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Caution for Employers Offering Continued Employment after the Sale of a Business

This past February, the Ontario Superior Court of Justice released an important and, to some employers, rather surprising decision, shedding new light on when employees are entitled to refuse offers of continued employment, following the sale of their employer’s business.

In this case (Dussault v Imperial Oil Limited, 2018 ONSC 1168) the defendant employer, Imperial Oil Limited, had terminated the employment of the two plaintiff employees when it sold a portion of its business to Mac’s Convenience Stores. As part of its purchase of the business, Mac’s offered the two employees continued employment in the same jobs and at the same salary for 18 months. In doing so, however, it reduced their benefits coverage, refused to recognize their past years of service in the business, and failed to guarantee that their salary might not be reduced after 18 months.

Both employees refused Mac’s offer of continued employment and sued Imperial for pay in lieu of notice. In court, Imperial argued that their refusal to accept Mac’s offer of continued employment, in the same jobs and at the same salary, constituted a breach of their legal duty to mitigate their damages, thereby disentitling them to claim pay in lieu of notice.

The Ontario Superior Court rejected Imperial’s argument. It ruled that the two employees were not legally required to accept Mac’s offer of continued employment, even though that offer involved no immediate change either to their job duties or to their salary.

The Court gave the following reasons for its decision: (i) the offers had been extended to the employees before rather than after their termination and thereafter had never been renewed; (ii) the offers failed to recognize the employees’ prior years of service and reduced their benefits coverage; and (iii) they effectively required the employees to give up their right to sue their employer if their salaries were later reduced.

Since the employees did not have employment contracts with valid termination clauses, the Court ordered Imperial to pay each employee – 26 months of common law notice, in spite of the fact that both held only non-managerial positions. The Court ordered 26 months notice primarily because the employees had worked at Imperial for their entire careers, and their skills had therefore become tailored specifically for that employer, and hence were not easily transferable. This amounted to a cumulative total of over $800,000, an amount that Imperial never anticipated having to pay when it decided to sell its business.

This new decision of the Ontario Superior Court clarifies the factors that employers must consider when formulating new offers of employment to employees following the sale of their business. A prudent employer will try avoid these potential pitfalls, when structuring its offers of employment to such employees.