The Ontario Court of Appeal decision in Krishnamoorthy v. Olympus Canada Inc., released November 16, 2017, examines the issue of consideration for employment agreements in the context of asset sales. In particular, the case assesses the interplay between section 9 of the Employment Standards Act, 2000 (the “ESA”) (i.e. the Sale of Business provision), the common law, and general contractual principles.
The facts are as follows: the plaintiff employee, Nadesan Krishnamoorthy, commenced employment with Carsen in May 2000. In 2005, an unrelated company, Olympus Canada (“Olympus”), purchased most, but not all, of Carsen’s assets. Out of 125 Carsen employees, Olympus offered employment to 122 of them, one of whom was Mr. Krishnamoorthy. In particular, Mr. Krishnamoorthy was provided an offer of employment under the terms of a written employment agreement. The terms of the employment agreement were substantially similar to those he had with Carsen with certain exceptions, including the introduction of a termination provision that limited his entitlements on termination. Mr. Krishnamoorthy accepted the employment agreement from Olympus. His employment with Carsen ceased on July 31, 2006, and commenced with Olympus on August 1, 2006. On May 19, 2015, Olympus terminated his employment without cause.
On termination, Olympus offered Mr. Krishnamoorthy compensation in accordance with his written employment agreement. Mr. Krishnamoorthy refused the offer, arguing that his employment with Carsen and Olympus was continuous pursuant to section 9 of the ESA and that, as a result, the termination clause contained in his written employment agreement was unenforceable for want of consideration. In response, Olympus argued that the offer for continuous employment was sufficient consideration and, as such, the termination clause was binding.
The matter proceeded to a summary judgment motion. The motion judge agreed with Mr. Krishnamoorthy, finding that his employment was indeed continuous and, as a result, he had not received adequate consideration for the termination provision. The motion judge awarded Mr. Krishnamoorthy damages equivalent to 19 months of pay in lieu of notice, or $310,040.88, plus interest and costs.
Olympus appealed. The Court of Appeal set aside the motion judge’s decision, finding that Olympus’ offer of employment to Mr. Krishnamoorthy amounted to consideration for the termination clause.
In arriving at its decision, the Court of Appeal held that while it is established that a promise to perform an existing contract by the same employer is not consideration (i.e. new or additional consideration is required to support a variation of an existing contract), cases where an employee is given a new employment contract by a new employer (i.e. upon purchase of company assets), were distinguishable. In the latter case, the offer of employment by the new employer did amount to adequate consideration. That the employee’s day-to-day job did not materially change after the sale did not change that fact.
With respect to section 9 of the ESA, the Court of Appeal held: “[a]lthough section 9 of the ESA deems there to be continuity of employment if certain requirements are met, it does not deem there to be continuity for all purposes.” The Court went on to hold that the words “for the purposes of this Act” contained in section 9(1) make it clear that section 9(1) cannot be used to claim rights or entitlements on which the ESA is silent.
In conclusion, the Krishnamoorthy case clarifies the law surrounding adequate consideration for employment offers made by new employers upon the purchase of company assets. It also reiterates the law surrounding adequate consideration for changes to ongoing employment contracts made by the same employer. In the latter case, employers should continue to be careful to offer fresh consideration when seeking to alter the terms of existing employment contracts. While the decision is of direct legal significance in Ontario, it will be interesting to see how and whether courts in other provinces will engage in a similar analysis of the interplay between the provinces’ respective employment legislation, the common law, and general contractual principles.