Canada: Court Of Appeal Confirms Purchaser Not Bound To Vendor's Employment Contracts

Last Updated: November 24 2017
Article by Jeremy Schwartz and Frank Portman

A particularly nuanced aspect of a sale of business involves offering employment to employees of the vendor.  The determination of risk, as well as whether the vendor or purchaser takes on liability for employment obligations, is often a key feature of such transactions and price.

A recent case from the Court of Appeal, reversing a motion judge’s ruling, illustrated the advantage of ensuring that sound employment law advice is obtained prior to such transactions, and how it can limit the liability inherited by a purchaser.

Krishnamoorthy v. Olympus Canada Inc

In 2000, the Plaintiff started a job with a company (the Vendor), that provided exclusive distribution services for a manufacturer.  In 2005, the manufacturer ended its contractual relationship with the Vendor, and created its own company (the Purchaser) to perform the same work.

The Purchaser purchased some of the assets of the Vendor.  It also offered employment to various employees of the Vendor, including the Plaintiff.  The Plaintiff accepted the offer of employment provided to him by the Purchaser (the “Offer”).  That offer included a termination clause limiting the employee’s entitlements on termination. (It is important to note that the analysis and result would likely have been completely different had this been a share purchase, not an asset purchase).

The Plaintiff’s work at the Purchaser was essentially identical in role and day-to-day tasks as the role he performed at the Vendor. He continued to work for the Purchaser for 10 years until in 2015, when his employment was terminated.

The Plaintiff brought an action for wrongful dismissal against the Purchaser, claiming the Offer, which he had accepted, was not an enforceable agreement.

The Plaintiff argued that the Purchaser assumed the obligations of the Employee’s contract of employment with the Vendor.  The Plaintiff argued that the Offer was therefore an amendment to the existing contract, rather than a new contract, and fresh consideration was required to make it enforceable.

“Consideration” is a legal term that means a benefit that accrues to a party to a contract in exchange for the bargain.  Both parties must receive consideration in order for a contract to be enforceable.  In the case of a material (and disadvantageous) variation of a contract, both parties must receive consideration that they would not have received under the non-amended contract.

However, so long as the employee accepts the contract in advance, a new employment contract serves as consideration.  It provides the employee with a paying job that they would not be otherwise entitled to, and provides the employer with the benefit of that employee’s services.  In other words, if the Offer were deemed to be a new contract, independent of the prior relationship between the Vendor and the Plaintiff, its terms would be enforceable (subject to any other legal issues).

The Plaintiff relied on section 9(1) of the Employment Standards Act, 2000 (ESA), in support of his argument.  That section reads:

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.

The Plaintiff argued that this section meant that, when a purchaser hires an employee from a vendor, the contract transitions, uninterrupted, from the vendor to the purchaser.  In addition, the Plaintiff suggested that the unchanged duties and day-to-day job activities of the Plaintiff as between the Vendor and the Plaintiff supported his position.

The Court of Appeal rejected that argument, and found that the new contract was not void for lack of consideration.

The Court found that section 9(1) does not bind a purchaser to a vendor’s employment contract.  Rather, it stipulates that an employee’s ESA entitlements with a purchaser are calculated by incorporating their service with a vendor.  It does not impact the ability of a purchaser to offer the vendor’s employees employment under different conditions and subject to different terms.  It also does not require the purchaser to offer employment to all or any of the vendor’s employees.

Since the Plaintiff had no right to employment with the Purchaser, the Offer constituted sufficient consideration to render the contract enforceable.

The Court of Appeal reversed the Motions Judge’s decision on that basis. The employer is not yet out of the woods.  The Plaintiff raised other alternative arguments about the validity of the contract, which questions were reverted back to the trial court to be determined. 

Lessons for Employers

An employee is free to reject an offer of employment from a purchaser in an asset sale.  However, if they do so, except in rare cases, their claims for entitlements on termination (and wrongful dismissal) would only be against the vendor. 

In our experience, employment transitions in sales are too often treated as an afterthought, or as a last-minute checkbox.  Consulting with labour and employment counsel early in the process, before the deal is structured, can help vendors and purchasers to find cost savings and mitigate risk.  Moreover, properly crafted offer letters are not only important tools to ensure sufficient numbers of employees accept, but they are key to enforceability in the years that follow.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
6 Nov 2019, Conference, Ontario, Canada

We've had a year to digest significant changes to labour and employment legislation, and the courts and tribunals continue to reshape the law with each new case. This year's conference will provide a practical and concise review, and thoughtful tools and guidance to help you keep up with these developments.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions