What will happen to my job now that the business has been sold?

Mergers and acquisitions of companies and their assets occur on a regular basis. Sometimes the entire company is acquired by way of a purchase of the shares. At other times, only the assets of the company are purchased, leaving ownership of the company intact.

From an employee’s point of view, this distinction can be important when it comes to determining the employee’s years of service and entitlement to notice of termination. The Court of Appeal’s decision in Krishnamoorthy v. Olympus Canada Inc.is an example where this distinction came into play.

In this case, the employee worked for a distributor for Olympus America. When Olympus America terminated the distribution agreement with the distributor, it acquired some of the assets of the distributor and offered the employee a position with Olympus America’s related company, Olympus Canada.

The employee’s new employment agreement with Olympus Canada was largely the same as the agreement he previously had with the distributor. There was a termination clause that limited the employee’s notice in the event of termination without cause to the greater of: 1) his entitlement under the Employment Standard Act, 2000; or 2) four weeks of pay per year of service with Olympus Canada or the distributor, up to a maximum of 10 months. However, there were additional terms in the new employment agreement, including one that provided that the employee would be treated as a new employee and his service with the distributor would not be recognized, except as provided in the agreement or as required by legislation.

When Olympus Canada eventually dismissed the employee, it offered the employee compensation in accordance with the termination clause in the new employment agreement. The employee refused the offer and sued for wrongful dismissal instead. The employee sought and was later granted judgment in his favour. Thereafter, Olympus Canada appealed the decision.

At the Court of Appeal, Olympus Canada argued that the lower court judge erred in concluding that the employee’s employment continued uninterrupted from the distributor to Olympus Canada, and that the termination clause in the new employment agreement was not enforceable. In other words, the lower court judge should have upheld the termination clause.

The Court of Appeal agreed with Olympus Canada and concluded that a new employment agreement was created between the employee and Olympus Canada, rather than a continuation of the agreement between the employee and the distributor. Consequently, the termination clause in the new employment agreement should have been enforced.

The decision would have been different if Olympus America had instead purchased the shares of the distributor and acquired ownership of it. Olympus America would have then assumed the existing employment agreement between the distributor and the employee, and would not have been able to impose a new termination clause without providing valuable consideration to the employee first.

When a business is sold, it is important for employees to know the difference between an asset purchase and a share purchase, and how the sale can affect the employment relationship. A knowledgeable employment lawyer can assist in understanding the difference.

This article is intended only to provide general information and does not constitute legal advice. Should you require advice specific to your situation, please feel free to contact me to discuss the matter further.