When Commercial Agreements Override Employment Contracts: Lessons from Facility Condition Assessment Portfolio Experts Ontario Ltd. v. Bouchard
A recent decision from the British Columbia Court of Appeal serves as an important reminder that employment obligations cannot always be viewed in isolation from the broader commercial transaction in which they arise.
In Facility Condition Assessment Portfolio Experts Ontario Ltd. v. Bouchard, 2026 BCCA 89, the Court upheld an award requiring an employer to pay an executive the balance of a three-year employment commitment—even though the employment agreement appeared to permit termination without cause on minimum statutory notice.
The case demonstrates how inconsistent drafting across multiple agreements can create significant and unexpected liability.
The Background
The dispute arose after the purchaser acquired an engineering consulting business.
As part of the transaction, the parties entered into several separate agreements, including:
- an Asset Purchase Agreement;
- an Employment Agreement; and
- a Non-Solicitation and Confidentiality Agreement.
The Asset Purchase Agreement contemplated that the seller would remain involved with the business for three years and also imposed a three-year non-competition obligation.
The Employment Agreement, however, contained language allowing the employer to terminate employment without cause by providing only the employee’s minimum statutory entitlements.
Approximately two years after closing, the employment relationship ended. The purchaser relied on the Employment Agreement and provided only minimum statutory termination entitlements.
The executive argued that the Asset Purchase Agreement guaranteed three years of employment and sued for the balance of the contract.
The purchaser, in turn, sued after the executive began competing with the business.
What Did the Court Decide?
The British Columbia Court of Appeal upheld the trial decision.
The Court concluded that the Asset Purchase Agreement effectively superseded the inconsistent termination language contained in the Employment Agreement. The outcome turned on the specific wording used across several interconnected agreements. The decision should not be read as meaning that every business acquisition automatically creates a fixed-term employment relationship.
As a result, the executive was entitled to compensation for the balance of the three-year term.
Importantly, because the agreements were governed by Ontario law, the Court applied Ontario’s well-established rule that employees wrongfully dismissed from a fixed-term contract are generally entitled to the compensation owing for the remainder of the term unless the contract contains an enforceable early termination provision. In most circumstances, there is no duty to mitigate those damages.
The Court emphasized that restrictive covenants negotiated as part of the sale of a business are treated differently from ordinary employment non-compete clauses because they protect the value of the business being purchased rather than merely restricting a former employee.
The Court also upheld the purchaser’s claim for damages arising from the executive’s breach of the non-competition covenant.
Why This Decision Matters
Although the decision was released by the British Columbia Court of Appeal, it is particularly relevant to Ontario employers because the parties selected Ontario law to govern the agreements.
The case reinforces several important principles.
All Transaction Documents Must Work Together
Employment agreements cannot be drafted in isolation when they form part of a larger business acquisition.
Courts will read related agreements together and attempt to give effect to the parties’ overall commercial intentions.
If provisions conflict, an employer may find that a commercial agreement creates obligations that override what appears to be clear employment language.
Fixed-Term Employment Agreements Carry Significant Risk
Ontario courts have consistently treated fixed-term employment agreements differently from indefinite employment relationships.
Where a valid fixed-term contract does not contain an enforceable early termination provision, terminating the employee early can expose the employer to damages equal to the balance of the contract, often without any reduction for mitigation income.
For employers, this can result in substantial and unexpected liability.
Non-Competition Clauses May Still Be Enforceable
Many employers know that non-competition clauses are difficult to enforce in ordinary employment relationships.
However, the analysis changes significantly when the restriction forms part of the sale of a business.
Courts generally recognize that these covenants protect the value of the business being purchased and are therefore more likely to be enforceable than traditional employment non-compete clauses.
Practical Lessons for Employers
Employers involved in mergers, acquisitions, or asset purchases should ensure that:
- all commercial and employment agreements are reviewed together;
- termination provisions remain consistent across every document;
- fixed-term employment arrangements include carefully drafted and enforceable early termination language where appropriate;
- restrictive covenants are tailored to the commercial transaction; and
- employment counsel is involved early in the transaction, not only after a dispute arises.
A small drafting inconsistency can ultimately lead to years of additional compensation.
What Employees and Executives Should Know
Employees who remain employed with a purchaser following the sale of a business should carefully review all of the documents they signed during the transaction, not just the employment agreement.
Commercial agreements, consulting arrangements, purchase agreements, earn-out provisions, and restrictive covenant agreements may contain rights and obligations that affect the employment relationship.
Where multiple agreements appear inconsistent, legal advice should be obtained before assuming that the employer’s interpretation is correct.
Key Takeaway
The decision in Facility Condition Assessment Portfolio Experts Ontario Ltd. v. Bouchard demonstrates that employment law and commercial law frequently intersect.
For employers, careful drafting and consistency across all transaction documents can help avoid costly litigation. Where employment obligations form part of a commercial transaction, employers should ensure that all related agreements are carefully reviewed together so the documents work consistently and reflect the parties’ intended allocation of risk.
For employees and executives, the case highlights the importance of understanding the entire transaction package before accepting that an employer has correctly interpreted their contractual rights. Whether negotiating an employment agreement following a business acquisition or responding to a termination, obtaining experienced legal advice early can significantly reduce legal risk.
For businesses involved in acquisitions, employment law issues are often treated as secondary to the commercial transaction. This decision illustrates why that approach can be costly. Even carefully drafted employment agreements may not operate as intended if they are inconsistent with the broader transaction documents. Coordinating commercial and employment agreements before closing can significantly reduce the risk of unexpected litigation.
Frequently Asked Questions
Can an asset purchase agreement override an employment contract?
Yes. If the agreements are intended to operate together and contain inconsistent provisions, a court may interpret them collectively and determine that provisions in the commercial agreement prevail.
Are fixed-term employment contracts risky for employers in Ontario?
Yes. Unless the agreement contains an enforceable early termination clause, terminating a fixed-term employee early may require payment of compensation for the remainder of the contract, often without any obligation on the employee to mitigate their losses.
Are non-compete agreements enforceable when a business is sold?
Often, yes. Courts generally distinguish non-compete clauses arising from the sale of a business from those contained in ordinary employment agreements because they protect the value of the purchased business.
Should employers have employment counsel involved in business acquisitions?
Absolutely. Employment obligations frequently arise during mergers, acquisitions, and asset purchases. Reviewing all agreements together can help identify inconsistencies before they become expensive disputes.
How Pelsmakher Law Can Help
Business acquisitions frequently involve more than just the purchase price and closing documents. Employment agreements, executive compensation arrangements, restrictive covenants, and commercial contracts often intersect in ways that can create significant legal risk if they are not carefully coordinated.
Whether you are an employer acquiring a business, an executive negotiating post-sale employment terms, or an employee whose employment has been affected by a corporate transaction, obtaining legal advice early can help identify potential issues before they become costly disputes.
Pelsmakher Law advises employers, executives, and employees across Ontario and Canada on employment agreements, executive compensation, workplace disputes, wrongful dismissal claims, restrictive covenants, and the employment aspects of mergers, acquisitions, and other corporate transactions.
If you are navigating a business sale or have questions about your employment rights or obligations, we would be pleased to discuss your situation and provide practical, strategic legal advice tailored to your circumstances.
