Is your employer merging?

• Author: Rurka, Brian P.

David is working long hours these days. For the past couple of weeks, rumours have been circulating around the office that the company for which he works is going to be sold to or merged with a large foreign corporation that already has an office in the city where David works. All of David's co-workers are worried about losing their jobs.

What are the rights of an employee if his or her employer is bought or merged?

In determining the rights of an employee facing such a situation, it is important for David and his coworkers to identify the various methods by which a business can be sold or merged and to determine what types of employees they are.

Type of Transaction

Usually, the sale or merger of a business involves one of three types of transactions:

* the shares of the corporation are purchased or otherwise transferred;

* the assets of the corporation are purchased or otherwise transferred;

* the two or more corporations amalgamate into a new corporation

Shares

In law, a corporation is a distinct legal entity owned by its shareholders. Where the shares of the corporation are purchased or otherwise transferred, the corporation as a legal entity continues to exist though the shareholders may change. In law, there would be no change to David's employment.

The reality is that the new shareholders often will replace senior management and, over time, may make other changes to the organization. Practically speaking, any change in management will result in new policies and procedures. The courts have held that an employee has a duty to accept and carry out proper orders that are given by management.

Any change to existing policies that impact on employment contracts should be implemented with the express or implied consent of the employee. This has been described by the Ontario Court of Appeal as follows:

"I am respectfully of opinion that it cannot be said, as a matter of law, that an employee accepts an attempted variation simply by the fact alone of continuing in his employment. Where an employer attempts to vary the contractual terms, the position of the employee is this: He may accept the variation expressly or impliedly in which case there is a new contract. He may refuse to accept it and if the employer persists in the attempted variation the employee may treat this persistence as a breach of contract and sue the employer for damages, or while refusing to accept it he may continue in his employment and if the employer permits him to discharge his...