Reasonable Notice and Successor Employers

August 10, 2020

By Brian Babcock

Workers who are terminated without cause are entitled to reasonable notice of termination. If adequate notice is not given, they may sue for wrongful dismissal. The court determines reasonable notice based upon the character of the employment, years of service of the employee, the age of the employee and the availability of similar employment.

Over the years, awards have placed increasing weight on the length of service factor.

This creates a tricky situation when a business is sold. Under Ontario’s Employment Standards Act, upon the sale of a business, employees who continue with the new employer are treated as having continuous service, so their years working with the seller are credited to them for calculating rights under the Act.

Under common law, however, a change in employer is treated as a dismissal and rehiring. Long term employees potentially could sue for substantial amounts in lieu of notice, and there would be arguments about setting off income from the new job. It might also jeopardize employment with the buyer. It becomes even trickier when long term employees work for the new employer for a while, and then lose their jobs.

Many judges have added the years of service for the seller to the time with the buyer, to be fair to the employee.

A new Ontario Court of Appeal decision changes that, and perhaps will change how we all think about calculating notice.

First, the Court points out that a common law employment contract is NOT the same as the Employment Standards Act, and thus, in common law there is no continuity of employment, even though the worker is doing the same work, in the same place. Prior years of service for the seller ought not to be added to the time with the buyer.

However, they do not stop there.

They recognize that in at least some, if not most cases, this would be unfair to the employee. The right to sue the seller is awkward and uncertain. The buyer gets the benefit of the experienced employee, and should bear some responsibility if they lose their job after the purchase.

The solution they provide is to rule that the judge assessing reasonable notice must weigh the benefit that the new employer receives from the experience of the long-term employee of the seller. The court may recognize, under the rubric of experience, the equivalent of some or all of the prior service.

In doing so, they forcefully reject any trend or effort to treat years of service as a determining or dominant factor in setting reasonable notice.

In addition to the four factors of character of the employment, years of service of the employee, the age of the employee and the availability of similar employment, conduct of the parties may also be relevant. Although in the context of the particular case, the court is referring to the buyer’s conduct in obtaining experience but not retaining the employee, this comment may open the door to fresh debates about issues other than cause to fire.

The Court of Appeal says that this approach has “the advantage of flexibility”. No doubt this is true, but they say nothing about the disadvantage of the loss of certainty.

As a result of this case it will be more difficult for employers who wish to act fairly to accurately estimate reasonable notice upon termination; for fired employees to know if they received reasonableness notice; and for all parties to wrongful dismissal lawsuits to know what a fair settlement would be.

The risk is that more disputes will need to end up having a judge decide them, which goes against the theory that settlements are to be encouraged.

This change in thinking also means that both employers and employees are best advised to obtain legal advice about reasonable notice in all cases, but especially in cases involving successor employers.