruptcy, then was terminated

A terminated employee recently asked the Ontario Superior Court of Justice to recognize her prior service, in the context of a bankruptcy sale. 

In Chin v Beauty Express Canada Inc., the plaintiff employee started working for Premier Salons Ltd. in 1999 as an esthetician inside a Toronto Hudson’s Bay store. In 2013, Premier Salons went bankrupt and the defendant, Beauty Express Canada Inc., was awarded the franchise by Hudson’s Bay. The plaintiff continued to work in the same position, under the same management team. 

The plaintiff was terminated without cause in 2019 and sued for wrongful dismissal after the defendant paid her 11 weeks’ notice.

Employment contract unenforceable, paving the way for common law notice

Her new employer relied on an employment contract that the plaintiff signed in 2018. Five years into her employment with Beauty Express, she was handed an agreement and told to sign and return it before her shift ended that day.

The agreement included a termination provision that allowed the employer to terminate the employee without cause if it paid the minimum statutory notice under the Act.

Justice Morgan refused to allow the employer to rely on this provision. His Honour said:

“Absent fresh consideration awarded to an ongoing employee when signing an amended or new employee agreement, the termination provisions in that agreement will be void and unenforceable”.

This means that an employer is only able to introduce a contract changing the terms of employment where there is an existing employment relationship if the employee receives some benefit in exchange.

Employee argued for lengthy common law notice considering her combined 20 years of service

The plaintiff was entitled to common law notice. She argued that the judge should consider her long period of service with Premier Salons when calculating this notice period. She explained that the post-bankruptcy transition was seamless, to the point that she didn’t know her employer had changed until months later when the signage in the store changed. 

Some account of prior service was factored into the employee’s notice period

Justice Morgan explained that, had the employee performed complicated and delicate beauty treatments, the new employer would have substantially benefited by not having to retrain a new employee.

His Honour noted that the plaintiff was a waxing specialist with no specific training, but did possess 20 years of experience. While the judge accepted that the plaintiff’s transition between employers was seamless, his Honour considered that waxing services were transferable between salons, so the new employer received only a small saving.

As a result, the plaintiff received some credit for her service with the prior employer, but less than she would have if she had extensive and specific training. Justice Morgan decided on a 10-month notice period.

Contact Grosman Gale Fletcher Hopkins LLP in Toronto for Advice on Termination Entitlements

The employment lawyers at Grosman Gale Fletcher Hopkins LLP advise both employers and employees on the termination process, including the enforceability of contractual termination provisions and the impact of any service with a predecessor employer. Contact us online or at 416.364.9599 to schedule a consultation.