Barrie Lawyers Discuss: Termination Clauses and Consideration

Summary Author: Littlejohn Barristers 


Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA 873

Heard:
May 11, 2017

Decision Released: November 16, 2017


Counsel

Appellant/Defendant: George Avraam & Jeremy Hann
Respondent/Plaintiff: Matthew Fisher and Ian Hurley

This is an Appeal from Summary Judgment asking whether the motion Judge erred in concluding that a termination clause in the employment contract was unenforceable for lack of consideration.


The Appellant employer, Olympus Canada Inc., appeals from an award of damages in favour of its former employee, in the amount of $310,040.88 representing 19 months’ pay in lieu of notice plus interest and costs.

Contextual History
In May 2000 the Plaintiff commenced employment with Carson Group Inc., as a financial analyst. In 2005, Olympus America decided to terminate its distribution agreement with Carsen. Olympus America announced that a new, related company, Olympus Canada, would be established to distribute its products in Canada. Olympus America terminated its distribution agreement with Carsen effective July 31, 2006. Olympus Canada purchased some, but not all, of Carsen’s assets.

Carsen had 125 employee’s, not all of which were offered employment with Olympus. In November 2005 the Plaintiff executed an employment agreement with Olympus. The terms of the agreement were substantially similar to the original agreement between the Plaintiff and Carson except for the following:

  • 1) A termination clause limited the compensation the Plaintiff would receive in the event of termination without cause to the greater of: 
    • a. notice or pay in lieu of notice and severance pay under the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”), or 
    • b. four weeks’ pay per year of service with Olympus Canada or Carsen, up to a maximum of 10 months, if the Plaintiff signed a release. 

Additionally, under this agreement the Plaintiff would be treated as a new employee and there was to be no signing bonus or other monetary consideration for doing so. The Plaintiff executed same and was employed with Olympus until May 19, 2015 when he was terminated without cause.

The Motion’s Judge accepted that s. 9 (1) of the ESA that this Plaintiff’s employment with Carsen and Olympus was continuous, therefore the termination clause not enforceable as there was no consideration for amending his employment agreement.


Issue
The issue on appeal is very narrow; asking whether the motion Judge erred in concluding that a termination clause in the employment contract was unenforceable for lack of consideration.

Brief Answer

The Appeal is allowed. This matter is remitted to Trial.


Analysis
Olympus argued that the motion judge’s decision ignores that Olympus had no pre-existing employment agreement with this Plaintiff and had no legal obligation to make him an offer of employment. In its submission, the ESA does not deem employment to be continuous for all purposes. In these circumstances, Olympus Canada’s offer of employment amounted to consideration for the termination clause as the initial employment with Carsen was terminated (between Carsen and all employees) prior to execution of employment agreements with Olympus.

Pepall J.A. writing for the panel at [23] referred to Addison v. M. Loeb Ltd. (1986), 1986 CanLII 2474 (ON CA), 53 O.R. (2d) 602 (Ont. C.A.), Dubin J.A. (as he then was) explaining the position of an employee at common law when there is a sale of a business, at pp. 603-604:


At common law, since a contract of personal services cannot be assigned to a new employer without the consent of the parties, the sale of a business, if it results in the change of the legal identity of the employer, constitutes a constructive termination of the employment. If the employee is offered and accepts employment by his new employer, a new contract of employment is entered into.


However it is well established that a ‘promise to perform’ an existing contract is not actually valid consideration unless there is consideration for the new contract or amendment. Holland v. Hostopia.com Inc., 2015 ONCA 762 (CanLII), 392 D.L.R. (4th) 650, at [52].

New or additional consideration is required to support a variation of an existing employment contract. Hobbs v. TDI Canada Ltd. (2004), 2004 CanLII 44783 (ON CA), 246 D.L.R. (4th) 43 (Ont. C.A.).

However this is not the case, according to Pepall J.A. Although s. 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. Section 9(1) of the ESA states:


If an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment.


At [30-1] Pepall J.A. indicated that if the purpose of s. 9(1) of the ESA had been to deem there to be continuity of employment for all purposes, there would have been no reason to include the words “for the purposes of this Act” in the section. These words make clear that s. 9(1) cannot be used to claim rights or entitlements on which the ESA is silent. Section 9(1) of the ESA does not deem the employment contract between an employee and an employer to bind a subsequent purchaser of some of that employer’s assets as was the case here. Nor does s. 9(1) of the ESA require the purchaser of a business’ assets to offer employment to employees of that business on the same terms as their original contracts as claimed by this Plaintiff. He cannot rely on s. 9(1) to achieve either of these effects. He can only rely on s. 9(1) to claim those entitlements that are set out in the ESA itself.

This interpretation is consistent, citing this court’s comments in Abbott v. Bombardier Inc., 2007 ONCA 233 (CanLII), 85 O.R. (3d) 21, at para. 18:


Viewed in the context of the entire statute, in our view, the purpose of s. 9 of the ESA is to protect minimum statutory entitlements that are related to length of employment where the purchaser of a business, or part of a business, continues to employ the employees of the vendor following the sale. Such entitlements include: vacation entitlements, entitlements to pregnancy and parental leaves, as well as entitlement to notice of termination or pay in lieu of notice and severance pay. [Emphasis added.]


As the decision was released five days from the date of this summary, there is no word yet on any additional appeal that may follow.

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