By Keri Bennett
Canadian employees may believe that a change in ownership of a company results in a change in the terms of employment and requirement for a new employment contract. Not so. In Whittemore v. Open Text Corporation, the Ontario Superior Court made it clear that the original terms of employment remained valid after a share purchase. The court also made it clear that employees are required to advise their employer if they do not accept a change to their terms of employment.
Whittemore was employed as a software developer. He signed an employment agreement in 1999 that contained various provisions, including benefits, vacation time, and a one-month paid sabbatical after five years of service. The termination provision provided employees with more than four years of service four weeks’ salary in addition to their entitlements under Ontario’s Employment Standards Act.
Two years after Whittemore signed the employment agreement, the shares of the company were purchased by a larger entity. Whittemore signed a nonsolicitation and confidentiality agreement with the new entity but no further documentation. He was also advised that employees would no longer be eligible for a one-month sabbatical.
Whittemore did not make any statements to the company about the loss of the sabbatical and continued to work for the new amalgamated entity for another nine years.
When Whittemore’s employment was subsequently terminated, he commenced a wrongful dismissal action, arguing that the original contract of employment he signed was no longer valid. Instead, he claimed that he was entitled to more generous reasonable notice.
The court found that there had been a sale of shares and not a sale of assets in this case. Where a business is acquired pursuant to a share sale, the existing rights of the employees continue to flow through to the successor employer. Whittemore continued to work at the same salary, and with the exception of the sabbatical, under the same terms.
At no time during Whittemore’s employment did he advise the company that he was objecting to the loss of the sabbatical, or that he did not believe the terms of the previous employment contract continued to govern the parties’ relationship.
Pursuant to the Ontario Court of Appeal’s decision in Wronko v. Western Inventory, an employee must make it clear to an employer if the employee does not accept a fundamental change to an employment contract.
The court said that the new entity had assumed the employment contract, including the obligations with respect to dismissal, and was entitled to rely on the termination provision in that contract.
Takeaway for employers
This case would likely have been decided differently if the company had acquired the employees pursuant to an asset purchase where, presumptively, the employment relationship comes to an end at the time of purchase.
However, it is clear that Canadian employees continue to bear the onus to advise an employer if they object to a change to a term of employment. Where the employee remains silent and continues to report to work, the employee has accepted the change and the employer is entitled to rely on that acceptance.
Keri Bennett is returning as an associate in the Labour, Employment and Human Rights Group in the fall of 2011. She will be engaged in a broad practice assisting employers with matters relating to restructuring, downsizing, human rights, employment agreements and terminations, labour relations and collective agreement interpretation.