sale of assets and reasonable notice of termination

Asset Sale and Reasonable Notice of Termination

In the arena of business asset sales, one essential question arises: What happens to an employee’s length of service and their common law entitlement to reasonable notice?

Typically, when an employee is dismissed without cause and lacks a valid employment agreement that restricts termination entitlements, they are owed common law reasonable notice. This notice period takes into account various factors, including the length of the employee’s service.

A decision by the Ontario Court of Appeal, in the case of Manthadi v ASCO Manufacturing, 2020 ONCA 485, sheds light on how a sale of a business’s assets can affect the common law reasonable notice an employee is entitled to.

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The Motion for Summary Judgment Decision

In the Manthadi v ASCO Manufacturing case, initially heard in 2019 as 2019 ONSC 5572, Ms. Manthadi, an employee with 63732 Ontario Ltd. (“637”) for approximately 36 years, found herself in a significant employment transition. Her employer, 637, was purchased by 2603420 Ontario Inc, which assumed the name ASCO Manufacturing Ltd. (“ASCO”) following the acquisition. During this asset sale, 637 offered Ms. Manthadi a termination package in exchange for her signed release.

Since it was an asset sale, ASCO had no legal obligation to retain 637’s employees. Nevertheless, they did hire Ms. Manthadi, only to dismiss her approximately one month later. This led Ms. Manthadi to file a wrongful dismissal suit against ASCO, which, in turn, initiated a third-party claim against 637.

The motion judge relied on section 9(1) of the Employment Standards Act, 2000 (“ESA“) and concluded that Ms. Manthadi’s employment had been continuous. Accordingly, ASCO was found liable to pay Ms. Manthadi a notice period of twenty (20) months due to the combined length of service. ASCO decided to appeal this ruling.

The Ontario Court of Appeal’s Decision

The Ontario Court of Appeal disagreed with the motion judge’s finding, citing the Addison v M Loeb Ltd case from 1986. The Court made a distinction between employees dismissed by a successor employer under the ESA and under the common law. In the latter case, employment agreements cannot be transferred to a new employer without the employee’s consent.

Furthermore, when determining the appropriate notice period, it is not merely a matter of combining the service periods with the vendor and purchaser. Special consideration must be given to a long-term employee who has been dismissed after an asset purchase but continues to provide services to the purchaser.

These employees often find themselves in a challenging position, where they must accept the purchaser’s employment to mitigate their losses. However, doing so can potentially reduce their damages from a constructive dismissal claim against their previous employer.

Therefore, employees in such situations should receive recognition for their experience with the predecessor employer, unless there is a clear agreement stating otherwise. Courts are obliged to consider the added value of the employee’s experience when determining the appropriate notice period.

Key Insights for Employers and Employees

  • Even in asset sales, an employee’s prior experience with the vendor may extend the notice period. Employers purchasing businesses who solely rely on the employee’s length of service with the purchaser may be at risk of wrongful dismissal claims. Vendor employers also face potential legal action if their termination packages are inadequate.

  • Before engaging in a business sale or employee dismissals, it is essential to consult with a legal professional who can assess your specific circumstances and ensure compliance with the law. Legal professionals can also assist in drafting or reviewing purchase agreements to clarify liability responsibilities.

  • For employees, the notice period might not be as substantial as anticipated, regardless of years of service. Before making any decisions or accepting offers, it is prudent to seek guidance from a legal professional to protect your legal rights and fulfill your obligations, such as mitigating your damages.

Contacts Achkar Law for Help

If you are a employer who is selling or buying a business, or will be dismissing an employee, or an employee who wants to know your legal rights, our team of experienced legal professionals at Achkar Law can help.

Contact us by phone toll-free at 1 (800) 771-7882 or email us at [email protected] and we would be happy to assist.

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