The recent decision of the Ontario Superior Court in
Whittemore v. Open Text Corporation
provides useful illustration of the rollercoaster ride that an
employee might experience when his corporate employer goes through
changes in its status.
Mr. Whittemore started work in 1994 with a small company called
SoftArc Inc., as a software developer.
Five years later, SoftArc was taken over by another small
company, MC2. MC2 had Mr. Whittemore sign an employment agreement
at that time. It included a provision that on termination, an
employee with more than 4 years service was entitled to 4 weeks
salary in addition to the minimum statutory notice regardless of
his actual length of service. It also provided for a sabbatical
every 5 years.
Mr. Whittemore's salary and job functions did not change
after the takeover. His years of employment with SoftArc were
recognized in terms of his seniority. The company was listed on the
TSX in March 2000 at which time its name was changed to Centrinity
In 2002, Centrinity was purchased by Open Text Corporation. At
this point, a change was made to the sabbatical provision in the
employment agreement which he had signed with MC2. Open Text
informed the former employees of Centrinity Inc. that its corporate
policy was not to provide any sabbatical so anyone intending to
stay on with Open Text would have to agree to give that up.
Whittemore did so.
As far as Whittemore was concerned, his employment contract with
Centrinity was over and he had a new agreement with Open Text along
the same terms except for the sabbatical. In all other ways, his
job remained the same.
In 2011 Open Text terminated Whittemore's employment. He was
given the minimum statutory notice together with a lump sum payment
of 4 weeks' base pay, in accordance with his original
employment agreement. By that time he had over 17 years of service
which, at common law, would have entitled him to substantially
Whittemore sued for damages for wrongful dismissal. Open Text
responded by insisting that Whittemore remained bound by the
original employment agreement and accordingly, he had been paid all
that he was owed.
A judge had little difficulty concluding that his employment
agreement entered into with SoftArc continued to apply when it was
taken over by MC2/ Centrinity Inc.
The more interesting question was whether or not that contract
continued to be in effect after the takeover by Open Text.
The critical question on this point related to the way in which
the takeover had taken place. Where a company taking over a
business does so by purchasing shares, the law is clear that there
is no change in the corporate identity of the employer and
therefore no termination of employment. In other words, the result
of an amalgamation through a share transaction is not the death of
a company but rather its continuation in a new form. In this case,
the Court characterized the Open Text transaction as an
amalgamation with MC2/Centrinity. As a result there was no change
in the identity of the employer and the existing employment
The question of the elimination of the sabbatical privilege was
discussed as well. The judge considered that it had been open to
Whittemore to advise Open Text that its refusal to continue the
sabbatical program constituted a breach of the terms of his
employment contract and therefore a constructive termination.
However, he did not do so. Instead, he agreed to the change and
carried on as usual. As a result, he lost any right to complain
about the loss of the sabbatical or insist that the original
employment agreement had come to an end.
As Whittemore had condoned the change to the employment
agreement by his conduct, the employment agreement remained in
force and Open Text was entitled to rely on its termination
provisions. This case highlights the importance of exercising great
care when a person's corporate employer is acquired or in some
way taken over by a new entity. An existing employment agreement
may or may not continue to apply, depending on the circumstances.
It also highlights the importance of being careful in the way one
responds to a change in terms of employment. Accepting a change
without taking the appropriate legal position may have unintended
consequences down the road.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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