In 2016, the Court of Appeal of Quebec has clarified that reduced employer prestige cannot, in itself, serve as grounds for constructive dismissal in the specific context of business acquisitions.

The Context and the Superior Court’s Ruling

In 2108805 Ontario inc. v. Boulad, 2016 QCCA 75 (Boulad), the Plaintiff worked as Director of Operations for the Montreal Airport Hotel (the Hotel), owned by Westmont Hospitality Group (Westmont), a prestigious company that owns or operates nearly 600 hotels in Canada. Eventually, Westmont decided to sell the Hotel to a small company that, according to the Plaintiff, owns two hotels in the south of France and had no experience in airport hotels and little prestige in the industry. The Plaintiff alleged that, in this context, his transfer to a less prestigious employer constituted a unilateral and substantial change to the essential terms of his employment contract and that, as such, he had been constructively dismissed.

Section 2097 of the Civil Code of Quebec (CCQ)is at the heart of the proceedings:

A contract of employment is not terminated by alienation of the enterprise or any change in its legal structure by way of amalgamation or otherwise.

The contract is binding on the successor of the employer.

The Superior Court agreed with the Plaintiff that section 2097 CCQ cannot force him to accept a transfer to a less prestigious successor employer. Justice Beaugé of the Superior Court held that after a long and illustrious career in the hospitality industry, a transfer to a less prestigious employer would be tantamount to the Plaintiff’s “professional suicide”. The Plaintiff’s claim for constructive dismissal against Westmont was therefore granted.

Furthermore, the Superior Court found that the Plaintiff had no duty to mitigate his damages by remaining employed with the purchaser, considering the consequences to his career.

The Court of Appeal decision

The Court of Appeal overruled the Superior Court’s decision and rejected the Plaintiff’s claim.

Firstly, Justice Marie-France Bich, writing for an unanimous court, reiterated that section 2097 CCQ serves precisely to ensure that employment agreements are not terminated upon the sale of a business, and that they are transferred to the successor employer. As such, the mere application of section 2097 CCQ cannot, on its own, grant an employee grounds to allege constructive dismissal, even if the purchasing entity is less prestigious.

Secondly, the Court of Appeal restated that section 2097 CCQ is a public order provision. Although the ultimate raison d’être of section 2097 CCQ may be to protect employees, employees may not choose to waive section 2097 CCQ and ask to be maintained in employment with the seller (or to be terminated). Therefore, the Superior Court erred in law by essentially conferring to the Plaintiff the choice of whether section 2097 CCQ shall apply.

Thirdly, the Court of Appeal held that, had the Plaintiff been constructively dismissed, he would have been under a duty to mitigate his damages by remaining employed with the purchaser. In the absence of a situation of hostility, inconvenience, or loss of dignity, the mere loss of employer prestige, on its own, did not justify waiving the employee’s duty to mitigate damages.

Finally, the Court adds that, although unlikely to arise frequently considering businesses are in constant evolution, nothing prevents parties to an employment contract to negotiate or specifically provide for mobility or advancement opportunities as an essential term of the contract.

Take-away

The Court of Appeal’s decision provides more certainty to employers in the context of business acquisitions. Thus, the identity of the purchaser and the fact that it is less prestigious than the buyer, is not a constructive dismissal.

However, the Court of Appeal’s decision is limited to the prestige of the employing entity. As such, if the employee’s position in the purchasing entity is less prestigious than his position with the seller, or if the employee’s other terms and conditions of employment are substantially altered without his consent, a claim of constructive dismissal may be successful.