Implications New Ownership or Restructuring Can Have on New Employment Contracts

New employment contract
When there is a change in ownership or restructuring of a business, questions can arise about how existing employees are given credit for their years of service under the new corporate structure. In two recent Ontario Court of Appeal (ONCA) cases, the Court weighed in on the implications that restructurings can have on employees’ continued employment when introducing new employment contracts to existing employees.

In Theberge-Lindsay v. 3395022 Canada Inc, 2019 ONCA 469 (CanLII), the ONCA found that a resignation during the course of a restructuring did break the employment relationship, which re-set the clock on length of service for the purposes of determining common law reasonable notice of termination.

Ms. Theberge was an employee who worked for a dental practice from 1993 to 2012. During her employment, the practice was restructured several times and Theberge was required to sign a series of employment contracts to remain employed. In 2005, Theberge resigned from her employment with the practice but then, within three months, rescinded the resignation. When she was rehired, Theberge was required again to sign a new employment contract that limited her entitlements to Employment Standards Act and she worked continuously until 2012 when she was terminated without cause. Theberge brought a wrongful dismissal action.

The ONCA found that although the other employment contracts signed were invalid, the resignation had broken the continuous employment and that the 2005 contract was enforceable. After Theberge resigned, the employer offered her new employment in exchange for the agreement. Therefore, the terms of the 2005 agreement which limited her to the minimum entitlements under the Employment Standards Act (ESA) were enforceable.

Conversely, in Ariss v NORR Limited Architects & Engineers, 2019 ONCA 449 (CanLII), the ONCA did not find a break in continuous employment as a result of an employee resignation with a successor employer. Mr. Ariss was employed with his employer since 1986 and in 2002 the company was purchased by NORR. Ariss continued to work for NORR from 2002 until his termination in 2016. In 2006, Ariss and NORR Limited reached an agreement to increase Ariss’s hours of work and pay, which contained a termination clause waiving Ariss’s common law reasonable notice entitlements. Subsequently, in 2013, Ariss wanted to reduce his hours of work and also signed a new contract that was drafted as though he had resigned. After his termination, Ariss brought a wrongful dismissal action.

The Court affirmed the trial judge’s ruling and confirmed that the resignation, in this case, did not restart Ariss’ length of employment The 2006 and 2013 employment contracts did not constitute a break in his employment and Ariss had 30 years of continued service with both his previous employer and NORR. However, because Ariss agreed to the terms of the 2006 agreement, which waived his right to common law reasonable notice, and was given a raise he asked for, he was limited to the ESA minimum entitlements.

Takeaways for employers drafting new employment contracts for existing employees:

— There must be a valid resignation of an employee in order to restart their length of service
— Employees cannot contract out of their Employment Standards Act 2000 minimums
— Employers must make it clear and unambiguous that they are ousting common law notice entitlements in an employment agreement
— Employers should ensure that they are using valid termination clauses to limit an employees’ termination entitlements even in the event that the employee’s length of service is in dispute

When restructuring or purchasing a business, it is important to consult with an employment lawyer. At Monkhouse Law, we help employers assess their practices and align with evolving legal requirements. We can help you navigate the employment issues that arise in corporate transactions, understand your responsibilities, and implement strategies to reduce legal risk. To find out more, contact Monkhouse Law.

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