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Recent Court of Appeal Decision Weighs In on Reasonable Notice Periods following an Asset Sale

Practice Areas: Employment Litigation

In Manthadi v. ASCO Manufacturing the Ontario Court of Appeal overturned the lower court’s summary judgment decision finding that the motions judge made several reviewable errors in her assessment of the appropriateness of summary judgment and her treatment of years of service with a vendor in an asset sale for the purposes of assessing the period of common law reasonable notice.

The plaintiff in this litigation had been employed by the Vendor for thirty-six years when she was advised that the business was being sold and her employment with the Vendor was being terminated.   The plaintiff was offered and accepted a settlement from the Vendor and signed a Release of claims for any liability arising from her employment.  She was then hired by the Purchaser and worked for a month before being laid off.   The plaintiff brought an action for wrongful dismissal against the Purchaser, who in turn brought a third party action against the Vendor.

There were a number of disputed issues around the nature of the offer made to the plaintiff by the Purchaser and whether it was a temporary fixed period of employment or one of indefinite duration.  There was also a dispute as to whether the plaintiff’s previous service with the Vendor would be credited to the plaintiff.  Notwithstanding these issues, the motion judge allowed the motion for summary judgment and determined that a full trial was not necessary in the circumstances.  The Court of Appeal overruled the motions judge and confirmed that in a Rule 76 simplified matter summary judgment will only be appropriate in limited circumstances where the factual disputes can be resolved on the record before the motion judge and there are no genuine issues requiring a trial.

The Court of Appeal also found that the motion judge erred in determining that the common law “mirrored” the Employment Standards Act, 2000 (ESA) requirement to include service with the Vendor in calculating statutory termination and severance pay obligations which, in turn, required the motion judge to take into account the plaintiff’s 36 years of service prior to the sale.    In relying on previous appellate authority the Court of Appeal found that the plaintiff’s prior service and the benefit of that experience to the Purchaser was properly a factor to consider in the Bardal assessment of reasonable notice.   The Court of Appeal held that this was a different consideration than the statutory sale of business requirements under the ESA.

The Court of Appeal set aside the summary judgment motion and ordered that the matter proceed to trial.   An expensive result for the plaintiff who likely had to pay the costs of both the original summary judgment motion and the appeal.   While the case illustrates that summary judgment will often not be appropriate in an action brought under the Simplified procedure, it also provides a caution to purchasers who acquire long service employees in an asset sale.  While the court will not “stitch together” the prior service with the current service, that prior service will be a factor in assessing the period of reasonable notice. This underscores the need for enforceable termination provisions in an employment agreement where a purchaser is buying the assets of a business and employing individuals who worked for the Vendor.   

The CCP team can provide employers considering an asset purchase with expert legal advice on their legal obligations and ways to minimize same.   Please contact one of our lawyers who can assist with these complicated sales transactions.  

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