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So You’ve Lost Your Arbitration: Now What?

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It has been commonplace to include arbitration clauses in commercial agreements. The benefits of arbitrating disputes rather than litigating over them are well known. Arbitrations are usually considered to be a cheaper and faster way to adjudicate disputes than litigation. Typically, arbitrations are seen to be the better approach particularly when the parties expect to continue to do business with each other after the dispute has been resolved. For example, where a dispute arises during a contract where the performance of obligations by each side is expected to continue on a long-term basis and the dispute is not serious enough for either party to actually terminate the agreement, arbitrations are thought to be a somewhat less acrimonious and certainly more efficient way of handling the issue at hand.

Often, one of the key features of arbitration has to do with the limits on appeal rights. It is not uncommon for an arbitration clause to provide that there simply is no appeal of any kind from the arbitrator’s decision.

A limit on appeals may seem like a good idea at the time the contract is signed. Presumably, neither party actually anticipates there is going to be a dispute during the course of the business relationship and it may provide some comfort to know that if there is a dispute, its resolution will not be dragged out by an appeal process.

However, this feature becomes a lot less appealing when one engages in an arbitration to resolve a dispute and loses. What then?

An arbitration provision that provides that the arbitration’s decision is final will be interpreted by the court in exactly that manner – as final. If it turns out that the arbitrator didn’t understand the evidence or simply got it wrong in the opinion of one of the parties (or perhaps both), that’s simply too bad. That is a risk that one takes when entering into such an agreement. Presumably, the risk cuts both ways.

Having said that, in Ontario, the Arbitration Act does provide for some recourse in certain circumstances. Section 46 of the Act allows an unhappy party to ask the court to set aside an arbitration award on the basis that the arbitrator failed to conduct the hearing in a procedurally fair manner. For example, an award can be set aside by a party who is not treated equally and fairly, was not given an opportunity to present its case or respond to the opponent’s case, or was not given proper notice of the arbitration or the appointment of an arbitrator.

There is often a temptation to bring such a motion on the basis of allegedly unequal or unfair treatment when all that has really happened is that one of the parties does not like the award. In the recent case of Aquanta Group Inc. et al. v. Lightbox Enterprises Ltd., 2023 ONSC 971, Aquanta applied to the court for an order to set aside the award because a few days before the commencement of the arbitration, the arbitrator dismissed its motion to amend its pleading. The arbitrator, a retired trial judge, had considered the arguments on both sides and exercised his discretion to dismiss the motion and require the arbitration to proceed as scheduled.

At the motion to set the award aside, Aquanta argued that the arbitrator’s refusal to allow it to amend its pleading amounted to unfair and unequal treatment. The court disagreed and dismissed the motion.

In doing so, the judge relied on a decision of the Ontario Court of Appeal released in December 2022 called Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861. In that case, the Court of Appeal made it abundantly clear that the basis for setting aside an award for procedural unfairness is extremely narrow. That provision of the Act “is not concerned with the substance of the parties’ dispute and is not to be treated as an alternate appeal route.”

Accordingly, it appears clear that at a motion to set aside an award, the court will not consider the substantive issues in the dispute. It will only concern itself with matters of a procedural nature. In the Lightbox decision, for example, the issue was not whether or not the arbitrator exercised his discretion correctly or even reasonably. The only issue was whether or not the arbitrator had the jurisdiction to make the decision that he made. As the arbitrator acted within the bounds of the authority granted to him by the arbitration agreement, that ended the matter. Arbitration clauses in commercial agreements have become popular because they offer the possibility of a speedy resolution to disputes. However, an arbitration provision with no appeal rights does present some element of risk which should be considered carefully before the agreement is signed.

The Latest on the Duty of Good Faith in Real Estate Transactions

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The case of Sarai et al. v. Singh et al., 2023 ONSC 2102 (CanLII) is an important reminder of the duty of parties to a real estate transaction to act in good faith.

In this Application to the Ontario Superior Court of Justice, three applicants entered into an agreement of purchase and sale with three respondents on May 24, 2021, for the purchase of a 14-acre property in Caledon to be used by the applicants to accommodate their growing trucking business. The transaction had a closing date of November 30, 2021.

The agreement provided that the applicants would provide their $100,000 deposit to the respondents’ lawyer in trust within 48 hours of the respondents’ acceptance of their offer.

However, the respondents did not bother to tell the applicants who their lawyer was until May 28, 2021.

Within 24 hours thereafter, the applicants provided that lawyer with a bank draft to satisfy the deposit. The bank draft was accepted by the respondents’ lawyer.

Over five months later, on the day before closing, one of the respondents, a Mr. Singh, notified the applicants that he did not intend to close. Singh’s position was that the delivery of the deposit was too late because it was not within 48 hours of acceptance. The applicants had therefore breached the agreement and thus Singh did not have to close.

The applicants asked the court to declare that the agreement was binding and to require the respondents to close the transaction. They argued that the respondents had conducted themselves as if the agreement was binding until just before closing. Specific performance was the appropriate remedy because the property was so unique that damages would not be an adequate remedy. Finally, they argued that Singh was acting in bad faith by relying on the deposit clause when the respondents had failed to identify their lawyer, to whom the deposit was to be delivered, until after the deadline.

Singh pointed out that the applicants could have delivered the deposit directly to the respondents within the 48 hours and that, having failed to do so, the applicants had breached a fundamental term of the agreement of purchase and sale.

The court had no hesitation in granting the application. The respondents had made strict performance of the deposit condition impossible by delaying in identifying their lawyer. Furthermore, they waived strict compliance with that deadline by accepting the deposit when it was delivered.

The court also considered Singh’s failure to notify the applicants in writing about his position until the very last moment to be completely unreasonable. Singh did not act in good faith and, given the uniqueness of the property and this unreasonable behaviour, the applicants were entitled to specific performance.

There are a number of important lessons to learn from this decision.

Firstly, the court will have no sympathy for behaviour that is patently unreasonable. If a party to a transaction intends to take the position that the agreement has been breached by the other party, it is incumbent upon that party to give timely written notice of that position. A failure to do so may be considered unreasonable and bad faith behaviour.

Secondly, if one wishes to take such a position, it is critical that one not act in a manner that is inconsistent with that position. In this case, acceptance of the deposit after the 48-hour deadline period contemplated by the agreement amounted to a waiver of that deadline so that it could not be relied upon at a later date as a breach of the agreement of purchase and sale. Thirdly, where a party has an obligation to do something, the other party cannot make satisfaction of that obligation impossible and then claim that the agreement has been breached.

The Latest on Non-Competition Covenants

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On December 2, 2021, the Working for Workers Act, 2021, came into force. The Act prohibits non-competition clauses in employment or other agreements except in the context of a sale of the business, or if the employee operates at an executive level. The effective date of the Act is October 25, 2021. The Court has held that it does not apply to agreements entered into prior to that date.

Non-competition clauses have always been fertile ground for litigation simply because many employers consider them vital to their business. But, they are also very difficult to enforce. At the end of the day, at common law, the enforceability of such clauses depends on whether or not a court considers them reasonable. For that reason, it is important for both employers and employees to give careful thought to how a Court will make that determination when negotiating the terms of a non-competition clause.

In the recent case of M & P Drug Mart Inc. v. Norton and Whitehead Pharmacy Ltd., the Ontario Court of Appeal took the opportunity to review this process.

Norton, a pharmacist, had been the pharmacy manager of a pharmacy owned by M & P in Huntsville, Ontario. His employment agreement contained a non-competition covenant. The clause in issue provided that for one year after the termination of Norton’s employment for any reason, he would not “carry on, or be engaged in, concerned with, or interested in, directly or indirectly, any undertaking involving any business the same as, similar to, or competitive with the business within the 15 km radius of the business located at 10 Main Street East, Huntsville, Ontario”.

The agreement also provided an acknowledgement on Norton’s part that the clause was necessary to protect M & P’s legitimate business interests and was reasonable in the circumstances.

Norton resigned and became an employee at a pharmacy less than 3 km away.

M & P sued Norton and the matter was determined by Application. The Application judge found the covenant to be unreasonable and therefore unenforceable. The Application was dismissed. The decision was appealed to the Court of Appeal, which dismissed the appeal.

The Court of Appeal began its analysis by observing that, as a general rule and on public policy grounds, a non-competition clause is unenforceable unless it is reasonable considering the interests of the parties and the public based on the circumstances at the time that the covenant is made. In order to determine whether the clause is reasonable, the Court will consider the extent of the activity to be prohibited, the geographic coverage of the restriction, and its duration. The covenant must be clear as to activity, time and geography. If it is ambiguous on any of these factors, it is likely to be considered unenforceable simply because the ambiguity will make it impossible to show that it is reasonable.

If the covenant is clear and unambiguous, it will then be assessed for reasonableness. The Court will not rewrite the covenant in accordance with what it thinks is reasonable. If it is unreasonable, the Court will simply decline to enforce it.

In this case, M & P argued that the clause merely restricted Norton from working as a pharmacist for a pharmacy or a store that includes a pharmacy. However, the words contained in the clause went well beyond this restriction. In the view of the Court, the covenant would have prohibited Norton from working in a job at a supermarket, for example, that included a pharmacy department, even if his job was in a completely different department and he was not employed as a pharmacist. Furthermore, Norton would have been prevented by the clause from being a passive investor in any such business.

As it happens, Norton did become re-employed as a pharmacist. Nevertheless, as the clause included activities beyond working as a pharmacist, it was considered overly broad and, therefore, unenforceable.

The jurisprudence is filled with cases in which a non-competition clause was found to be unenforceable. This is because historically, employers have insisted on protections well beyond what is truly necessary, thinking that inclusion of an acknowledgment by the employee that the employer’s concerns are reasonable will preserve the clause.

While the number of such cases will start to decrease given the new legislation, the vast majority of contracts existing today that include such clauses will not be subject to the legislation. They will continue to be litigated, and Courts will continue to be vigilant in protecting the ability of employees to make a living elsewhere unless the clause restricting the new employment is eminently reasonable.

Even with the new legislation, the common law will apply to “executive” employees. In addition, this issue will arise in the context of the sale of businesses. In the latter cases, while the attitude of the Court has always been more generous to parties seeking to enforce non-competition covenants, the issue of reasonability will continue to be one to which attention must be paid.

Virtual Mediations and Arbitrations: The New Opportunities Presented to Disputants

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The new world of virtual court attendances, arbitrations, and mediations has now been our reality for well over one year. There is no reason to believe that this will not continue, regardless of our progress in reducing the impact of the coronavirus on the population. In fact, users of Ontario’s justice system have already been told that virtual court hearings will be the new normal.

This news is far from all bad. Actually, there are some very positive aspects to virtual litigation. This may be particularly true for parties to disputes seeking to either arbitrate or mediate their disputes.

Common to both arbitration and mediation is the fact that the parties select their own neutral. In the past, as a general rule, parties and their counsel were usually restricted to neutrals residing near locations where the parties lived or did business. This did not ordinarily represent a serious obstacle for parties located in highly populated areas. However, this posed a serious problem for those in smaller centres where there are fewer trained and qualified mediators and arbitrators. The only solution was to pay the additional expense involved in bringing in or going out of town to see the selected neutral.

Furthermore, in disputes involving highly technical fact patterns or complex legal principles, the search for a local qualified neutral is more complicated and far less likely to be fulfilled adequately.

In the virtual world, these restrictions do not exist. Parties are now able to locate and engage neutrals literally anywhere in the world. The restrictions of living or working in small markets no longer apply, as neutrals anywhere can be engaged at no additional cost. Where specific expertise, whether legal, factual, or scientific, is required, the availability of neutrals with such expertise opens up dramatically. For an arbitration matter involving a complex area of knowledge, it is now possible to engage a panel consisting of a trained arbitrator and industry experts, from wherever they happen to be located, and all without the burden of travel costs to bring such individuals together in a room for days, weeks, or more.
In the world of virtual mediation and arbitration, there are almost no limits to the extent that imaginative counsel can accommodate the needs of their clients at far less expense than before.

The experience of the pandemic has been brutally difficult for almost everyone, but here is one example of a silver lining that should be exploited where possible.

COVID-19 Legislation and Other Relief

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Given the current circumstances, rather than publish another case comment, I thought it would be useful to set out a list of measures put into place by the Canadian and Ontario governments and others to provide assistance and relief for Ontario citizens as of today, March 23. I wish to extend my thanks to Josh Hersh, one of our firm’s excellent articling students, for his assistance with this.

COVID-19 Legislation

Federal Measures

Note: The Federal Government has announced an $82-billion aid package to help Canadians and businesses cope with the global COVID-19 pandemic. Parliament could be recalled as early as March 24 to pass legislation to bring in the fiscal measures. The following are the specific measures that will be enacted. Updates can be found at: https://www.canada.ca/en/department-finance/economic-response-plan.html and at the Canada Revenue Agency https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update.html.

Temporary Income Support for Workers and Parents

Employment Insurance – Effective March 15, 2020, the Government of Canada will waive the one-week waiting period for people who are in quarantine or have been directed to self-isolate and are claiming for Employment Insurance (EI) sickness benefits, at an estimated cost of $5 million. The Government is waiving the requirement to provide a medical certificate to access EI sickness benefits.

Emergency Care Benefit – Administered through the Canada Revenue Agency (CRA), the Emergency Care Benefit will provide up to $900 bi-weekly, for up to 15 weeks to:

  • Workers, including the self-employed, who are quarantined or sick with COVID-19 but do not qualify for EI sickness benefits;
  • Workers, including the self-employed, who are taking care of a family member who is sick with COVID-19, such as an elderly parent, but do not qualify for EI sickness benefits; and
  • Parents with children who require care or supervision due to school closures, and are unable to earn employment income, irrespective of whether they qualify for EI or not.

Longer-Term Income Support for Workers

Emergency Support Benefit – Provided through the CRA, it will provide $5.0 billion in support to workers who are not eligible for EI and who are facing unemployment.

EI Work Sharing Program – Provides EI benefits to workers who agree to reduce their normal working hours as a result of developments beyond the control of their employers, by extending the eligibility of such agreements to 76 weeks, easing eligibility requirements and streamlining the application process.

Income Support for Vulnerable Individuals

Goods and Services Tax Credits – The government is proposing to provide a one-time special payment by early May 2020 through the Goods and Services Tax credit (GSTC). This will double the maximum annual GSTC payment amounts for the 2019-20 benefit year. The average boost to income for those benefitting from this measure will be close to $400 for single individuals and close to $600 for couples. This measure will inject $5.5 billion into the economy.

Canada Child Benefit (CCB) – The government is proposing to increase the maximum annual Canada Child Benefit payment amounts, only for the 2019-20 benefit year, by $300 per child. The overall increase for families receiving CCB will be approximately $550 on average; these families will receive an extra $300 per child as part of their May payment. In total, this measure will deliver almost $2 billion in extra support.

Indigenous Community Support Fund – The government will provide $305 million for a new distinctions-based Indigenous Community Support Fund to address immediate needs in First Nations, Inuit, and Métis Nation communities.

Canada Student Loans – Six-month interest-free moratorium on the repayment of Canada Student Loans for all individuals currently in the process of repaying these loans.

Registered Retirement Income Funds (RRIFs) – Reducing required minimum withdrawals from Registered Retirement Income Funds (RRIFs) by 25% for 2020. Similar rules would apply to individuals receiving variable benefit payments under a defined contribution Registered Pension Plan.

Reaching Home Initiative – Providing the Reaching Home initiative with $157.5 million to continue to support people experiencing homelessness during the COVID-19 outbreak.

Women’s Shelters and Sexual Assault Centres – Providing up to $50 million to women’s shelters and sexual assault centres to help with their capacity to manage or prevent an outbreak in their facilities.

Taxpayers

Filing Due Date Deferral for Individuals – The return filing due date will be deferred until June 1, 2020.

Filing Due Date Deferral for Trusts – For trusts having a taxation year ending on December 31, 2019, the return filing due date will be deferred until May 1, 2020.

Payment Deferral for Individuals – The CRA will allow all taxpayers to defer until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.

Payment Deferral for Businesses – The CRA will allow all businesses to defer until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020.  This relief would apply to tax balances due, as well as installments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.

Deferral of Audits for Businesses – The CRA will not contact any small or medium (SME) businesses to initiate any post-assessment GST/HST or Income Tax audits for the next four weeks. For the vast majority of businesses, the CRA will temporarily suspend audit interaction with taxpayers and representatives.

Electronic Signatures – Effective immediately, the CRA will recognize electronic signatures as having met the signature requirements of the Income Tax Act, as a temporary administrative measure. This provision applies to authorization forms T183 or T183CORP.

CRA Outreach Program – Through this service, the CRA offers help to individuals to better understand their tax obligations and to obtain the benefits and credits to which they are entitled. Traditionally available in-person, this service is now available over the phone and by webinar, where possible.

Mortgages

Mortgage Deferral – Canada’s large banks have confirmed that this support will include up to a 6-month payment deferral for mortgages, and the opportunity for relief on other credit products.

Insured Mortgage Purchase Program (IMPP) – The government will purchase up to $50 billion of insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC).

Businesses

Canada Account – The government is changing the Canada Account so that the Minister of Finance is able to determine the limit of the Canada Account to better assist in exceptional circumstances. The Canada Account is administered by Export Development Canada (EDC) and is used by the government to support exporters when deemed to be in the national interest.

Small Business Temporary Wage Subsidy – The government is proposing to provide eligible small employers a temporary wage subsidy for a period of three months. The subsidy will be equal to 10% of the remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.

Business Credit Availability Program (BCAP) – BCAP will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide more than $10 billion of additional support, primarily targeted to small- and medium-sized businesses. The near term credit available to farmers and the agri-food sector will also be increased through Farm Credit Canada.

Domestic Stability Buffer – The Office of the Superintendent of Financial Institutions (OSFI) announced it is lowering the Domestic Stability Buffer by 1.25% of risk-weighted assets, effective immediately. This action will allow Canada’s large banks to inject $300 billion of additional lending into the economy.

Bank of Canada – Lowered the interest rate to 0.75%.

Ontario Measures

Note: Ontario’s Minister of Finance will provide an economic and fiscal update on March 25, which will provide further measures.

Employees

Job-Protected Leave – Per the announcement on March 16, the proposed legislation would, if passed, provide job protection for employees unable to work for the following reasons:

  • The employee is under medical investigation, supervision, or treatment for COVID-19.
  • The employee is acting in accordance with an order under the Health Protection and Promotion Act.
  • The employee is in isolation or quarantine.
  • The employee is acting in accordance with public health information or direction.
  • The employer directs the employee not to work.
  • The employee needs to provide care to a person for a reason related to COVID-19, such as a school or day-care closure.

Childcare Centres – The Ontario government announced March 22 that it would be opening select child care centres across the province to help frontline workers. Included under health care and frontline workers eligible for child care are doctors, nurses, paramedics, firefighters, police, and correctional officers. The services will be free and covered by the government.

The Latest on Creative (but Unsuccessful) Attempts to Get Out of a Really Bad Real Estate Deal

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In the recent case of Forest Hill Homes (Cornell Rouge) v Peimian Ou, Mr. Justice Morgan of the Ontario Superior Court dealt with a summary judgment motion relating to an aborted real estate deal.

In this case, Ou agreed to purchase a home to be built from the plaintiff, Forest Hill Homes, for about $1.7 million. Ou provided deposits that added up to over $100,000 and, on closing, had to come up with almost $1.6 million to close.

On that day, Forest Hill Homes was ready to close the transaction, but Ou did not have sufficient funds.

This apparent breach of contract led to a lawsuit and ultimately to a motion for judgment brought by Forest Hill Homes.

At the motion, Ou brought out a series of arguments in an attempt to concoct a defence to what seemed to be an indefensible position.

Firstly, he argued that his performance of his obligation to close was made impossible by a drastic and unforeseeable drop in the real estate market. This, in turn, made it impossible for him to obtain the required financing. Accordingly, the contract was frustrated and Ou should be relieved of the obligation to close.

In fact, the property which he had agreed to purchase for over $1.7 million was, as at the date of the motion, worth just over $1 million. The fact that the real estate market had dropped significantly could not be challenged. However, and not surprisingly, the Court ruled that this did not amount to a frustration of contract. For a contract to be frustrated, there must be a radical change that transforms the nature of the contract. Here, the parties had intended that the property be sold for an agreed-upon sum. These were the essential terms of the contract and they did not change because of a drop in the market.

Ou then argued that the plaintiff’s sales agent had misrepresented the sale to them. The alleged misrepresentation took the form of the sales agent describing the deal as “the opportunity of a lifetime.” Supposedly this was said to Ou on the day that he signed the agreement of purchase and sale.

This language has been put forward in Court as a basis for a claim of misrepresentation on numerous occasions. It never works. The Court of Appeal has made it clear that to have an effect in law, a representation must be in respect of an ascertainable fact and not a mere opinion. A statement of opinion, judgment, probability, or expectation, or as merely a loose conjectural or exaggerated statement, does not count. This is because the person hearing the statement is not justified in relying on it.

Therefore, even if the sales agent did make that statement, it could never amount to an actionable misrepresentation.

Furthermore, and as is usually the case, the sales agreement contained a clause that made clear that any pre-contractual representation could not be relied upon.

Finally, Ou claimed that he had paid a bribe to the agent to jump the queue of potential purchasers and sign the sales agreement quickly. He argued that this excused his failure to close. In fact, there is no authority in Ontario for the proposition that a person who pays a bribe can have the contract rescinded as a result. In fact, the authorities are clear that it is the defrauded principal of an agent who takes a bribe, not the party paying the bribe, who can have the contract rescinded for that reason.

The last interesting point arising from this case has to do with the plaintiff’s claim for interest.

The agreement of purchase and sale provided that the plaintiff could charge interest in the amount of 20% of the purchase price if Ou failed to pay the balance due on closing. Ou argued that this was excessively onerous and ought not to be enforceable.

Our Court of Appeal has made it clear that a surprisingly onerous term of a contract may be unenforceable if it cannot be presumed that the non-drafting party had actually agreed to it. In other words, a stringent and onerous provision can only be relied upon if the party seeking to do so can show that reasonable measures were taken to draw the terms to the attention of the other party.

In this case, there was no evidence that this particular provision had been drawn to Ou’s attention when he signed the agreement of purchase and sale and accordingly, the plaintiff was unable to enforce it.

At the end of it all, judgment was awarded against Ou for over $500,000, being the difference between the purchase price and the value of the property at the time of the motion. In addition, he forfeited his deposits.

This would seem to be a rather extreme consequence arising from a drop in the real estate market, but unfortunately for Ou, that is simply how the numbers turned out.

The Latest on Employees and the Sale of an Employer’s Business

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An employee is notified that the business he works for has been sold. The purchaser asks the employee to stay on and continue working. What is the position of the employee at common law?

The recent decision of the Court of Appeal for Ontario in Krishnamoorthy v. Olympus Canada Inc. provides useful guidance on this question.

In this case, the plaintiff worked for Carsen Group Inc., a Canadian distributor for Olympus America Inc. He had worked for Carsen for five years until 2005 when Olympus America Inc. decided to terminate its distribution agreement with Carsen and continue distributing its products in Canada through a new related company, called Olympus Canada Inc. (“Olympus Canada”).

The plaintiff received an offer of employment from Olympus Canada under the terms of a written agreement. The terms of this agreement were substantially similar to the terms of his agreement with Carsen except for a termination provision that limited the amount of compensation the plaintiff would receive in the event of termination without cause. The new limit consisted of the greater of the minimum notice set out in the Employment Standards Act or four weeks’ pay per year of service with either Olympus Canada or Carsen up to a maximum of ten months.

The agreement also provided that the plaintiff would be treated as a new employee and that except for the reference to his employment with Carsen in the termination provision, his service with Carsen would not be recognized.

The plaintiff signed the agreement. He received no signing bonus or any additional compensation for doing so. He also received no pay in lieu of notice from Carsen.

The plaintiff continued to work as an employee of Olympus Canada until May, 2015 when his employment was terminated without cause. He was offered compensation in accordance with the termination provisions of the agreement. He refused the offer, sued Olympus Canada for damages for wrongful dismissal, and moved for summary judgment.

The plaintiff argued that the termination clause in the agreement was unenforceable because Olympus Canada had failed to provide him with consideration for amending his employment agreement to include the termination clause. He also argued that for the purpose of calculating his entitlement to notice, his employment with Carsen and Olympus Canada had been continuous.

The motion judge accepted the plaintiff’s argument, implicitly concluding that the offer of new employment by Olympus Canada did not amount to sufficient consideration and as a result, the termination clause was invalid. The plaintiff was awarded about $310,000 in damages.

Olympus Canada appealed to the Ontario Court of Appeal.

The Court of Appeal pointed out that at common law, if a sale of a business results in a change in the legal identity of the employer, there is a constructive termination of the existing employment. If the employee accepts employment by the purchaser of the business, he thereby enters into a new contract of employment.

Accordingly, the plaintiff’s employment with Carsen was terminated and he entered into a new contract with Olympus Canada. The only issue is as to whether or not there was consideration for the new contract.

The Court pointed out that it is well established that a promise to perform obligations under an existing contract is not consideration. There would have to be new or additional consideration to support a variation of an existing contract. In this case, however, the plaintiff did not agree to a variation of an existing contract but rather entered into an entirely new contract with a new employer. The fact that his day to day job did not materially change after the sale was not relevant.

The Employment Standards Act does provide that where there is a sale of a business and the employee becomes employed by the purchaser, the previous employment is deemed not to have been terminated for the purposes of the legislation and the employee will be deemed to have been employed continuously for the purpose of any subsequent calculation of the employee’s length or period of employment.

The Court pointed out that this provision related only to the calculation of the employee’s statutory benefits under the Act. That was not the issue in this case. The issue in this case was as to whether or not there was consideration for the new contract, so that the termination clause was valid. That is the finding that the Court made. The Court allowed the appeal and ordered that the matter proceed to trial.

The position of an employee where a business has been sold is not simple. As this case points out, the question of the extent to which the employee’s previous employment will be relevant to any future developments will vary with the issue at hand. If the employee signs a new employment agreement, by and large it is the provisions of that agreement that will determine the significance of the employee’s tenure with the previous employer.