In Antchipalovskaia v. Guestlogix Inc., 2022 ONCA 454, the employer appealed a decision that the employee was entitled to 12 months’ notice for her dismissal without cause, which was based in part on a finding that she was continuously employed from 2011 to 2019.  The Court of Appeal for Ontario (OCA) allowed the appeal because in assessing reasonable notice, the motion judge erred in failing to give any effect to the employee’s termination in 2016 and a court-ordered release of claims in the context of creditor protection proceedings under the Companies’ Creditors Arrangement Act (CCAA). Following this termination, the employee was immediately re-hired on the same terms as her previous employment.  The OCA found that the employee’s earlier period of employment was relevant to the notice period’s determination. On this basis, the OCA substituted a seven-month notice period for the 12 months.

Background

The employee commenced her employment in July 2011.  In 2016, in the context of CCAA proceedings,¹ the employer terminated the employment.  As part of those proceedings, the Superior Court ordered that the employer’s creditors be paid (this included the employee who was a former employee when the order was made), and that any claims by creditors would be released (Release) pursuant to the Plan of Compromise and Arrangement² (Plan). The employer then immediately re-hired the employee on the same terms as her previous employment.  The employer relied on the “without cause” provision in the employment agreement when it paid her minimum entitlement under the Employment Standards Act, 2000 (ESA) from her original start date to the date of termination, minus the amount paid through the CCAA proceedings.

The employee brought an action for wrongful dismissal, claiming she was entitled to common law notice.

Decision of the Motion Judge

In a motion for summary judgment, the two issues under consideration were the validity of the “with cause” and “without cause” termination provisions in the employment contract, and entitlement to common law notice.

The motion judge found that (i) the termination provisions were invalid because they did not comply with minimum ESA requirements; and (ii) in determining the common law reasonable notice, the employment should be treated as continuous from 2011 to 2019.  In regard to the latter, the motion judge noted that the employer issued a Record of Employment that identified the first day of work as July 5, 2011 and calculated her ESA entitlements based on 7 years and 11 months of employment. The motion judge also noted that the employee did not sign a release in the CCAA proceedings but she but did not consider the significance of the court-ordered Release.

The motion judge awarded damages reflecting a 12-month notice period, less the amount of the employee’s claim in the CCAA proceedings, and the amounts paid as a result of her termination.

OCA Decision

In allowing the appeal, the OCA agreed with the employer that the motion judge erred in failing to give effect to the termination in 2016 in the CCAA context and the court-ordered Release.  The OCA determined that the motion judge was aware of these factors; however, she made an error in principle when she did not address whether and to what extent they should impact the length of common law reasonable notice. 

The OCA noted the motion judge’s acknowledgement that under the ESA the employment with the employer needed to be treated as one continuous period. Pursuant to s. 9(1) of the ESA, if an employer sells a business and the purchaser continues to employ an employee of the seller “the employee shall be deemed not to have been terminated or severed for the purpose of this Act and his or her employment with the seller shall be deemed to have been employed with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment” [emphasis added].  The OCA found, however, that the motion judge failed to address the “sharp distinction” it had drawn in Manthadi v. ASCO Manufacturing, 2020 ONCA 485, (discussed here), between the calculation of the employee’s length of employment under s. 9(1) of the ESA, and at common law.

While the ESA is clear that the employment of employees of the vendor of a business who are subsequently employed by the purchaser is deemed not to be terminated for the purposes of the ESA, at common law employees of the vendor are terminated (by constructive dismissal) when their employer sells the business and there is a change in the identity of the employer, and the length of their employment is not deemed to be continuous.  The OCA acknowledged, however, that an employee’s years of employment with the previous owner may be relevant to a determination of the appropriate notice period because that past experience brings value to the new employer. The new employer avoids the burden, cost, and time of having to recruit new employees who are unfamiliar with the work, the working environment, and one another. 

The OCA noted, as well, that in Manthadi it explained that in successor employer situations, courts can obtain the flexibility needed to deal fairly with the unique circumstances of each case by applying the non-exhaustive list of factors established in Bardal v. Globe & Mail Ltd., (1960), 24 D.L.R. (2d) 140 (Ont. H.C.)  (i.e., the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant) in deciding on the appropriate notice period “without stitching together the employee’s two terms of service,” and that a settlement reached with the prior employer, “including the effect of a release and the receipt of a payment,” is another relevant but not determinative factor to be considered.

The OCA acknowledged that the circumstances of the termination and the subsequent resumption of employment differed from what had occurred in Manthadi. It found, however, that the termination and CCAA Release were relevant to the length of her common law reasonable notice period. Because the motion judge did not consider the impact of these factors, she erred when she relied on the deemed continuity of employment under s. 9(1) of the ESA and determined that her employment had been continuous.  The motion judge also erred when she did not consider the termination of employment and CCAA Release when she weighed the Bardal  factors for the calculation of common law notice. 

Ultimately, the OCA set aside the motion judge’s 12-month notice period stating that it was at the high end of the range for an employee of eight years with responsibilities and qualifications like that of the employee, and that it was not within an acceptable range for someone who worked for 2.75 years in the context of a CCAA Release. Instead, the court found that seven months was appropriate. The court acknowledged that this notice period was longer than the notice period the employee would have been entitled to if she had first commenced her employment in 2016. It its view, however, it accounted for the benefit the employer received from the employee’s previous period of employment, and it also recognized and gave effect to the court-ordered Release.

Bottom Line for Employers

Guestlogix is an important OCA decision for employers seeking CCAA creditor protection.  Such employers will be encouraged that the decision confirms that if (i) in the context of such proceedings, an employer terminates an employee’s employment, (ii) pursuant to a Plan, a court orders the release of claims by the employer’s creditors (including an employee whose employment has been terminated in the context of the proceedings because, at that point, they have become a former employee); (iii) and the employer immediately re-hires the employee; and (iv) the employer subsequently terminates without cause, then in accordance with Manthadi, the years of employment will not be viewed as continuous in determining common law reasonable notice. This approach gives effect to the court-ordered Release.

Employers should be aware, however, that the termination of employment in the context of CCAA proceedings and a CCAA Release will be considered when a court weighs the non-exhaustive list of factors in Bardal for the calculation of common law notice.  Indeed, a court may conclude that the employee is entitled to a longer notice period than they would have been entitled to had they first commenced their employment at the time of their rehiring due to the benefit the employer would receive from the employee’s previous employment. 

Employers that seek creditor protection under the CCAA are encouraged to obtain the guidance of experienced employment counsel if they are contemplating re-hiring any employees terminated in the context of such proceedings.