In June 2022 we wrote about the case of Manthadi v. Asco Manufacturing, 2020 ONCA 485, a case where the Ontario Court of Appeal ultimately remitted for trial the question of the impact of an employee’s prior service where an asset sale occurred and the employee received a payment and signed a release in favour of her former (vendor) employer – but went on to work for the purchaser.
That case has now been heard[1].
Ms. Manthadi was employed as a welder with a company called 63732 Ontario Limited (“637”) from February 1981 until it was sold to ASCO Manufacturing Limited (“ASCO”) in November 2017. 637 purported to terminate Mr. Manthadi at the time of the sale by offering her Employment Standards Act, 2000 notice of termination and requiring her to sign a release. She began immediately working for ASCO, first as a welder but then as a general labourer. Her rate of pay and hours of work were unchanged. There was no written employment agreement with the purchaser and no discussion of the treatment of her past service.
Approximately one month after ASCO purchased 637, Ms. Manthadi was laid off. She was never recalled. By February 2018, she had commenced her wrongful dismissal claim against ASCO.
ASCO defended by relying on Ms. Manthadi’s settlement agreement with 637 and asserting that she was only ever meant to be a fixed term employee who helped to pack up and move 637’s assets to ASCO’s new business location. Ms. Manthadi’s evidence was that she understood she was an indefinite term employee. She also understood that she was releasing her former employer when she accepted the payment she was offered but believed that the entirety of her 36 years of service would be recognized if ASCO later terminated her.
While ASCO claimed that it only ever intended to purchase 637’s assets and name, it did continue to make products formerly made by 637. It also manufactured its own line of products.
This case remains interesting because of its discussion of the effect of past service for employees who are hired by purchaser companies in an asset sale. Those who read our original article [read here] will recall that an asset purchase interrupts continuous employment and creates a new relationship between the purchaser and the employee when the employee is hired by the purchaser. If the employee is not hired by the purchaser, the vendor must terminate the relationship and pay termination entitlements.
The decision of the trial court contains advice that any purchaser of assets must heed in order to properly assess the risks of taking on employees of the vendor. It also offers insights to employees who may find themselves offered new employment in the circumstances faced by Ms. Manthadi.
- Accepting a payment and signing a release in favour of a former (vendor) employer does not prevent an employee from bringing a claim against the new (purchaser) employer if employment is later terminated. Employees must pay careful attention to the language of their release agreements and have them reviewed by counsel prior to signing them to make sure they are not accepting consideration from or releasing any other party.
- The agreement of purchase and sale (APS) between 637 and ASCO required 637 to lawfully terminate its employees and to indemnify and save ASCO from future claims. It did not require 637 to obtain releases on behalf of ASCO. Purchasers of businesses must pay particular attention to the terms of their APS to assess the future cost of hiring the vendor’s employees. In the words of the court, “[if] ASCO wanted that protection, it could have included a term [providing it]”.
- An employer that wants to argue that it entered into a fixed term contract of employment must prove this unambiguously. In this case, the purchaser made the fatal error of putting nothing in writing and making no oral representations to the employee. Employers must put their agreements in writing and then hire experienced employment counsel to ensure that their agreements have the legal effect they intend.
- ASCO failed to call evidence at trial to support its position about the alleged fixed term nature of Ms. Manthadi’s employment. Where employment disputes get to trial, relevant and first-hand evidence must be available to the court.
- Employees should carefully evaluate any offer of employment that is being made by a purchaser and must realistically and objectively assess whether it is comparable to their current terms and conditions. In this case, an offer of one month of employment from ASCO (had they proved this aspect of their case) would not have been comparable employment. Ms. Manthadi would likely have been entitled to reject that offer and start a claim for wrongful dismissal from her former employer. Employees must assess the risk of rejecting a new offer of employment before accepting payments and signing a release offered by the former employer.
- While section 9(1) of the Employment Standards Act, 2000 (“ESA”) says that an employee’s service is continuous when a business is sold, the common law does not cause that continuous service to be added together quite as neatly as the ESA might suggest. At common law, length of service is one factor to consider. The traditional factors of age, position, and salary also remain relevant to the analysis. If the employee is hired into a new role and the employer is not benefitting from their experience, this may reduce the notice period.
- The fact that an asset transaction has taken place is not fatal to an employee’s right to claim some credit for past service. Whether or not the business is operating as a going concern after the sale is relevant. The parties to the APS must be scrupulously clear about the nature of their commercial transaction and their intentions vis-à-regarding employees after the transaction closes. A reviewing court will consider the terms of the APS and also the work having been actually performed by the employee in question.
- An employer must prove its employee has failed to mitigate their losses, not just assert it.
[1] 2023 ONSC 3499.
