Ontario Court of Appeal finds break in service, but employer benefited from worker's experience
The Ontario Court of Appeal has overturned a judge’s finding that a worker who was terminated and rehired as part of the employer’s bankruptcy proceedings had continuous service warranting 12 months’ notice of termination.
But the worker’s previous service was a factor, bumping up his reasonable notice entitlement to seven months for the less-than-three-year stint after being rehired.
It’s an indication that significant previous service in the same job for the same business is likely to factor into the common law reasonable notice period even if there is a break in employment, says Daniel Hassell, an employment lawyer at Zubas Flett Law in Toronto.
“It seems like when there's a new employment relationship, in some circumstances, there might be an implied contractual recognition of the prior service, unless the employer contracts out of that and makes it clear that the previous service with the predecessor employer is not going to be recognized,” says Hassell.
Termination after creditor protection
Guestlogix is a technology company providing digital concierge services to airline passengers. The company hired the worker, who was 47 years old at the time, in 2011 as a senior business analyst.
In February 2016, Guestlogix obtained a protection order from its creditors under the Companies’ Creditors Arrangement Act (CCAA). Four months later, a group of investors agreed to purchase the company’s shares and developed a transaction agreement. The agreement released Guestlogix from any liability for claims by its employees that arose before the agreement’s implementation date.
In July, Guestlogix filed a compromise and arrangement plan in Ontario Superior Court, which aimed to settle and release claims by former employees on or prior to the plan implementation date. The plan stated that the company and released parties would have no further obligation relating to employee claims.
Guestlogix sent the worker a letter in August notifying her that it intended to terminate her employment and offer to rehire her on the same terms as her current employment, and she could submit a proof of claim in the CCAA proceedings for severance and termination pay.
The worker submitted a claim for termination and severance payments under the Ontario Employment Standards Act, 2000 (ESA), totalling $19,321 and making her a creditor in the proceedings.
The plan was approved and implemented on Sept. 16, 2016. The CCAA monitor accepted the worker’s claim and paid her 72 per cent of her claim, representing her pro rata entitlement as an unsecured creditor.
New employment offer
Guestlogix sent an offer of employment to the worker with a starting date of Sept. 22, which the offer stated would be the worker’s effective starting date for all employment-related matters. Her benefits and other employment programs weren’t interrupted.
The worker accepted the offer and signed an employment contract that limited her to statutory minimum notice in the event of a without-cause termination.
The worker continued with Guestlogix, performing the same job duties, until the company terminated her employment on June 13, 2019. Guestlogix paid her the equivalent of 9.5 weeks’ pay, which was based on her ESA entitlement from her original start date in 2011, minus what she had been paid for her CCAA claim. Guestlogix also provided a record of employment listing her 2011 start date.
Read more: An employer can reset a employee’s service time with a clear written contract, valid consideration, and doesn’t contract out of the ESA, according to an employment lawyer.
A motion for summary judgment was granted and the motion judge found that the termination provisions in the worker’s employment contract were unenforceable because they didn’t comply with the statutory minimum entitlements. The judge also found that the worker’s employment with Guestlogix should be treated as continuous from her original start date and she didn’t sign a release in the CCAA proceedings.
Guestlogix was ordered to pay the worker 12 months’ pay in lieu of notice.
While Guestlogix accepted that the termination clause was invalid, bt it appealed the motion judge’s finding that the worker was entitled to common law notice for her entire service since 2011. It argued that the worker was entitled to four months’ notice for her 2.75 years of employment since her rehiring.
Common law, ESA treat sale of business differently
The Court of Appeal noted that under the ESA, employment is not broken for the purposes of calculating statutory termination pay when an employer sells a business and the purchaser continues to employ the employee. In addition, the ESA doesn’t consider anything less than 13 weeks a break in service for the purposes of termination or severance pay.
However, the court also noted that there is a “sharp distinction” between the ESA and the common law when business ownership changes. As previously established in the jurisprudence, a contract of personal services can’t be assigned to a new employer without the consent of the parties if the legal identity of the employer changes, and an offer and acceptance of employment with the new employer is a new contract of employment, said the court.
As a result, the worker’s service time started in 2016 when she was rehired, contrary to the motion judge’s finding, said the Court of Appeal.
The court acknowledged that the employer’s identity didn’t change since the sale of the business was through a share purchase agreement, but Guestlogix explicitly terminated the worker’s employment and rehired her in 2016, starting a new employment agreement.
Read more: A worker who resigned and was then rehired is not entitled to reasonable notice of dismissal based on her entire length of service, the Ontario Court of Appeal ruled.
The unusual circumstances of the CCAA proceedings contributed to the disagreement between the courts over whether there was a break in service, says Hassell, noting that under normal circumstances, terminating and immediately rehiring an employee likely not be a break in service, even under common law.
“There are some cases where there's even a significant break in service where the two [service periods] are stitched together, like where an employee goes off of work to start a family or pursue their education and then comes back to the job, or is even recruited back to the job,” he says.
“Then it seems to be that both of those periods of employment are considered by the courts, especially when determining the reasonable notice period.”
Common law notice entitlement
The appeal court also found that the motion judge erred in finding that there was no release. Although the worker didn’t explicitly sign one, there was a court order in the CCAA proceedings releasing all claims against Guestlogix up to the plan implementation.
However, the court also found that an employee’s prior service can be factored into the common law notice calculation where the position is the same or similar as before the sale of the business, because the new employer can benefit from the experience of the employee in the position. The worker’s service prior to her dismissal and rehire wasn’t continuous employment but could boost her common law notice entitlement, said the court.
The appeal court found that, with the worker’s service time of 2.75 years combined with five years of experience in the same role prior to her termination and rehiring warranted seven months’ reasonable notice. Guestlogix was ordered to pay the worker seven months’ pay in lieu of notice instead of 12, with no reduction for the payment she received from her claim in the CCAA proceedings as that was related to her initial period of employment.
Many employers may assume that where there is a break in service, previous service won’t be factored in, but they will often be wrong, says Hassell. In this case, the worker’s stint before the termination rehiring was given enough weight so that it was almost treated like continuous service, despite the appeal court’s disagreement with the motion judge’s decision, he says.
“Seven months’ notice, that award seems almost in the range of a notice period for an employee with a full eight years of service as opposed to just 2.75 years,” says Hassell. “[The award] was a middle ground between the two parties’ conditions, because the employer was asking for a notice period based on about four months.”
It’s a good idea for employers, when making decisions to potentially terminate employment relationships, to consider if there are employment stints prior to an employee’s current one, as they might increase that notice period and there could be a greater entitlement than one might think – which may be particularly relevant coming out of the pandemic, says Hassell.
“With the post-pandemic great resignation, there could be a lot of situations where employees are returning back to previous jobs if the grass isn't greener, so this could come up quite a bit,” he says.
“I'm sure a lot of employment relationships had to come to an end because of the pandemic and, hopefully as things improve, those relationships could resume in some way.”
See Antchipalovskaia v. Guestlogix Inc., 2022 ONCA 454.
