Termination Clause Void on Sale of Business due to Lack of Consideration:

In Krishnamoorthy v Olympus Canada ( 2016 CarswellOnt 18204) Justice Dow had a situation where the Defendant purchased another company ( Carsen Group)  and offered employment to 99% of the predecessor company’s employees, including the Plaintiff.

At the time of his termination the Plaintiff was 58 years old, held the position of Executive Director of Finance and was employed a total of 15 years with the two companies.

The terms of the offer are set out in the decision as follows :

To that end, the defendant provided an offer of employment to the plaintiff on November 30, 2005 outlining the terms of employment which maintained the exact terms of the plaintiff’s employment with Carsen Group Inc. including:
a) transition payments for bonus calculations for pre Olympus employment in 2006;
b) that the “job will likely evolve and change over time”;
c) termination without cause will pay the greater of Employment Standards Act severance pay or four weeks’ pay per year up to a maximum of 10 months if a release is signed for service with Olympus or Carsen Group Inc. (with pay defined as annual salary divided by 52);
d) a mandatory retirement requirement at age 65 (not yet declared void by application of the Ontario Human Rights Code);
e) a severability clause permitting the balance of the agreement to remain in the effect if a particular clause is unenforceable;
f) the employee understands the terms of the agreement that he or she was to “be treated as a new employee” without reference to the opportunity to get legal advice; and
g) a release of not only the defendant from any “further claims but also for any claims against Carsen Group Inc.

During the course of his employment with Olympus, the Defendant acted in a way so that his prior service was in fact recognized.  For instance they

a) Gave him a 10 year plaque after only 5 years with Olympus but recognizing that he joined Carsen 10 years prior.

b) His Total Compensation Statement in 2014 showed that his date of hire was 2000, the year he joined Carsen.

c) His first payroll statement after Olympus purchased Carsen carried over his sick day and vacation credits.

Interestingly, with some other employees Olympus paid significant signing bonuses to get them to sign employment contracts , but alas the Plaintiff did not ask for nor receive such a bonus . He just kept his job exactly like it was before, except now he had agreed to a severance payment considerably less than his common law entitlement .

Then Dow J, had to decide whether the contractual termination clause was valid . He said as follows:

Issues — Validity of Termination Clause
8 .The defendant takes the position its employment agreement of November 30, 2015 is enforceable and rejects the variety of submissions made by the plaintiff to the contrary, The most compelling submission by the plaintiff is that the defendant failed to provide him with valid consideration for waiving his previous right to reasonable notice damages upon termination without cause, The plaintiff submits the employment was continuous and relies on the Employment Standards Act, 2000, S.O. 2000, c. 41 and Section 9(1) which provides for the employment being deemed to include the time that accrued with the seller of the business by the employee who continued with the purchaser of the business. In my view, the defendant did recognize this issue in the employer agreement but limited it to (10 years or 10 months’ notice).
9. The defendant submits the offer of employment was (sufficient) consideration. However, this appeal’s to be contrary to the conclusion reached by the Court of Appeal in Hobbs v. TDI Canada Ltd., [2004] O.J. No. 4876 (Ont. C.A.) where Justice Juriansz (at paragraph 42) states:
The requirement of consideration to support an amended agreement is especially important in the employment context where, generally, there is inequality of bargaining power between employees and employers.
10. The defendant points to the fact it is not the same employer as the plaintiff was working for and thus the employment agreement has not been “amended”. In my view, there are too many similar factors in the situation at hand to distinguish it in this way. That is, the remuneration, the duties to be performed, the substance and the nature of the business all remained the same. The only thing that changed would appear to be the employee’s right to reasonable notice on termination without cause.
11. I am reinforced in this conclusion by the position the defendant takes with respect to it honouring the plaintiff’s prior service with Carsen Group Inc. as well as the fact the defendant did pay (and likely wisely and more economically) some of the Carsen Group Inc. employees it recruited a signing bonus as part of securing their services,
12. In my view, my conclusion is also consistent with the rationale of the Court of Appeal in Holland v. Hostopia.Com Inc., 2015 ONCA 762 (Ont. C.A.) where the Chief Justice states; (at paragraph 53)
The law in this respect is a matter of simple fairness. It is also a matter of sound employment practice.
13. The result is the plaintiff is entitled to reasonable notice of termination at common law.

The Judge also made some interesting comments about the application of the Bardal factors in determining reasonable notice under the common law .

In relation to the character of employment  he wrote :

16, Regarding the character of the employment, it is not disputed that at the time of termination, the plaintiff was performing a senior executive role with the defendant. He was one of the few employees with signing authority. However, although not referenced by counsel in submissions before me, I understand that the principle of greater notice for highly skilled positions and less notice for clerical or unskilled work is of “declining relative importance” (Di Tomaso v. Crown Metal Packaging Canada LP, 2011 ONCA 469 (Ont. C.A.) at paragraph 27): Thus, this is not as strong a factor for a longer period of notice as it has been in the past.

This is the first time that I am aware of that the Di Tomaso case has been used to lower the notice period of executive rather than increase the notice period of a lower paid employee. This comment will likely further weaken the importance of character of employment in assessing reasonable notice .

In relation to age ( the Plaintiff was 58 at the time of termination ) he wrote :

18. Regarding his age, while the plaintiff would use this as a factor for a longer period of notice, it is presumably on the basis the plaintiff is unlikely to be rehired at this “older” age. In my view, the trend is in the opposite direction, that is not only do the demographics support individuals working longer in this Province but the abolition of a mandatory retirement age provides for this to occur. To the contrary, the parties have agreed that the plaintiff has taken all necessary steps to mitigate his claim by seeking alternative employment and no consideration need be made for dealing with an award that extends beyond the present.

I guess that todays’ age 58 is like yesterdays’ age 48. That mean that I am really only 53.

The Judge found that reasonable notice was 19 months.

The Defendant has filed an appeal.

I know this because Plaintiff ‘s counsel is my son, Matthew Fisher, a partner at Lecker & Associates.