The Ontario Court of Appeal released its decision and confirmed that courts will overlook the differing corporate structures utilized by companies to skirt around an employee’s length of service and continuity in employment. Call Employment contracts lawyer for consultation.
In Theberge-Lindsay v. 3385022 Canada Inc. (Kutcher Dentistry Professional Corporation), 2019 ONCA 469, a dental hygienist was employed with the defendant for 19 years approximately until she was dismissed without cause. During the employment relationship, the plaintiff was asked to sign several different employment contracts with two separate corporate entities. All of the contracts limited the plaintiff’s rights on termination to statutory minimums under the Employment Standards Act, 2000 (the “Act”). The defendant altered the corporate structure of his practice in “various ways to minimize income taxes and split income”, which included using a management company and afterwards a professional corporation.
About 12 years into her employment, the plaintiff provided her notice of resignation to the defendant, which was to take affect three months later. However, about one month into her notice of resignation, she changed her mind and both parties agreed that she would continue working for the defendant. When the plaintiff’s employment was terminated in 2012, the defendant only gave her one week’s pay. This was consistent with the Act if the plaintiff was seen as an employee with one year of service working under the new professional corporation, which had an employment agreement, executed in 2011.
The trial judge concluded that at all times and for the totality of the employment relationship, the plaintiff was employed by the defendant. She worked at the same location, performing the same job duties and was managed by the defendant for the entire 19 years that she was employed. The court also determined that neither of the employment contracts was enforceable, as fresh consideration did not exist when the contracts were given to the plaintiff. The court noted that the plaintiff was simply being given “continuing employment”. Lastly, the court noted that the plaintiff’s resignation did not impact her continuity of service, as there was no actual break in service. A 15-month notice period was awarded to the plaintiff.
Ontario Court of Appeal
The defendant appealed the decision and argued that the trial judge failed to take into account the plaintiffs resignation. The ONCA upheld the trial judge’s decision and the finding that the 2011 contract was not binding on the plaintiff. Despite this, the ONCA did agree with the defendant that the plaintiffs 2005 resignation was a break in service (even though there was no real gap in the plaintiff’s employment).
The Court determined that the plaintiff’s offer to continue being employed after she had initially resigned and the defendant’s acceptance was valid consideration for the new employment contract signed in 2005. As a result, the plaintiff’s service was to be calculated per the terms of the 2005 contract, which ultimately limited her notice entitlements to statutory minimums. The 15-month award was thus reduced to 7.5 weeks.
This case is a reminder for employer’s that the total length of service will be considered in calculating an employee’s notice period, unless there is an obvious break in service or a valid new contract (with fresh consideration) that limits common law notice. These principles apply even if the corporate structure has been altered, but job duties have remained substantially the same. It should be noted that even if an employee signs a new employment contract, the agreement could be void for lack of consideration. Employees should also be reminded that a resignation would be viewed as a break in service in the employment relationship, even if in actuality there were no break. It is best practice if you have a “new” employment relationship, to get confirmation in writing from your employer that prior service is recognized.
If you are concerned about breaks in service in your employment relationship, contact top Toronto employment lawyer, Stacey Ball to book a consultation. We can be reached at 416-921-7997 extension 227.