Law Times

Law Times • may 28, 2018 Page 9 www.lawtimesnews.com Credit for service clarified after company changes hands BY DALE SMITH For Law Times A fter a company changes hands, questions can arise about how em- ployees are given credit for service under a new structure. A recent Ontario Superior Court of Justice ruling, Ariss v. NORR Limited Architects & Engineers, 2018 ONSC 620, clarified how credit for service should be determined after an employee with a company that had been bought by another business was terminated and there were efforts to calculate how much notice he was owed. John Ariss was given three- and-a-half weeks' notice upon his dismissal by NORR in 2016, but Justice Sylvia Corthorn found that he was entitled to eight weeks' termination pay plus 26 weeks' severance pay af- ter nearly 30 years of continuous service. Sean Bawden, partner with Kelly Santini LLP in Ottawa, says an important takeaway from the case is that the pur- chaser company should have gone one step further in its em- ployment agreements with staff carried over from the purchased company and state that the pur- chaser company did not intend to honour past years of service after it had the seller company terminate its employees before purchase. "Asset deals are pretty com- mon, and most purchasers as- sume that they're getting em- ployees free and clear, or they want them free and clear," says Bawden. He says the decision by Cor- thorn "makes sense." The ruling found that "the purchaser is responsible for the past years of service when they didn't anticipate that happen- ing," says Bawden. "What this really demon- strates to business lawyers is that employment considerations re- ally need to be considered. Pur- chasers are going to need to turn their mind to what happens if [they] take on these employees," says Bawden. According to the ruling, John Ariss was a director and part- ner with an architectural firm that was bought in 2002 and he started working for the new firm, NORR Limited Architects & Engineers. In 2013, Ariss negotiated a move from full-time to part- time work at his request. In 2016, he was terminated, at which point NORR attempted to not include his years of service with the previous company when calculating how much notice he was owed. However, in the ruling, Cor- thorn found that Ariss' em- ployment started in 1986, when he began with the predecessor company that NORR acquired. She ruled that because the terms of his contracts with NORR did not include entitle- ment to notice of termination without cause based on the common law, Ariss was entitled to eight weeks' notice of termi- nation. She also found that because he did not resign in 2013 when moving to part-time work, which NORR considered to be a resignation from full-time work, he was entitled to 26 weeks' sev- erance pay. A notice of appeal and cross- appeal have been filed in the case. Alayna Miller, a lawyer with Mann Lawyers LLP in Ottawa, who represented the plaintiff in the case, says that NORR at- tempted to argue that Ariss' years of service had been inter- rupted by both the sale of the business in 2002 and by Ariss' resignation from full-time em- ployment to take on part-time employment in the same com- pany. Miller says that in a situation where a company buys another one, the default is that years of service count. "Employers cannot contract out of previous years of service by insisting that an employee resign before taking on new employment terms with a com- pany," Miller says. There are ways for an em- ployer to circumvent that, she says. Given that the new employ- ment contract her client signed said nothing about the waiver of past years of service, it is some- thing for companies contem- plating a purchase to consider, she adds. In the ruling, Corthorn found that NORR had assumed it had no past obligations to em- ployees it took on from the pre- decessor company. She ruled in favour of Ariss because it wasn't communicated to the employees that waiving past service was the intention of the termination letters issued at the time of the sale. In the ruling, Corthorn also rejected NORR's attempt to waive previous years of service through the contract process when those terminated employ- ees were hired. Corthorn also dismissed the notion that the duty of good faith in negotiating a contract requires an employee to reveal if they believed a contractual pro- vision was unenforceable. While the decision found that Ariss was provided with less than his minimum entitlements upon termination of employ- ment, it found that he was lim- ited to the minimums under the Employment Standards Act and did not have an entitlement to reasonable notice of the termi- nation of his employment. This outcome will be subject to review on appeal. "As employment law has been rapidly evolving, particularly in the context of termination pro- visions, we're hoping to obtain further clarity in this area," says Miller. Albert Formosa, a partner with WeirFoulds LLP in To- ronto, who acted for NORR, says his takeaway from the decision are the rulings around clarity of language and understanding and that Ariss was restricted to notice or severance pay and would only be entitled to the minimums under the ESA. "The analysis on the clarity of the contract and [Ariss'] under- standing of the contract and the common law notice limitations — those are all helpful develop- ments for all of us in the employ- ment bar," says Formosa. He says that when companies are buying other companies, they need to examine what legal responsibilities exist toward em- ployees. "There's no question that, but for that contract, they were saddled with this long-term sev- erance obligation that they really wouldn't appreciate," Formosa says. Because of the appeal, the fi- nal determination remains up in the air, he says. "[The decision] highlights the fact that you have to really un- derstand your obligations when you're buying a business and taking over a bunch of employ- ees," says Formosa. Andrea York, a partner with Blake Cassels & Graydon LLP in Toronto, says it's better for em- ployers purchasing a company "to specify intentions in a writ- ten agreement to avoid ambigu- ity and litigation at the time of termination when the parties are parting ways." When it comes to deemed continuity of service, York says, there are two factors to be con- sidered by the courts. One factor is whether the employee was employed by the purchaser or if the employee was an employee of the seller, she says. The question arose at court whether the termination letter at the time of purchase managed to create a break in service so that the deemed continuity provi- sion didn't apply. "Even from a common law perspective, if you don't put it in your offer of employment as purchaser that you're not rec- ognizing any service except as required by employment stan- dards legislation, then, under the common law, a purchaser will likely have to recognize service as well," says York. "Both the statute and the common law acted to require that the purchaser recognized service as far as this judgment is concerned." LT FOCUS Every time you refer a client to our law firm, you are putting your reputation on the line. DARCY MERKUR | SLOAN MANDEL | DEANNA GILBERT Since 1936 Thomson, Rogers has built a strong, trusting, and collegial relationship with hundreds of lawyers across the province. With a group of 30 civil litigators and a support staff of over 100 people, we have the resources to achieve the best possible result for your client. We welcome the chance to speak or meet with you about any potential referral, and look forward to creating a solid relationship with you that will benefit the clients we serve. YOUR ADVANTAGE, in and out of the courtroom. TF: 1.888.223.0448 T: 416.868.3100 www.thomsonrogers.com IT IS ALL ABOUT TRUST WELL PLACED. Untitled-5 1 2018-05-22 4:19 PM Alayna Miller says 'employment law has been rapidly evolving, particularly in the context of termination provisions,' and more clarity is needed.

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