February 07, 2007
Low interest rates and easy credit have promoted a rash of Canadian mergers. Few companies in the directory of major Canadian employers in 1990 have survived in the same form and, with the loonie at a short-term low, Canadians can anticipate further mergers and takeovers among remaining candidates.
When companies plan takeovers, they often fail to consider myriad of effects from employment law, including: Constructive dismissal There is little purpose in a merger without the advantage of economies of scale. Companies rarely need two presidents or, for that matter, two employees at any level performing the same function.
Although mergers inevitably lead to dismissals; smart employers try to keep the talented employees they acquire.
However, if an employer substantially reduces an employee's domain to make room for another, that employee is constructively dismissed and can sue the new employer. In deciding whether an employee is demoted, the court will look at title, who the employee reports to, any change in his or her prestige and, most important, changes to his or her responsibilities. Sometimes a demotion is subtle. In one case, five departmental managers, including the manager of engineering services, reported to one vice-president. After a restructuring, only that manager continued to report to that vice-president. The court concluded that manager would now be perceived as no more than an assistant to the vice-president, rather then a full manager. He was found to have been constructively dismissed. Dismissals Employees generally receive full credit for their previous service in any merger or sale of a business. If a purchaser does not wish to grant previous service, acquired employees must be informed of that before they become employees of the merged firm. They then have the option of declining the job and suing their previous employer for wrongful dismissal.
If employees are dismissed shortly after the merger or sale, they can sue both employers. Employers are prudent to contemplate this in their sales/ merger agreements. It is in the vendor's interest to require the purchaser to agree to offer all employees positions on the same terms and require an indemnity for any wrongful dismissal action. Purchasers have an opposing interest: They want the vendor to indemnify them from any wrongful dismissal in the event they dismiss an acquired employee. Union successor rights when a business is sold or merged, collective agreements remain in force. Labour boards have developed a very broad definition of sale, covering everything except when equipment only is bought without goodwill, account receivables, inventory, licences or managerial expertise. If unionized and non-unionized workers are kept apart, and work is not moved from the unionized group, non-union employees do not have to join the union. But that hardly accomplishes the objective of a merger. Depending on the groups' relative size, the labour board can declare all intermingled employees to be covered by the collective agreement or can order a vote. If there are two or more unions, there will also be a vote, but until such time, the employer must continue to honour all collective agreements. Employment standards If there is a dismissal of more then 50 employees in a month, the employment standards legislation requires a longer notice period. (The specifics differ by province.)