



COURT OF APPEAL FOR ONTARIO

CITATION: Krishnamoorthy v. Olympus Canada Inc., 2017 ONCA
    873

DATE: 20171116

DOCKET: C62948

Strathy C.J.O., Cronk and Pepall JJ.A.

BETWEEN

Nadesan Krishnamoorthy

Plaintiff (Respondent)

and

Olympus Canada Inc.

Defendant (Appellant)

George Avraam and Jeremy Hann, for the appellant

Matthew Fisher and Ian Hurley, for the respondent

Heard: May 11, 2017

On appeal from the judgment of Justice Grant R. Dow of
    the Superior Court of Justice, dated September 28, 2016.

Pepall J.A.:

[1]

The appellant employer, Olympus Canada Inc. (Olympus Canada), appeals
    from a summary judgment award of damages in favour of its former employee, the
    respondent Nadesan Krishnamoorthy, in the amount of $310,040.88.  This sum
    represents 19 months pay in lieu of notice, plus prejudgment interest and
    costs.

[2]

The issue on appeal is a narrow one: did the motion judge err in
    concluding that the termination clause in the parties employment agreement was
    unenforceable due to a lack of consideration?  Mr. Krishnamoorthy did not
    cross-appeal but raises other issues that the motion judge declined to address
    given his finding that Olympus Canada had failed to provide Mr. Krishnamoorthy
    with valid consideration.  Mr. Krishnamoorthy also asks this court to admit
    fresh evidence.

[3]

For the following reasons, I would allow the appeal, dismiss the motion
    for admission of fresh evidence, and remit the action to trial.

(1)

Background

[4]

The relevant facts may be briefly summarized.

[5]

Olympus America Inc. (Olympus America) carries on an optical sciences
    business in the United States.  Carsen Group Inc. (Carsen), an unrelated
    company, carried on business as an exclusive distributor for Olympus Americas
    products in Canada.

[6]

In May 2000, Mr. Krishnamoorthy commenced employment with Carsen as a
    senior financial analyst.  By 2005, he had been promoted to Director of
    Finance.

[7]

In 2005, Olympus America decided to terminate its distribution agreement
    with Carsen. Olympus America announced that a new, related company, Olympus
    Canada, would be established to distribute its products in Canada.  Olympus
    America terminated its distribution agreement with Carsen effective July 31,
    2006. Olympus Canada purchased some, but not all, of Carsens assets.

[8]

Carsen advised its employees, including Mr. Krishnamoorthy, that Olympus
    Canada had indicated their intent to offer employment to certain employees.  It
    also advised them that Carsen would provide an appropriate financial package
    for those employees not offered employment with Olympus Canada.

[9]

Carsen had 125 employees. Olympus Canada offered employment to 122 of
    them, one of whom was Mr. Krishnamoorthy.

[10]

In
    November 2005, Olympus Canada provided an offer of employment to Mr.
    Krishnamoorthy under the terms of a written employment agreement.  The terms of
    the agreement were substantially similar to those he had with Carsen with
    certain exceptions.  First, a termination clause limited the compensation Mr.
    Krishnamoorthy would receive in the event of termination without cause to the
    greater of (1) notice or pay in lieu of notice and severance pay under the
Employment
    Standards Act, 2000
, S.O. 2000, c. 41
    (the ESA),
or (2) four weeks pay per year of service with
    Olympus Canada or Carsen, up to a maximum of 10 months, if Mr. Krishnamoorthy
    signed a release.

[11]

In
    addition, the agreement provided that Mr. Krishnamoorthy would be treated as a
    new employee and, except as otherwise provided in the agreement or as required
    by applicable legislation, his service with any other employer would not be
    recognized.

[12]

The agreement
    also included a clause that released Olympus Canada and its affiliates from any
    claims that Mr. Krishnamoorthy might have in respect of his employment with
    and/or termination from Carsen or any other employer that had employed him.

[13]

Mr.
    Krishnamoorthy signed the employment agreement on December 16, 2005.  He did
    not receive a signing bonus or any other additional compensation for entering
    into an employment agreement with Olympus Canada.  Nor did he receive any pay
    in lieu of notice or severance pay from Carsen.  His employment was to start on
    August 1, 2006.

[14]

On April
    10, 2006, Carsen wrote to Mr. Krishnamoorthy confirming that his employment
    with Carsen would terminate on July 31, 2006 and that Mr. Krishnamoorthy had
    accepted an offer of employment with Olympus Canada.  Mr. Krishnamoorthy
    subsequently commenced his employment with Olympus Canada.

[15]

On May 19,
    2015, Olympus Canada dismissed Mr. Krishnamoorthy without cause.  Olympus
    Canada offered him compensation in accordance with the 2005 employment agreement.
     Mr. Krishnamoorthy refused the offer, commenced an action against Olympus
    Canada for damages for wrongful dismissal, and subsequently moved for summary
    judgment.

[16]

Before the
    motion judge, Mr. Krishnamoorthy took the position that, pursuant to s. 9(1) of
    the
ESA
, his employment with
    Carsen and Olympus Canada was continuous.  He argued that the termination clause
    in his 2005 employment agreement was unenforceable because Olympus Canada had failed
    to provide him with consideration for amending his employment agreement to
    include that clause.

[17]

In
    response, Olympus Canada argued that its offer of employment constituted sufficient
    consideration and, as such, the termination clause was binding.

[18]

The motion
    judge accepted Mr. Krishnamoorthys position.  He implicitly concluded that Olympus
    Canadas offer of employment did not amount to sufficient consideration and so
    the termination clause was invalid.  He awarded Mr. Krishnamoorthy damages
    equivalent to 19 months pay in lieu of notice.

[19]

In
    reaching that conclusion, the motion judge found that, upon the sale, Mr.
    Krishnamoorthys remuneration and duties, and the substance and nature of the
    business, all remained the same.  Insofar as s. 9(1) of the ESA was concerned,
    he noted that Olympus Canada did recognize this issue in the employment
    agreement but limited it to (10 years or 10 months notice).

(2)

Analysis

[20]

Olympus
    Canada submits that the motion judges decision ignores that Olympus Canada had
    no pre-existing employment agreement with Mr. Krishnamoorthy and had no legal
    obligation to make him an offer of employment.  In its submission, the ESA does
    not deem employment to be continuous for all purposes.  In these circumstances,
    Olympus Canadas offer of employment amounted to consideration for the
    termination clause.

[21]

Mr.
    Krishnamoorthy submits that there is no reason to interfere with the motion
    judges decision that there was a lack of consideration such that the
    termination clause is invalid.

[22]

I agree
    that the motion judge erred in concluding that there was no consideration for
    the termination clause and that therefore the clause was invalid.

[23]

In
Addison
    v. M. Loeb Ltd.
(1986), 53 O.R. (2d) 602 (Ont. C.A.), Dubin J.A. (as he
    then was) explained the position of an employee at common law when there is a
    sale of a business, at pp. 603-604:


At common law, since a contract of personal services cannot be
    assigned to a new employer without the consent of the parties, the sale of a
    business, if it results in the change of the legal identity of the employer,
    constitutes a constructive termination of the employment.



If the employee is offered and accepts employment by his new
    employer, a new contract of employment is entered into.

[24]

Applying
    those principles in this case, Mr. Krishnamoorthys employment with Carsen was
    terminated and he entered into a new contract with Olympus Canada upon the sale
    of the business.  At issue is whether there was consideration for that new
    contract.

[25]

It is well
    established that a promise to perform an existing contract is not
    consideration:
Holland v. Hostopia.com Inc
., 2015 ONCA 762, 392 D.L.R.
    (4th) 650, at para. 52.  In other words, new or additional consideration is
    required to support a variation of an existing contract:
Hobbs v. TDI
    Canada Ltd.

(2004), 246 D.L.R. (4th) 43 (Ont. C.A.); see also
Francis
    v. Canadian Imperial Bank of Commerce
(1994), 21 O.R. (3d) 75 (Ont. C.A.)  In
    this case, the motion judge, relying on
Hobbs

and
Francis
,
found that Olympus Canadas offer of employment did not constitute
    consideration and further concluded that
Hobbs
was indistinguishable.

[26]

However,
    that is not this case.
Hobbs

and
Francis

both
    involved employment with a single employer and not two different employers as
    is the case here.  The motion judge erred in disregarding the new contract of
    employment with Olympus Canada, who was a new employer upon its purchase of some
    of Carsens assets.  That Mr. Krishnamoorthys day-to-day job did not materially
    change after the sale does not change that fact.

[27]

Although s.
    9 of the ESA deems there to be continuity of employment if certain requirements
    are met, it does not deem there to be continuity for all purposes. Section 9(1)
    of the
ESA
states:

If an employer sells a business or a part of a business and the
    purchaser employs an employee of the seller, the employment of the employee
    shall be deemed not to have been terminated or severed for the purposes of this
    Act and his or her employment with the seller shall be deemed to have been
    employment with the purchaser for the purpose of any subsequent calculation of
    the employees length or period of employment.

[28]

In
Addison
,
    this court interpreted the substantially similar language of s. 13(2) of the
    predecessor Act:

Where an employer sells his business to a purchaser who employs
    an employee of the employer, the employment of the employee shall not be
    terminated by the sale, and the period of employment of the employee with the
    employer shall be deemed to have been employment with the purchaser for the
    purposes of Parts VII, VIII, XI and XII.

[29]

Dubin J.A.
    acknowledged in
Addison
, at p. 604, that this predecessor provision
    was enacted to avoid, to some extent,  unfairness to employees when the
    employer sells the business.  However, he rejected the argument that s. 13(2)
    deemed there to be continuity of employment for all purposes.

[30]

Similarly
    in this case, if the purpose of s. 9(1) of the ESA had been to deem there to be
    continuity of employment for all purposes, there would have been no reason to include
    the words for the purposes of this Act in the section.  These words make
    clear that s. 9(1) cannot be used to claim rights or entitlements on which the
    ESA is silent.

[31]

Section
    9(1) of the ESA does not deem the employment contract between an employee and
    an employer to bind a subsequent purchaser of some of that employers assets as
    was the case here.  Nor does s. 9(1) of the ESA require the purchaser of a
    business assets to offer employment to employees of that business on the same
    terms as their original contracts as claimed by Mr. Krishnamoorthy.  He cannot
    rely on s. 9(1) to achieve either of these effects.  He can only rely on s. 9(1)
    to claim those entitlements that are set out in the ESA itself.

[32]

This
    interpretation is consistent with this courts comments in
Abbott v.
    Bombardier Inc
.
, 2007 ONCA 233, 85 O.R. (3d) 21, at para. 18:

Viewed in the context of the entire statute, in our view,
the
    purpose of s. 9 of the ESA is to protect minimum statutory entitlements
that are related to length of employment where the purchaser of a business, or
    part of a business, continues to employ the employees of the vendor following
    the sale. Such entitlements include: vacation entitlements, entitlements to
    pregnancy and parental leaves, as well as entitlement to notice of termination
    or pay in lieu of notice and severance pay. [Emphasis added.]

[33]

Thus, on my
    reading, Mr. Krishnamoorthy cannot rely on s. 9(1) of the ESA to support his
    argument that Olympus Canadas offer of employment did not amount to
    consideration.

[34]

In short, Olympus
    Canadas offer of employment amounted to consideration for the termination
    clause.  The motion judge erred in concluding otherwise.

[35]

There are two
    further issues to be addressed.

[36]

The first
    is Mr. Krishnamoorthys motion to introduce fresh evidence.  He seeks to
    introduce fresh evidence in the form of the record of employment issued by Olympus
    Canada upon Mr. Krishnamoorthys termination of employment in 2015, which lists
    his start date of employment with Olympus Canada as being May 30, 2000.

[37]

The test
    for the admission of fresh evidence on appeal, described in
Sengmueller v.
    Sengmueller
(1994), 17 O.R. (3d) 208 (Ont. C.A.), at pp. 210-11,
    encompasses three components: is the evidence credible; could the evidence not
    have been obtained, by the exercise of reasonable diligence, prior to trial;
    and will the evidence, if admitted, likely be conclusive of an issue in the
    appeal?

[38]

The test
    for the admission of fresh evidence is not met.  The record of employment was
    available to Mr. Krishnamoorthy, through the reasonable exercise of due
    diligence, before the summary judgment motion was heard.  Furthermore, the
    record of employment would not have been conclusive of the issue of
    consideration engaged by this appeal.

[39]

The second
    issue is whether it is appropriate to address the alternative arguments Mr.
    Krishnamoorthy made before the motion judge and raises again on appeal.  Although
    he did not bring a cross-appeal, he argued in his factum and in oral
    submissions that, if Olympus Canada were successful on the consideration point,
    this court could consider whether the termination clause is invalid because it
    violates ESA requirements and whether the substratum of the contract was lost
    over the years.

[40]

As this
    court has stated on more than one occasion, termination clauses should be
    interpreted in a way that encourages employers to draft agreements that comply
    with the ESA: see, for e.g.,
Wood v. Fred Deeley Imports Ltd
.
,
    2017 ONCA 158, 134 O.R. (3d) 481, at para. 28;
North v. Metaswitch Corp
.
,
    2017 ONCA 790, at para. 19.  In other words, courts will scrutinize termination
    clauses closely for compliance with the ESA.

[41]

However, this
    court does not have the benefit of any factual findings beyond those relating
    to the narrow issue addressed by the motion judge.  I would therefore order
    that the action proceed to a trial of the remaining issues in dispute between
    the parties.

(3)

Disposition

[42]

For these
    reasons, I would allow the appeal, set aside the summary judgment, dismiss the
    motion to introduce fresh evidence, and order that the action proceed to trial.
     As agreed between the parties, Olympus Canada, as the successful party, is
    entitled to costs of the appeal in the amount of $15,000 inclusive of
    disbursements and applicable taxes.  The costs of the summary judgment motion
    are reserved to the trial judge.

Released:

GS                                         S.E. Pepall
    J.A.

NOV 16 2017                          I agree G.R. Strathy
    C.J.O.

I agree
    E.A. Cronk J.A.


