Transfer of department to an outsourcing company

Is a job offer from the new employer considered continuous employment?

Stuart Rudner
Question: If a company transfers assets of a department to another company in an outsourcing transaction and job offers are made to employees by the new employer, is it considered continuous employment? If the employees accept jobs with the new employer, are they owed severance payments from the original employer?

Answer: Questions frequently arise with respect to how to handle a change of ownership in situations where the terms and conditions of employment otherwise continue unchanged. Details including the type of sale — share versus asset — often play a critical role in the analysis.

If the job offer is accepted by the employees and is to continue with essentially the same terms as before, then this would be considered continuous employment. Because the employment is continuous, there is no termination and therefore no notice of termination or severance pay is required.

In Ontario, the Employment Standards Act says where an employer sells a business or a part of business and the purchaser employs an employee of the seller, employment shall be deemed not to have been terminated. “Sells” is defined as including leases, transfers or any other dispositions. The act requires the purchaser to hire an employee within 13 weeks of her last day with the previous employer in order for it to apply. Most other jurisdictions in Canada have similar provisions.

In Abbott v. Bombardier Inc., the IT department of a company was sold to a new owner. Bombardier, the original employer, provided all employees with eight weeks’ notice their employment with Bombardier would terminate. The new owner made job offers to the employees, which they all accepted. The employees then brought an action for severance pay against Bombardier. The Ontario Court of Appeal ruled the act precluded the employees from making such claims.

It is always wise for the existing and future employer to specify, in writing, who will be responsible for any payments that may be required as a result of the change of employer.

For more information see:

Abbott v. Bombardier Inc., 2007 CarswellOnt 1815 (Ont. C.A.).

Stuart Rudner is a partner who practices commercial litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or [email protected].

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