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Employment - Successor Employers

. Manthadi v. ASCO Manufacturing

In Manthadi v. ASCO Manufacturing (Ont CA, 2020) the Court of Appeal considered the common law of successor employment, analogous to the Employment Standard Act s.9(1) [full duration of employment recognized for notice period through business transfer of employer]. The court weighs the full employment (across successive employers) in the Bardal measurement of notice period:
(3) The common law’s approach to reasonable notice by a successor employer

(a) How prior service with the predecessor employer is recognized in the length of the reasonable notice period: Addison v. M. Loeb Ltd.

[51] Long-time employees are placed in a difficult position when their employer sells the business as a going concern and the successor employer offers to employ them on an indefinite basis. The difficulty is due to the duty to mitigate.

[52] Ordinarily, long-time employees who are terminated without reasonable notice can expect a substantial payment of damages in lieu of notice. Terminated employees, however, have a duty to mitigate their damages. In Addison, Dubin J.A. adopted the description of the employees’ plight by M. Norman Grosman in “Employee Continuous Service Rights: Here Today, Gone Tomorrow - Addison v. M. Loeb Ltd." (1985) 5:4 Adv. Q. 500, at p. 502, who observed that:
Once the employee accepts employment with the new employer, thereby establishing a new contract, he will probably "mitigate himself right out of his cause of action" against his former employer. If he fails to accept the new job and it is in all respects fundamentally the same as his old one, he is likely precluded by the doctrine of mitigation from recovering any loss sustained on the constructive termination on the basis that such loss could reasonably have been avoided. The unfortunate employee is caught in a bind and will inevitably suffer at least the loss of his perhaps lengthy service with the former employer. If, on the other hand, the new employer declines to employ the individual, the termination becomes express rather than constructive and the former employer will remain liable for any properly recoverable damage sustained by the employee.
[53] Thus, long-term employees, who are employed by the purchaser of their employer’s business, have little prospect of obtaining damages for the termination of their employment. Damages aside, people need jobs. Employees terminated by the sale of a business often have no realistic option other than to accept the offer of a new contract of employment with the purchaser if such is offered. If they are subsequently terminated by the purchaser, the new start date of their term of service weighs in favour of a shorter notice period than had the business not been sold.

[54] Addison resolves this predicament by giving “some recognition” to the period of employment with the predecessor employer when determining the length of the notice period unless there is “an express understanding to the contrary”: at pp. 155-56. It does so by attaching appropriate weight to the employee’s “experience”, one of the factors in the generally accepted formulation for the determination of reasonable notice: at p. 156. As stated by McRuer C.J.H.C. in Bardal, at p. 145:
There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.
[55] In Addison, the employee started working at an IGA store in Delhi, Ontario in May 1963. In September 1981, a receiver operated the business for approximately two weeks and then sold the assets of the business to the defendant, who continued to operate the store. The employee continued to perform the same duties until April 1983 when his employment was terminated. The trial judge found the employee was wrongfully dismissed and assessed his damages on the basis that he had been employed for some 18 and a half months only. The trial judge awarded damages equivalent to six months’ notice of termination. The employee appealed.

[56] On appeal, Dubin J.A. thought it “unfair to assess the appellant’s damages for wrongful dismissal in the same manner as if he had walked into the store for the first time after the respondent purchased the business and became a new employee of the respondent”: at pp. 155-56. His examination of earlier cases disclosed “no clear principle other than that in the majority of the cases some recognition is given to the period of employment with the predecessor employer”: at p. 156.

[57] Dubin J.A. then pointed out that length of service was not the only factor to be applied in determining the proper award for damages: at p. 156. The conduct of the parties was also relevant: at p. 156. Dubin J.A. observed that the purchaser, in hiring the employee, “automatically received the benefit of the services of a very experienced assistant manager and one fully familiar with the operation of the store”: at p. 156. Dubin J.A.’s observation of the value of experienced employees to the purchaser is apt. A purchaser of an ongoing business who takes on the vendor’s employees avoids the burden, cost, and time of having to recruit a new employment force that is unfamiliar with the work, the working environment, and one another.

[58] Dubin J.A. concluded that the trial judge had failed to give sufficient weight to the employee’s prior experience and had erred by assessing his damages on the basis that he was an employee of only 18 and a half months: at p. 156. Dubin J.A. increased the damages from six months to 12 months’ notice.

[59] It is important to note that Addison did not stitch together the employee’s terms of service with the vendor and purchaser of the business and consider them one continuous period of employment, as they are deemed to be under the ESA. Rather, it recognized the employee’s service with the vendor by appropriately weighing the employee’s experience and the benefit of that experience to the purchaser.

[60] The Addison approach differs somewhat from the approach taken by the British Columbia Court of Appeal in Sorel v. Tomenson Saunders Whitehead Ltd. (1987), 1987 CanLII 154 (BC CA), 39 D.L.R. (4th) 460 (B.C.C.A.), relied on by Ms. Manthadi. In Sorel, the court implied a term into the employment contract with the purchaser that the employee will be given credit for their years of service with the vendor, unless the purchaser advises or makes an agreement with the employee to the contrary: at p. 462.

[61] I do not accept Ms. Manthadi’s submission that Sorel has overtaken Addison. In a short endorsement, this court upheld a trial judgment that relied on Sorel: Debenham v. CSI-Maximus (2003), 2003 CanLII 10846 (ON CA), 26 C.C.E.L. (3d) 32 (Ont. C.A.). While the court did not refer to Addison, or to Sorel, the trial result upheld is not inconsistent with Addison. I do not read Debenham to abandon the Addison approach in favour of Sorel.

[62] Addison remains the law in Ontario. In Ontario, reasonable notice is determined by applying the usual Bardal factors considering all the circumstances of the particular case and appropriately weighing the experience a long-time employee brings to the purchaser.

[63] The application of the Bardal factors is well able to deal with a successor employer situation fairly. In other cases, this court has stated that the length of service factor should not dominate the application of the Bardal factors. Minott v. O’Shanter Development Co. (1999), 1999 CanLII 3686 (ON CA), 168 D.L.R. (4th) 270 (Ont. C.A.), firmly rejected a so-called “rule of thumb” by which the starting point in determining reasonable notice would be to allow one month of notice for each year of service and then make adjustments for the particular circumstances of the case. Laskin J.A. held, at para. 73, that the rule of thumb approach “risks overemphasizing one of the Bardal factors, ‘length of service’, at the expense of the others” and that it gave “unnecessary prominence to length of service.” He concluded that “the rule of thumb approach is not warranted in principle, nor is it supported by authority”: at para. 73. See also Love v. Acuity Investment Management Inc., 2011 ONCA 130, 89 C.C.E.L. (3d) 157, at para. 19, leave to appeal refused, [2011] S.C.C.A. No. 170.

[64] That the Bardal factors can be applied to a successor employer case is evident because Bardal itself was a successor employer case. Mr. Bardal worked for the Globe Printing Co. Ltd. for 13 years until the business was sold to the Globe & Mail Limited in 1955. He worked for the Globe & Mail Limited for just four years when he was terminated. His wrongful dismissal action was tried before McRuer C.J.H.C. in 1960.

[65] In 1960, six months was considered the “unofficial ceiling” for notice in Ontario: England, Barnacle, and Christie, Employment Law in Canada, at § 14.106. McRuer C.J.H.C. himself noted at p. 144 that the C.E.D. stated, “In Ontario damages in cases of indefinite hiring are limited to wages for six months.” Despite this, McRuer C.J.H.C. awarded Mr. Bardal 12 months’ notice. In doing so, McRuer C.J.H.C. did not mention Mr. Bardal’s length of service.

[66] A trial judge applying the Bardal factors is able to craft an appropriate award in a successor employer case without stitching together the employee’s two terms of service. The Addison approach does not use a notional length of service as the yardstick of appropriate notice. The Addison approach has the advantage of flexibility. Its flexibility enables the court to deal fairly with the endless variety of circumstances in which an employee’s claim may be presented. The court is able to recognize, under the rubric of experience, the equivalent of all or some of an employee’s service with the vendor employer in order to arrive at a fair result.

[67] The fair result need not devalue the employee’s past service. The notice periods awarded in both Addison and Bardal were no less than had length of service been used as the yardstick. The appropriate notice period is assessed taking into consideration all of the circumstances.

(b) The circumstances in which the common law recognizes prior service with the predecessor employer

[68] In both Addison and Sorel, an indefinite employee of the vendor was employed as an indefinite employee by the successor employer who had purchased the business as a going concern. In both cases, the employee’s connection to the work performed for the conveyed business remained continuous, with the only change being the identity of the employer.

[69] In Addison, “the appellant continued to perform the same duties as he had since 1963” after the respondent purchased the assets of the business from a receiver and took over operation of the store: at p. 152. The employee had been the assistant manager of the store before the sale and continued as assistant manager of the store for the purchaser.

[70] Sorel likewise refers to the purchaser’s expectation that it will retain the employees of the vendor “without alteration of their terms of employment and with the benefit of their experience”: at p. 462. Sorel also holds that there is an implied term an employee will be given credit for their years of service with the vendor “[w]hen a purchaser acquires a business as a going concern”: at p. 462. See also Hall v. Quicksilver Resources Canada Inc., 2015 BCCA 291, 80 B.C.L.R. (5th) 72, at paras. 33-34.

[71] These parameters help explain why, after the sale of a business, the long-time employee who accepts re-employment with the purchaser will be in a better position than a long-term employee who is terminated and gets a job with an unrelated employer. Where a successor employer buys the business as a going concern, while the employee is terminated and enters into a new employment contract with a new employer, their connection to the ongoing business undertaking is continuous. Only in this situation does the common law give special recognition to the employee’s prior service with their previous employer.

[72] In this situation the employees’ basic duties and responsibilities will usually remain the same after the sale, but that need not be the case. It is not unusual that a purchaser of an ongoing business offers a promotion to one or more of the vendor’s employees. What is necessary is that the employee’s relationship to the ongoing business undertaking continues uninterrupted despite the change in the identity of their employer.



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