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. However, inWhittemore 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.
The Plaintiff 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 the Plaintiff signed the employment agreement, the shares of the company were purchased by a larger entity. The Plaintiff signed a non-solicitation and confidentiality agreement with the new entity but no further documentation. The Plaintiff was also advised that employees would no longer be eligible for a one-month sabbatical.
The Plaintiff 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 the Plaintiff’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terminated, he commenced a wrongful dismissal action, arguing that the original contract of employment he signed was no longer valid.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. The Plaintiff continued to work at the same salary, and with the exception of the sabbatical, under the same terms.
At no time during the Plaintiff’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 vs. 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.
Take Away for Employers
This case would likely have been decided differently if the company had acquired the employees pursuant to an asset purchase where, presumptively and except in Quebec, the employment relationship does not continue with the purchaser following the purchase.
However, it is clear that 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.