Posts Tagged ‘Contracts’

Devin Lucas
Thursday, July 30th, 2015    Posted by Devin Lucas (posts) and Alisha Parmar (posts)
Devin Lucas
Devin Lucas maintains a general civil litigation practice with a focus on corporate and commercial litigation and landlord tenant and real property disputes. His commercial litigation experience includes contractual disputes, employment matters, and debtor-creditor law.
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.

The Supreme Court of British Columbia recently clarified renewal rights in the context of a commercial lease in The Zone Bowling Centre (2002) Ltd. v. 14100 Entertainment Blvd. Investments Ltd., 2015 BCSC 524.

The decision stresses the importance of parties to a lease reading and understanding their rights and obligations in the context of a lease renewal clause.  If the lease requires it, it is prudent for the tenant to exercise the option to renew in time and in writing.  If the tenant fails to do as the lease requires and instead enters into lease renewal negotiations with the landlord, the tenant does so at his own peril and with no guarantee that the landlord will allow the tenant to remain at the leased premises.  As this case demonstrates, courts are loathe to interfere with contractual certainty as bargained between two commercial parties and subsequent negotiations may not be enough to revive the right of renewal if it is not validly exercised by the tenant.

Summary of Facts

The Zone Bowling Centre (“the Zone”) operated a popular bowling alley and brew pub in the Riverport Sports & Entertainment Park in Richmond, British Columbia.  The Zone, as tenant, had entered into a lease with 14100 Entertainment Blvd. (the “Original Owner”), as landlord, for the premises (“Premises”).  The initial term of the lease was 10 years ending on April 30, 2014, with three lease renewal options, each for an additional five years.  Prior to expiry of the initial term, the Original Owner sold the Premises and assigned the lease to 0984972 BC Ltd. (the “New Owner”).

Under the lease, the landlord covenanted with the Zone to grant a renewal of the lease, if the Zone:

1)      gave notice to the landlord that the Zone “wishes to obtain a renewal of this Lease” not earlier than twelve months and not later than nine months before the expiry of the initial term;

2)      was not in breach of any covenant or condition of the lease at the time of the renewal notice to the landlord; and

3)      had duly and regularly observed and performed the covenants and conditions contained in the lease.

The lease further required that any notice provided under the lease be in writing.

As the initial term was to expire on April 30, 2014, the cut-off date for the Zone to exercise the first renewal option was July 31, 2013.  However, the Zone did not exercise its renewal option until August 2013 and even then, it failed to do so in writing.  Further, throughout the term of the lease, the Zone was late in paying rent and, in fact, rent was overdue on July 31, 2013.

Despite this, after missing the cut-off date, the Zone entered into lease renewal negotiations with the Original Owner and later, the New Owner, as landlord.  These discussions broke down in July, 2014.  At this time, the New Owner informed the Zone that it did not consider that the option to renew had been validly exercised and instead considered the Zone to be an overholding tenant on a month to month tenancy.

On October 27, 2014, the New Owner gave the Zone written notice terminating the lease effective November 30, 2014.  In spite of this, the Zone continued to occupy the Premises based on the its view that it had properly exercised the renewal option.  The Zone then brought a petition, seeking a declaration that it had properly exercised the option to renew.

The Decision

The issue before the Court was whether or not the Zone had exercised the first renewal option under the lease.  To determine whether the option had been validly exercised, the Court analyzed whether the three conditions precedent set out in the lease had been met by the Zone.

Based on the evidence before the Court, Mr. Justice Bowden found that the Zone had not exercised the renewal option by July 31, 2013.  Furthermore, Mr. Justice Bowden held that during the period from June 1, 2013 to September 25, 2013 the Zone was in arrears in paying rent and, therefore, was in breach of its duties under the lease during the time that the Zone had allegedly exercised its renewal option.  Finally, on account of the Zone being consistently in default of its obligation to pay rent, it could not be said that the Zone had “duly and regularly performed its obligations” throughout the 10 year term of the lease.

Even so, the Zone argued that the respondents had waived strict compliance with the lease and the conditions precedent to the exercise of the option by accepting rent when payments were overdue, and that the respondents were precluded from alleging a breach of the lease as a basis for denying the renewal, given the continuing lease renewal negotiations among the parties.

The Court found the respondents’ late acceptance of rent payments did not amount to a waiver of their right to require the Zone to strictly comply with the preconditions to exercise the option to renew – at most, it could amount to a waiver of the landlord’s  right to terminate the lease on the basis of the Zone’s breach of its obligation to pay rent.  Further, as the Court found that there was no evidence that the respondents had promised the Zone it could exercise the renewal option without providing notice in writing, nor by providing notice after the cut-off date specified in the lease, the landlord was not precluded from insisting on enforcing its strict legal rights in connection with the renewal option

Finally, although the Court noted the potentially significant adverse impact on the Zone’s business, the Court found that the alternative remedy of “relief from forfeiture” – which often allows tenants who have been in breach one opportunity to reinstate it – was not available to the Zone in this case. By failing to exercise the option properly the Zone had not forfeited an existing tenancy, but instead had simply lost the right of renewal, so relief from forfeiture could not apply.

Thus, despite its efforts, the Zone was not able to salvage its option to renew.  (It was later reported that the parties had reached an agreement after this decision was handed down and the Zone was able to continue operating at the Premises.  We do not know the terms of that agreement.)

This case is a reminder to all contracting parties that if they intend to engage in negotiations during the currency of a contract, they should never do so without securing a legally enforceable agreement by the other side that it will not require strict compliance with the contract terms while the negotiations are underway.

 

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Posted by Devin Lucas (posts) and Alisha Parmar (posts) | Filed under Litigation and ADR, Real Estate Law | ....
Shafik Bhalloo
Tuesday, October 28th, 2014    Posted by Shafik Bhalloo (posts) and Alisha Parmar (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.
Alisha Parmar
Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.

By Alisha Parmar and Shafik Bhalloo

Introduction

Non-competition clauses are hardly a rarity in employment contracts. The classic non-competition clause seeks to protect the business of an employer by prohibiting a former employee from, generally speaking, competing with the employer once the employment relationship is terminated.

It is well-established that courts are unsympathetic towards non-competition clauses. It has been recognized under the doctrine of restraint of trade that non-competition clauses are contrary to public policy, since they “interfere with individual liberty of action and because the exercise of trade should be encouraged and should be free”.[1] As a result, non-competition clauses are prima facie unenforceable, unless the party trying to enforce the clause is able to demonstrate that it is reasonable. In Aurum Ceramic Dental Laboratories Ltd. v Hwang (“Aurum”), the Court summarized the criteria to be met to find a non-competition clause reasonable:

(a)    the clause protects a legitimate proprietary interest of the employer;

(b)   the restraint is reasonable between the parties in terms of:

  1. temporal length;
  2. spatial area covered;
  3. nature of activities prohibited; and
  4. overall fairness;

(c)    the terms of the restraint are clear, certain and not vague; and

(d)   the restraint is reasonable in terms of the public interest with the onus on the party seeking to strike out the restraint.[2]

Failure to meet any one of the criteria above renders a non-competition clause unenforceable. However, until recently, the state of the law was ambiguous as to whether more nuanced clauses would even be considered non-competition clauses, and therefore whether or not such clauses could avoid the reasonableness test completely. For example, where a clause is not prohibitory per se, but instead imposes some other burden on the employee for competing, it was unclear whether it would be considered a non-competition clause at all. The BC Court of Appeal recently addressed this issue in Rhebergen v Creston Veterinary Clinic Ltd. (“Rhebergen”), and clarified that a creative non-competition clause is still a restraint of trade.[3]

The Facts of Rhebergen

Rhebergen involved an employee, Dr. Stephanie Rhebergen, and her employer, Creston Veterinary Clinic (“CVC”). CVC is exceptionally isolated in that the closest clinics to CVC are 60 miles away and require a trip over the Canada-US border. The majority of CVC’s business is drawn from a handful of dairy farms located in the Creston, British Columbia area.

As a newly licenced veterinarian, Dr. Rhebergen decided to enter into an associate agreement with CVC, wherein she would be paid to work with CVC for three years. The agreement provided that Dr. Rhebergen would be paid $65,000 for each of the three years. It also stated that Dr. Rhebergen would have to pay CVC if, within three years after the agreement was terminated, she set up practice in Creston, or within a 25 mile radius of CVC’s place of business in Creston (the “Clause”). Specifically, Dr. Rhebergen would have to pay $150,000 if her practice was set up within one year of terminating the agreement, $120,000 if her practice was set up within two years, and $90,000 if it was set up within three years.

A little over a year into the agreement, differences arose between Dr. Rhebergen and CVC, and the agreement was terminated. A few months later, Dr. Rhebergen sought a declaration that the Clause was unenforceable, so that she could “set up a mobile dairy veterinary practice in Creston and vicinity”.

Summary of Trial Decision

Mr. Justice Betton gave brief reasons and found that the Clause was in fact a non-competition clause, even though it did not directly prohibit Dr. Rhebergen from competing. The judge then applied the criteria from Aurum and found that the Clause did not meet the test for reasonableness because it was ambiguous, and therefore unenforceable. CVC appealed the decision, including appealing the finding that the Clause constituted a restraint of trade to begin with.

The Court of Appeal

Although the majority of the Court allowed the appeal, the minority and majority only differed on whether the Clause met the criteria for reasonableness. Notably, the majority of the Court of Appeal endorsed Mr. Justice Lowry’s reasoning that the Clause was indeed a non-competition clause.

The decision of Mr. Justice Lowry is illuminating, as it includes an extensive review of the English and Canadian authorities regarding whether a clause is a restraint of trade or not. In reviewing the jurisprudence, Mr. Justice Lowry commented that two strands of authority have been established by modern jurisprudence: the “formalist” approach and the “functionalist” approach. The formalist approach was relied on by CVC to argue that because the Clause does not prohibit Dr. Rhebergen from practicing outright, it cannot be a non-competition clause.

Mr. Justice Lowry noted that this approach requires a clause to be structured as a prohibition in order to constitute a restraint of trade. Under this view, clauses that simply impose a burden on the employee cannot be non-competition clauses. This may be counterintuitive, as “mere disincentives to post-employment competition are not sufficient to trigger the doctrine, even if those disincentives operate as effectively at dissuading competitive conduct and participation in the marketplace as a prohibition”.[4] In conducting a review of the various authorities, Mr. Justice Lowry noted that the jurisprudence in Ontario favours the formalist approach.

The functionalist approach, on the other hand, asks whether “the clause at issue attempts to, or effectively does, restrain trade, in which case it will be captured by the doctrine and subjected to reasonableness scrutiny”.[5] Mr. Justice Lowry noted that the functionalist approach has been widely accepted in English law, and that it is clear that a strict prohibition is not required for the doctrine of restraint of trade to apply. Mr. Justice Lowry then went on to determine that the functionalist approach is the preferred approach:

In my view, the functionalist approach established in English law is to be preferred as the legal basis for determining whether clauses that burden employees with financial consequences, whether by payment or forfeiture, they would not otherwise have for engaging in post-employment competition constitute a restraint of trade. In the words of Lord Wilberforce, it is a matter of the effect of the clause in practice over its form.[6]

In applying this reasoning to the Clause, Mr. Justice Lowry found that it was a non-competition clause because “it compromises the opportunity to compete with the clinic Dr. Rhebergen would otherwise have”.[7] The majority agreed with Mr. Justice Lowry’s finding that the Clause was a non-competition clause, and the Court of Appeal unanimously accepted that the functionalist approach governs in British Columbia.

Comments

Although the Clause in Rhebergen was ultimately allowed to stand by the majority, the decision and the unequivocal adoption of the functionalist approach has implications for employers.

For one, the BC Court of Appeal has now made it clear that it will be the effect and not the form of the clause which will be determinative. Employers intending to restrain the post-employment activities of their employees will not be able to disguise the proverbial wolf in sheep’s clothing – a non-competition clause by any other name will still be unenforceable if it is unreasonable.

A second possible effect of Rhebergen is that the functionalist approach will capture a larger range of restrictive clauses. Recall that the test under the functionalist approach captures even those clauses that “attempt to” restrain trade. Although only time will tell exactly what type of clause this will apply to, proactive employers will want to think carefully about and exercise caution in imposing post-employment burdens on employees, lest they be deemed non-competition clauses.


[1] Shafron v KRG Insurance Brokers (Western) Inc. 2009 SCC 6 at para 6

[2] Aurum Ceramic Dental Laboratories Ltd. v Hwang (1998) 77 A.C.W.S. (3d) 161 (BC SC) (“Aurum”) at para 11

[3] Rhebergen v Creston Veterinary Clinic Ltd., 2014 BCCA 97 (“Rhebergen”)

[4] Ibid, at para 29

[5] Ibid

[6] Ibid, at para 42

[7] Ibid, at para 43

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Shafik Bhalloo
Tuesday, September 17th, 2013    Posted by Shafik Bhalloo (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.

Employment Contracts and Fresh Consideration

By Shafik Bhalloo, Sasha Ramnarine, Devin Lucas

 

An essential element in the formation and enforceability of any contract is consideration. Each party receives a benefit from the contract and may suffer corresponding detriment. This benefit and detriment are referred to as consideration. Without it, a contract is not binding or enforceable.

Employment contracts are no exception to this rule. Without consideration, any employment contract that is formed between an employer and employee is not enforceable.  In today’s economy, many employers are involved in reorganizing or downsizing. This often leads to the employer unilaterally changing the terms of employment of an existing contract by adding significant duties or reducing compensation or other benefits. An employer may ask an employee to sign a new contract with introduce more restrictive terms which have not previously been discussed with the employee. The employee often agrees to these changes without much question. The issue that arises in such situations is whether unilateral changes to a contract of employment made by the employer after the employee has started employment are enforceable if there is no new consideration provided to the employee.

Courts in Canada have held that fresh consideration must be given by the employer to the employee in exchange for modified terms to an existing employment contract.  The following cases demonstrate this principle.

In Singh v. Empire Life Insurance Co.[1], the primary issue before the British Columbia Court of Appeal was whether or not the terms of an Employment Agreement were enforceable.  Harry Singh commenced work on September 1, 1998 as the Regional Manager for the Vancouver Bayshore.  At Mr. Singh’s request, a representative of the employer provided a letter of comfort dated September 1 to Mr. Singh.  The letter stated:

This is a Letter of Comfort stating that Harry Singh is offered the position of Regional Manager of Empire Financial Group with a total compensation package of $170,000 made up a number of components.  Effective September 1, 1998.  A formal letter and contract will follow.

Subsequently, Mr. Singh received another letter dated the same day under the heading “Re Confirmation of Offer – Regional Manager, Vancouver Bayshore”.  This letter confirmed specific details of Mr. Singh’s employment with respect to his salary and the fact that the initial term would be for 2 years.  Mr. Singh continued in that employment for five months before the Employment Agreement was executed.  This agreement contained a termination clause stating that “the termination will be effective at the end of the appropriate period of notice according to applicable provincial legislation”.  In November 2012, Mr. Singh’s position became redundant and he was let go.  Mr. Singh then commenced an action against the employer claiming damages for the remaining ten months in the two year term.  The employer argued that the contract was terminable on two weeks’ notice pursuant to the Employment Standards Act.

 

The Court of Appeal upheld the lower court’s finding that the employer could not rely on the provisions of the subsequently signed agreement, which were less favourable to Mr. Singh than the terms of the original contract.  In so holding, the Court affirmed the leading British Columbia Court of Appeal decision of Watson v. Moore Corporation Ltd.[2]

 

In Watson, McEachern C.J.B.C., writing for the majority, found that unless the employer had a clear intention of terminating the employee’s employment prior to the employee executing the contract amendment, the mere forbearance from termination at this juncture was not adequate consideration for the amendment.

The Court of Appeal in Singh ultimately found that when the Employment Agreement was signed there was no benefit passing to Mr. Singh that he would not otherwise be entitled to.  As such, the contract was held to be unenforceable.

In the Ontario Court of Appeal case of Hobbs v TDI Canada Ltd.[3], the Plaintiff, Hobbs, was an experienced advertising salesperson who took a job with TDI Canada Ltd. (“TDI”). Prior to his start date, there was an oral agreement between Hobbs and TDI on the commission rates Hobbs was to receive. Shortly after Hobbs commenced his employment, he was given a non-negotiable Solicitor’s Agreement.  The Solicitor’s Agreement provided for a more restrictive commission rate than what was previously agreed to.  Further, the Solicitor’s Agreement allowed TDI to revise the commission rate at its sole discretion. Hobbs subsequently signed the document as he would otherwise not receive payment. As time passed, Hobbs was not paid the commissions that he believed were owed to him; therefore, he resigned from the company and sued TDI for the outstanding commissions.

The Ontario Court of Appeal considered the enforceability of the Solicitor’s Agreement. The Court of Appeal determined that the agreement did not form part of Hobbs’ employment contract for lack of consideration. As a result, the Court of Appeal ordered TDI to pay Hobbs the commissions he was owed based on the earlier oral agreement.  In reaching this decision, the appellate court reviewed a number of leading authorities on the requirement of consideration in employment contracts and stated:

[32] … [Francis v Canadian Imperial Bank of Commerce] makes it clear the law does not permit employers to present employees with changed terms of employment, threaten to fire them if they do not agree to them, and rely on the continued employment relationships as the consideration for the new terms.

[35] In Techform Products Ltd., Rosenberg J.A. similarly recognized that new consideration is required in order to modify an existing employment contract. He stated at para. 24:

It is also consistent with the principle fundamental to consideration in the context of an employment contract amendment — that in return for the new promise received by the employer something must pass to the employee, beyond that to which the employee is entitled under the original contract. Continued employment represents nothing more of value flowing to the employee than under the original contract.

The Court of Appeal further addressed the power imbalance in employment relationships and the vulnerability of employees in relation to their employers at para. 42:

The requirement of consideration to support an amended agreement is especially            important in the employment context where, generally, there is inequality of         bargaining power between employees and employers. Some employees may enjoy             a measure of bargaining power when negotiating the terms of prospective       employment, but once they        have been hired and are dependent on the remuneration of the new job, they become     more vulnerable.

What do these cases mean for employers?

The above noted decisions clearly stand for the proposition that an amendment to a pre-existing employment contract will not be enforced unless there is an added benefit to both parties. A basic rule of thumb for employers to follow is to have an employee sign a contract that is suitable to the employer before the employee commences his or her employment.  Alternatively, it is critical when introducing new terms to a pre-existing employment contract that employers provide fresh consideration to the employee.  The lack of fresh consideration increases the risk that the modified terms of an employment contract will not be upheld by a court of law.

What would be considered adequate consideration?

There are no cases that outline a specific test to determine what constitutes adequate consideration when an employer modifies the terms of employment.  In Krieser v. Active Chemicals Ltd.[4], Neilson J. provides some guidance as to what would form adequate consideration in the employment context. At para. 35, Neilson J. stated:

I have found, however, that the defendant must show something more than continuation of the plaintiff’s employment on more onerous terms for an uncertain time to establish adequate consideration. Some additional advantage must flow to the plaintiff for agreeing to the new terms. I find that the defendant has failed to establish that here. There is nothing in the terms of the Contract that confers a benefit on the plaintiff. Nor do I see any basis for concluding that signing it provided him with any increased security of employment, either expressly or implicitly. The plaintiff remained a probationary employee under both the Contract and the Act, and could be dismissed with no notice during the first six months of his employment. While the Contract thereafter provided more generous notice provisions than the Act, these were less generous than his common law rights once several years of employment had been completed.

Neilson J. indicated that the consideration must be some ‘additional advantage’ moving to the employee.  Yet, it is unclear what this additional advantage must be.  In the writer’s view, the nature of this advantage would invariably depend on the type of position that is held by an employee.  Some advantages may include an increase of vacation pay, notice requirements, life insurance, severance pay, or health and dental benefits. The sufficiency of consideration is still an open question at this point; however, it is a significant issue that will likely have far reaching implications for employers and workers throughout Canada.


[1] 2002 BCCA 452.

[2] (1996), 21 B.C.L.R. (3d) 157.

[3] (2004), 246 D.L.R. (4th) 43.

[4] 2005 BCSC 1370.

 

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Posted by Shafik Bhalloo (posts) | Filed under Labour & Employment, Other | ....
Shafik Bhalloo
Tuesday, August 30th, 2011    Posted by Shafik Bhalloo (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.

Are you buying a business? Do you want to continue the business with the same employees? Success of the business may be due to the efforts of its excellent employees and you as a buyer may want to continue their employment in the hopes of attaining continued success in the business. Alternatively, you may be buying an unsuccessful business with a view to, among other things, reorganizing its workforce to make the business more financially viable or profitable. In either scenario, what obligations, if any, do you have to the employees of the seller under the Employment Standards Act (“ESA”), if you continue their employment but later terminate their employment without cause?

Section 97 of the ESA is instructive in such cases. It states:

Sale of business or assets

97 If all or part of a business or a substantial part of the entire assets of a business is disposed of, the employment of an employee of the business is deemed, for the purposes of this Act, to be continuous and uninterrupted by the disposition.

 

Under section 97, if a buyer continues the employment of the employees without any interruption, the buyer will assume the role of an employer and be required to assume all of the obligations and liabilities of the seller vis-à-vis the employees under the ESA including, but not limited to:

(i)                  any outstanding wages due to employees (including those that became due prior to the sale);

(ii)                statutory holiday based on the total number of days they worked for both the seller and buyer and the wages they earned with both;

(iii)               vacation and vacation pay based on the employees’ start dates with the seller;

(iv)              notice of termination or pay in lieu of notice under section 63 based on the employees’ past service with the seller;

 

It should be noted that one of the requirements for triggering section 97 of the ESA is a disposition of all or part of a business. While the ESA does not define the word “dispose” or any variation of it, the Interpretation Act defines it very broadly as follows:

“dispose” means to transfer by any method and includes assign, give, sell, grant, charge, convey, bequeath, devise, lease, divest, release and agree to do any of those things;

 

Another important requirement for triggering section 97 is that the employee must be an employee of the business on the date the business is being disposed of by the seller. If the seller has already terminated the employee’s employment in advance of the disposition of the business, even if only by a single day, then the buyer who subsequently offers employment to the employee will not be viewed as having continued the employee’s employment. Instead, the employer will be viewed as having offered the employee fresh or new employment with a new start date for the purpose of the ESA. In such case, the buyer will not be saddled with additional liability associated with the employee’s past service with the seller for calculation of, for example, termination notice, statutory holiday, vacation or vacation pay.[1]

Therefore, as a buyer of a business, if you have, for whatever reason, decided to retain employees of the seller but you do not wish to assume associated liabilities of such decision then you should make it a term of your contract of purchase that the seller will terminate the employment of all its employees at least one day before the disposition of the business to you. You should also make it a term of the contract that the seller will pay its employees all outstanding wages, termination pay and any other obligations under the ESA at the same time.

Alternatively, if you wish to continue the employment of all employees without any interruption or if the seller is requiring you to do so, you may consider negotiating with the seller some discount in the purchase price of the business to offset, some or all, liabilities you are assuming in continuing the employment of the sellers employees. In deciding what amount discount you should ask the seller, you may want to consider any outstanding wages due to the employees (earned before the date of disposition and not paid); your increased obligations to the employees for statutory holiday, vacation and vacation pay; and your increased obligation to the employees for notice of termination or pay in lieu of notice; and any other related liabilities or obligations.

It is also important to note that while the discussion here mainly focuses on the buyer’s obligation under the ESA for continuing the employment of the seller’s employees at the time of purchasing the latter’s business, there is also a potential common law obligation for severance you, as a buyer, may be assuming. For example, if you continued the employment of a long-term employee in her mid or late 50’s who had, at the time you purchased the business, been in the employ of the seller for 20 years, but subsequently (may be a few months later) you decided to terminate her employment without legal cause, you will be exposed to a significant financial liability. While under the ESA-section 63- the maximum termination pay or notice you will be required to give the employee is 2 months, the employee will likely not walk away happily with only 2 months notice or wages. She will surely consult legal counsel who will indubitably inform her that she could obtain significantly more (possibly closer to 10 times that amount depending on various factors including her age, position at work, number of years worked including the time she worked with the seller). As with the alternatives you, as a buyer, have to protect yourself from liabilities and obligations under the ESA when continuing the employment of a seller’s employees, you have the same alternatives to protect yourself from any common law severance obligations.

You may also consider negotiating with the seller, in advance, a term in your contract of purchase that holds the seller responsible for common law severance obligation for each employee you employ, if you dismiss him or her during the first year of employment after you take ownership of the business. You may also require the seller to deposit the full (or other negotiated) amount of the potential severance liability in escrow for you to draw on during the negotiated period and whatever balance is remaining at the end of the period to be returned to the seller. You may also employ the same option to protect yourself from any financial liability you assume under the ESA.


[1] See Tekmo Industrial Design Ltd. dba Budget Brake & Muffler, BC EST #D170/03

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