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Length of Tenure Influences Notice Entitlement


Length of tenure

How much notice do employees legally need before you can lay them off? Although many people think two weeks is the legal standard, Canadian common law for employment outlines termination notice in detail. If you don’t want to give employees working notice, you need to pay them the equivalent wages – also known as severance pay or pay in lieu of notice.

When you give an employee notice of a lay off or termination, this provides time for the employee to look for a new job. How much notice you need to give largely depends on four factors: the employee’s age; length of service; type of position; and the availability of similar employment.

Arguably, the most important factor is length of service. But figuring out length of service can be more difficult that it might seem. It’s particularly tricky when the employee worked for you for two or more discrete periods. In those instances, the employee often demands working notice (or severance pay) based on the combined length of the periods of service.

The employer will often oppose that method of calculation, insisting that only the most recent service should be counted. The courts are often asked to resolve this stalemate.

This same debate also comes up when the employment has been continuous but at some point the business was sold to a new owner. The employee will demand working notice (or severance pay) based on the entire period of service, not just the portion while serving the successor owner.

Of course, the successor owner will only want to provide notice or pay based on the period of time that it has owned the company. However, the courts usually offer little sympathy for that point of view. In fact, a recent BC Supreme Court case covered this sort of dispute.

Judy Perkins was a dental assistant who had worked for a dentist for approximately 23 years. At that point the dental practice was sold to a new owner, Donald Shuen. Some elements of Perkins’ employment changed under the new owner, but for the most part she continued to perform the same duties.

Six months later, Shuen terminated Perkins’ employment. Perkins sued for wrongful dismissal, seeking to use her entire period of employment as a basis for determining her entitlement to pay in lieu of notice.

Shuen took the position that the business was insolvent when he took it over and that the prior dentist had expressly terminated her employment when the practice was sold. Shuen argued that Perkins’ notice entitlement should be based on only six months of service.

The BC Supreme Court rejected Shuen’s view of the sequence of events. The Court cited the implied understanding that employees are given credit for years of past service when a business is purchased. This implied understanding applies unless the successor owner expressly negates that implied term.

Notably, there was no evidence the former owner had ever expressly terminated Perkins’ employment. When asked by Perkins whether her employment was to be terminated, the prior owner indicated that technically she would be terminated and then rehired but that, practically, nothing would change.

The Court had little trouble concluding that Perkins should be given credit for her entire period of service, including the 23 years spent with the former employer. In doing so, it relied heavily on the implied term that employees continuing in the service of a purchased business will be given credit for past years of service.

Although not cited in that decision, the Employment Standards Act also affects these situations. The Act states that if all or part of a business or its assets is sold, the employment of employees of the business is deemed to be continuous and uninterrupted by the sale.

This further strengthens the conclusion that employees continuing in employment with a purchaser of a business are entitled to credit for all their years of service. It may also serve to negate any contractual terms to the contrary.

The combination of the common law rule (presuming that employees are to be given credit for past service) and the statutory rule (deeming the employment to be continuous) means the successor employer has a difficult challenge in avoiding liability for the employees’ entire period of service.

So how can you, as a successor employer, protect yourself against this liability? The only sure way is to negotiate protective terms into the agreement to purchase the business. This can be achieved by obtaining a binding indemnification from the vendor against such costs.

Better yet, you can negotiate to temporarily retain part of the purchase price to fund the costs of terminating employees soon after the purchase occurs. Either way, it’s an issue best addressed at the time the purchase of the business is negotiated.

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