'Clear communication is really important in in these kinds of circumstances'
“When acquiring a new business, the purchaser should be very clear in communicating, to any employees that it’s taking on from the seller, around things like length of recognition of prior service, scope of duties, and the duration of the employment - all of that should be done prior to the employee’s commencing employment just to ensure that there's that there is a consideration to bind the employee to whatever limitations the purchaser is going to impose.”
So says Rich Appiah, an employment lawyer at Appiah Law in Toronto, after the Ontario Superior Court ordered a company to pay a worker 12 months’ wages in lieu of notice when believed it was just hiring the worker for short time after it acquired the assets of the worker’s former employer.
“This is really a case about the successor’s lack of communication with employees it brought on from the predecessor and how that lack of communication can significantly and negatively impact the successors,” says Appiah.
The 69-year-old worker was a blaze welder for ASCO Manufacturing, a company that made tables and desks in Toronto, since 1981.
The worker learned in September 2017 that ASCO was being sold and the company gave her a release agreement dated Sept. 28. It stated that her employment with ASCO would be terminated on Nov. 6 and she would receive eight weeks’ termination pay, written notice, and salary up to the termination date, and the worker released the original company from any future legal action.
Buying equipment and hiring employees of the seller doesn’t make a successor employer, the BC Labour Relations Board ruled.
Assets, name purchased
The purchaser bought all of the original company’s tangible and intangible assets, with the exception of accounts payable and accounts receivable, along with the name “ASCO.” The purchase agreement stated that the new company purchased the business as a going concern.
The new company immediately offered employment to 20 ASCO employees, including the worker, as general labourers to pack and unpack the purchased assets, as it was moving them from Toronto to Brampton, Ont. There was no interruption in employment.
The worker did not have a written contract and did not sign any document regarding the continuity of her service. She did not have any communication with management regarding the terms of her employment.
According to the new company, it only intended to buy ASCO’s assets and name. The company continued to manufacture the same products under ASCO’s name and the worker thought that she was being offered her blaze welder position on an indefinite basis.
The new company denied making any offers of permanent employment to ASCO employees, saying that it only offered temporary labourer work that would end once all the ASCO assets were moved.
A Saskatchewan adjudicator determined that 27 consecutive one-year contracts made a teacher a permanent employee.
Laid off after five weeks
Once the assets were moved to Brampton, the worker performed unpacking duties, as did the other 19 employees of the original company. On Dec. 13, they were informed that they were being placed on a temporary layoff.
Over the next few weeks, the worker texted management about when she would be returning and a manager said he would let her know. Another text received no reply. ASCO sent her a record of employment describing her work as “general helper” and the reason of termination was “shortage of work/end contract or season.”
The worker sued for wrongful dismissal, claiming that the purchasing company offered her continued employment and would recognize her service time. The Ontario Superior Court of Justice, on a summary judgment motion, found that the worker’s employment was continuous and she was entitled to notice of termination with consideration of her 36 years of service. ASCO was ordered to pay the worker wages in lieu of 20 months’ notice.
ASCO appealed and the Ontario Court of Appeal found that the release agreement only applied to the original company – the purchasing company was not a party to it, so it was not protected from legal action by the worker. It also found that the worker’s employment with the original company ended with the sale of its assets, so a trial was necessary to determine the nature of her new employment agreement with ASCO.
The appeal court set aside the summary judgment and remitted the case back to the Superior Court for trial.
Fixed-term contracts can be beneficial for employers, but can have poor consequences if not handled right, says an employment lawyer.
Disagreement over release
At trial, ASCO argued that the original company was acting as its agent when it entered into the release agreement with the worker and the agreement was created from the terms of the purchasing agreement, which required the original company to provide notice of termination to all employees.
The court disagreed that the release should apply to the new owner, as the agreement was between the original employer and the worker at the cessation of her employment with that company, and the purchaser wasn’t even aware of the release at the time. There was no indication that the original company intended to extend the benefit of the release to the purchaser, so the “doctrine of privity” – only the parties to a contract can be bound to it – applied to the release, said the court.
“The court held that, in that kind of circumstance, the purchaser couldn't rely on the release for its own benefit - there was a lack of agency in the relationship between the seller and the purchaser,” says Appiah. “The other reason was that the purchaser wasn’t referenced in the release.”
The court found that there was no written agreement between the new ASCO owner and the worker, and there was no evidence that the worker was specifically told that her employment would only last until the move was completed. If the purchasing company’s intention was to hire the worker on a fixed-term contract, then it had an obligation to communicate that to her – it couldn’t rely on what the former employer told its employees as the basis of an employment contract, the court said.
The court determined that the worker’s employment with the new ASCO owner was indefinite and she was entitled to notice of termination.
An Ontario court awarded 26 months’ notice to two long-term managers who were terminated after refusing to accept offers from the company purchasing their employer.
Company was a going concern
The court also found that the new ASCO company purchased the business as a going concern and it wasn’t just a purchase of assets. The purchase agreement stated that it was a going concern, the business continued to operate without interruption, and several ASCO employees were retained, at least for a short time. The new owner may have intended to employ the worker as a general labourer rather than a welder, but it didn’t communicate this to her and it paid her at the same rate, said the court.
“Here we have a situation where the purchaser purchased the business but said nothing to its employees, and certainly at least nothing to the [worker], of what the purchaser’s intentions were with respect to her employment,” says Appiah. “And so that lack of communication rendered the purchaser unable to successfully argue that the worker was an employee for a fixed term.”
However, the court noted that where there was a successor employer, the worker’s service with both were not just added together to determine reasonable notice. The service should be considered as part of the worker’s experience that they brought to the employer when applying the Bardal factors in calculating notice, said the court.
Although the worker had 36 years of service with ASCO, she only worked for the purchasing company for four weeks and her skills as a blaze welder were not used by the new owner, the court said. The court determined that the worker’s age, the nature of her employment, the failure of ASCO to communicate its intentions to her, her years of service, and the “modest benefit” her skills gave ASCO warranted 12 months’ notice.
“The purchaser ought to have advised the worker that she was being brought on for a limited purpose and for a fixed term prior to her joining the joining the purchaser, so that it was clear to all parties as to the nature of the relationship and what the liability of the purchaser would be once the relationship came to an end,” says Appiah. “Clear communication is really important in in these kinds of circumstances to ensure that everyone is on the same page, and all of this should be done in writing.”
“And to really protect itself, the purchaser should ensure that there are enforceable termination clauses to limit its liability when the relationship with the employees being acquired come to an end.”
