Law Times

LAW TIMES COVERING ONTARIO'S LEGAL SCENE | FEBRUARY 25, 2019 9 www.lawtimesnews.com BY JULIUS MELNITZER For Law Times F ollowing the Supreme Court of Canada's dismissal of the leave application in Krish- namoorthy v. Olympus Can- ada Inc., purchasers of business assets can rest assured that offers of continuing employment to vendors' staff are in themselves sufficient consideration to sup- port the validity of new employ- ment agreements. The dismissal of the leave application leaves intact the Ontario Court of Appeal's rul- ing that an offer of continuing employment by a purchaser to a vendor's employee can be bind- ing consideration for a new em- ployment agreement and any termination clause therein. The OCA's decision vacated the judgment of Justice Grant Dow of the Superior Court of Justice, who reasoned that an offer of continuing employment did not constitute valid consid- eration supporting a new em- ployment agreement. "Dow's decision meant that every employment agreement that was entered into after an asset deal was completed would have been unenforceable unless there was consideration other than the offer of employment by the new owner," says George Avraam, a civil litigation partner in Baker & McKenzie LLP's To- ronto office, who, with Jeremy Haan, of counsel in the firm's labour, employment and regu- latory law group, represented Olympus. "Had the decision stood up, it would have put a wedge into what was believed to be settled law." The case arose when Nade- san Krishnamoorthy, a senior finance executive, was dismissed without cause after 10 years of service at Olympus, a United States-based optical sciences business. Krishnamoorthy's employ- ment agreement with the com- pany contained a clause that limited Olympus' exposure on termination to 10 months' no- tice. Krishnamoorthy had previ- ously worked at Carsen Group Inc. for five years. Carsen and Olympus were unrelated, but Carsen was an exclusive distributor of Olym- pus' products in Canada. Olym- pus purchased Carsen's assets and set up Olympus Canada to run the business. Olympus Canada then of- fered Krishnamoorthy employ- ment. Krishnamoorthy accepted the offer and signed an employ- ment agreement containing the 10 months' termination clause. The agreement also provided that Krishnamoorthy would be treated as a new employee and that his previous service would not be recognized other than as required by Ontario's Employ- ment Standards Act. Krishnamoorthy received no additional compensation or bo- nus for signing on with Olym- pus. He also received no severance pay or pay in lieu of notice from Carsen. On his termination by Olym- pus, Krishnamoorthy sued for wrongful dismissal, claiming common law reasonable notice based on his combined employ- ment of 15 years. Krishnamoorthy's lawyers, Lecker & Associates' employ- ment law partner Matthew Fish- er (who did not respond to an interview request) and associate Ian Hurley of Toronto, argued that the Olympus employment agreement was unenforceable as lacking in consideration. They also relied on s. 9(1) of the ESA, which treats subsequent em- ployment with the purchaser of a business or part of a business as continuous employment "for the purposes of this Act." "Previous decisions had made it clear that s. 9(1) protected stat- utory expectation, but the courts had not dealt with that provision in the common law notice con- text," Avraam says. Dow ruled that s. 9(1) applied to make Krishnamoorthy's em- ployment continuous. The upshot was that Olym- pus' offer of employment add- ed nothing to his benefit and, therefore, was lacking in consid- eration. Consequently, the agreement and 10 months' limitation on termination entitlement were invalid. The appropriate notice pe- riod, Dow ruled, was 19 months. "The main consequence of Dow's decision was that a pur- chaser of assets would have to offer fresh consideration, apart from continuing employment, if the purchaser wanted an em- ployment agreement that dif- fered from the terms under which the employee was work- ing for the vendor," says James Fu, a human resources law part- ner in the Toronto office of Bor- den Ladner Gervais LLP. On appeal, Justice Sarah Pep- all, writing also for a unanimous bench composed also of Chief Justice George Strathy and Jus- tice Eleanore Cronk, ruled that s. 9(1) did not ensure continuity of employment for all purposes. "Section 9(1) of the ESA does not deem the employment con- tract between an employee and an employer to bind a subse- quent purchaser of some of that employer's assets as was the case here," Pepall wrote. "Nor does s. 9(1) of the ESA require the purchaser of a busi- ness' assets to offer employment to employees of that business on the same terms as their origin- al contracts as claimed by Mr. Krishnamoorthy. He cannot rely on s. 9(1) to achieve either of these effects. He can only rely on s. 9(1) to claim those entitle- ments that are set out in the ESA itself." In the result, Krishnamoor- thy was limited to 10 months' notice. "The Court of Appeal ruling confirmed what had been the understanding of the employers' bar for an appreciable period of time," Fu says. Exactly what Krishnamoor- thy is entitled to, however, has yet to be determined at trial. "The Court of Appeal did not address whether or not the termination provision com- plied with the employee's statu- tory entitlements," says Martin Thompson, an Ottawa partner in McMillan LLP's employment and labour relations and advo- cacy and litigation groups. Still, the fact remains that Krishnamoorthy does not give purchasers a blank slate to change terms of employment. "It remains very important that employers distinguish [between] a situation where a purchasing employer can offer new terms without providing additional consideration and a situation where an employment contract with the purchaser is already in existence, in which case the purchaser cannot vary the terms without fresh consid- eration," Thompson says. Krishnamoorthy, Thomp- son adds, is also a reminder that, in asset purchases, changes to terms of employment should be implemented at the time of the offer letter or closing. "And the offer letter should be carefully reviewed to ensure that it does not offend employment standards rules," he says. LT George Avraam says that, had a recent Ontario Court of Appeal decision 'stood up, it would have put a wedge into what was believed to be settled law.' FOCUS Offer letter should be carefully reviewed SCC ruling will impact on business asset purchasers "The Court of Appeal did not address whether or not the termination provision complied with the employee's statutory entitlements." Martin Thompson ONTARIO LAWYER'S PHONE BOOK 2019 The Ontario Lawyer's Phone Book 2019 has more than 1,400 pages of indispensable legal references that can connect you with anyone you need. Updated throughout the year, it contains names, phone numbers, mailing addresses and emails so you don't have to search anywhere else. Order your copy today! Visit www.store.thomsonreuters.ca or call 1.800.387.5164 for a 30-day no risk evaluation. Perfectbound • Published December each year On subscription $87.50* • One time purchase $91* Order No. L7798-8405 • ISBN 978-0-7798-8405-6 Multiple copy discounts available *Plus applicable taxes and shipping & handling. Prices subject to change without notice. CONNECT INSTANTLY TO ONTARIO'S LEGAL COMMUNITY Untitled-4 1 2019-02-20 2:38 PM

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