Employee left hanging by sale
EPC, his employer of 16 years, in announcing his division was being sold, had assured him the new buyer would be making him an offer. But no offer had yet arrived. When it finally did, just one week before closing, impatience morphed into fury.
Fleet had risen to the position of national accounts manager, reporting to a vice-president. But the job he was offered was only that of an account manager, a demotion in Fleet’s eyes. The salary was comparable and there was a small signing bonus, but he lost his car allowance, leaving him with large automobile expenses that wiped out any raise.
Fleet also had to sign an employment contract, which included the term that his position and supervisor could change at any time. Although Fleet was told he would still be reporting to his old boss, he had good reason to believe that, in short order, he would be forced to report to his former counterpart. The offer also limited the severance he could receive and imposed new post-employment restrictions preventing him from soliciting his customers or competing in the event he were ever to leave.
Fleet was concerned about what would happen if the new employment did not work out. He did not view his future with the buyer to be particularly secure. He had an acrimonious relationship with his immediate superior, who was also going with the buyer. Looking at the broader picture, Fleet could see himself out of a job with reduced severance and a non-compete condition that would make it impossible for him to earn a living.
But could he refuse this offer without repercussion? Fleet’s first instinct was to negotiate more acceptable terms. But when those negotiations failed, Fleet declined the offer and sued EPC for wrongful dismissal.
EPC’s defence was that the position with the buyer was comparable so Fleet was required to accept the position with the purchaser to mitigate his losses, instead of suing for wrongful dismissal. The court disagreed. This new job offer was not comparable. EPC was ordered to pay Fleet 14 months’ salary as severance for his termination plus Fleet’s legal costs.
An employee who is offered a position substantially similar to the one from which he or she is dismissed, takes a significant gamble when turning it down. If a court considered Fleet to have acted unreasonably in rejecting the job, his legal claim would have been dismissed and he would be entitled to no severance, despite the fact that, as a result of the sale, he was fired from EPC. However, the position offered must be comparable, overall, to the position from which the employee was discharged. If it is not, then the employee, like Fleet, can still recover damages for wrongful dismissal.
The additional severance and litigation expense could have been avoided if the buyer’s offer had been truly comparable. On a sale of a business, I always recommend the following:
1. Ensure that you have an agreement with the purchaser that it will offer employment on the same, or substantially the same, terms. The position and the financial terms, in particular, must be at least equal to the previous ones.
2. Refrain from introducing new post-employment restrictions or reduced severance provisions in the offer. These onerous obligations provide an opportunity for the employee to decline the offer and sue for wrongful dismissal.
3. Benefits and minor terms may be lesser without greatly increasing the risk that the offer will be rejected or considered a lesser position by a court.
4. Allow sufficient time for new offers to be communicated to the employees so they can receive advice. If the terms are reasonable, most employees will accept the position, rather than risk losing both their job and their case.
If you, or someone you care about, is dealing with employment law issues in the Toronto, Ontario Region, contact Lang Michener LLP.