A surprising recent decision from Quebec’s Superior Court, Boulad c. 21008805 Inc.1 provides some food for thought about what happens to a company’s employees after the sale of its business.

While section 2097 of the Civil Code of Quebec stipulates that a contract of employment is not terminated following the sale of a business, and in fact that the employment contracts are binding on the successor of the employer, this case appears to indicate an employee’s choice about whether or not to follow the new employer and that his refusal to do so, following certain proposed changes to his position, is not tantamount to a resignation. Furthermore, the court held that the employee’s refusal to continue his employment with his employer’s successor did not represent a failure of his duty to mitigate his damages.

The facts presented in this case are not uncommon. Mr. Boulad held an executive position within the Hilton chain of hotels at the time the company sold its Canadian properties to the defendant, Westmount Hospitality Group (“Westmount”), in 2006. Mr. Boulad then chose to remain in his position as Director of Operations. Three years later, however, when Westmount announced that the hotel he operated was to be sold to Jesta Group (“Jesta”), he informed his employer that he did not wish to continue his employment under the new ownership. He justified his decision based on the fact that Jesta’s reputation was not as recognized as his former employer and that continued employment under their banner would be detrimental to his career.

Mr. Boulad later filed a constructive dismissal claim against his former employer Westmount and his new employer Jesta, in the fall of 2010.

The trial judge was of the opinion that the sale of the hotel to Jesta substantially altered an essential term  of Mr. Boulad’s employment contract, giving rise to a legal remedy on the grounds of constructive dismissal.

Justice Beaugé emphasized the fact that while minor changes in the working conditions and responsibilities of a director through a change in ownership cannot amount to a constructive dismissal, the identity and reputation of his/her employer may be of paramount importance for an employee concerned with the  progression of his/her career. The Court held that the identity of Mr. Boulad’s employer was central to his contract and accordingly constituted one  of its essential terms. Although Mr. Boulad would have maintained title and salary with Jesta, these conditions were stripped of their meaning under Jesta’s less prestigious banner.

Westmount argued that, by failing to find work without delay, Mr. Boulad had not fulfilled his duty to mitigate his damages. However, the Court ruled in favor of the employee on this point, stating that Westmount failed in its burden of proving both insufficient efforts on the part of Mr. Boulad’s to find new work, and the likelihood that he would have been able to obtain comparable alternative employment. Furthermore, the court held that Mr. Boulad’s obligation to mitigate his damages did not go so far as to require him to consent to his transfer to Jesta.

In short, the court held that under the particular circumstances of this case, Mr. Boulad was well within his rights to refuse the transfer and that such  a refusal was not a resignation, but rather constituted a constructive dismissal given the position and conditions of employment under the Jesta banner. The court awarded Mr. Boulad termination indemnity equivalent to 24 months which represented over $295,000 for loss of wages, bonus and retirement earnings.

Westmount filed a leave for appeal of this decision on June 3, 2014. We will keep you apprised of the progress of this case as it moves forward.