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Lullabaloo's purchase of the North Toronto Early Years Learning Centre, at 1133 Avenue Rd. has proven disruptive for staff and families.Fred Lum/The Globe and Mail

A rapidly expanding daycare chain that bought an independent facility in Toronto managed to drive away most of its employees and many families within weeks, according to some parents and staff.

Lullaboo Nursery and Childcare Centre Inc., which has promised to deliver thousands of new child care spaces in the next few years, is now facing a lawsuit from the daycare’s former director.

The case is an example of the potential pitfalls the daycare sector faces as the for-profit side quickly expands to meet government targets for child care spaces and attracts interest from investors.

Lullaboo was founded in 2008 by wife-and-husband team Irini and Halim Mikhael. It grew steadily, adding an average of one location a year over its first decade, according to its website. But the company’s expansion accelerated around the time the federal government promised to work with the provinces on a child care subsidy and create new spaces for children.

Ontario Education Minister Stephen Lecce and two Progressive Conservative MPPs attended the ribbon-cutting of a new Lullaboo location – its 11th – in Mississauga in early 2022. In a LinkedIn post to celebrate the event, Mr. Mikhael said the company planned to open three more centres that year, with the goal of having 25 locations by 2025.

In a separate post about the construction of a new Brampton facility, Mr. Mikhael said Lullaboo planned to fulfill 5 per cent of the province’s pledge to add 86,000 child care spots by the end of 2026.

Lullaboo has “doubled its revenue every 24 months since it was established,” according to a brochure posted online by the Behar Group Realty Inc., a brokerage that counts Lullaboo as a client. The brochure says the daycare chain plans to continue “its exponential revenue growth rates” in the years to come.

Most new locations have been built from scratch, but the company’s first acquisition of an existing daycare business was North Toronto Early Years Learning Centre, which had two locations: the main facility on Avenue Road and a small operation on Bedford Park Avenue that only offered half-day care.

The purchase proved immediately disruptive for staff and families at the Avenue Road location, who were not told that the company was up for sale, according to documents, a wrongful-dismissal lawsuit and interviews with three parents and a former staff member.

The Globe and Mail is identifying neither the parents, because they are concerned for their children’s well-being, nor the educator, who fears professional repercussions.

Within 24 hours of the purchase being finalized on Oct. 27, Lullaboo sent new employment contracts to the existing staff and asked them to be signed within days.

But the staff had concerns. The new contracts paid less; for example, an employee with years of experience was offered a base salary of $15.50 – Ontario’s minimum wage – with top-up payments coming from provincial grants. The contracts also put all staff members on a three-month probationary period, forbade them from taking on any outside work and said Lullaboo could move them to any of its other locations at any time.

Martha Friendly, the executive director of the Toronto-based Childcare Resource and Research Unit, said labour makes up the largest cost for daycares, so it can be the first expense to get squeezed. She said 2017 data showed that 25 per cent of workers at licensed Ontario daycares earned the minimum wage – but most of those worked at for-profit companies.

“It’s the kind of thing that creates poor quality in for-profit child care centres and staff turnover,” Ms. Friendly said.

On Oct. 28, the Mikhaels held a virtual meeting with parents to discuss the acquisition. According to a wrongful-dismissal lawsuit from Jennifer Andrade, the centre’s director at the time, Ms. Mikhael used the meeting to inform parents that she was coming in to fix the daycare, as it was being poorly run and in a state of total disarray.

The following week, a group of more than 50 parents sent an e-mail to Ms. Mikhael expressing concerns about the possible disruption of the centre’s educational programming and staffing partway through the school year. “We cannot stress strongly enough how vital the current teaching staff is to the operations of the school and our community. We fully support and stand with our teachers,” the e-mail said.

On Nov. 8, Ms. Mikhael held a town hall with parents in which she again disparaged the staff she had inherited through the acquisition, according to the lawsuit. One parent even offered to buy the centre to maintain the status quo, an offer Ms. Mikhael rebuffed.

For the next few weeks, staff began to quit. Ms. Andrade said 16 of the centre’s 19 employees ultimately left.

Ms. Andrade, who had run the centre for 18 years, worked her last day on Nov. 18. She then sued Lullaboo for constructive dismissal, alleging that she had been effectively demoted to receptionist duties and that the owners intentionally inflicted mental distress on her.

Irini and Halim Mikhael did not respond to requests for comment for this story.

In a statement of defence filed Jan. 18, they say Ms. Andrade “responded in tears of joy and relief” when she learned that the centre had new owners. The statement adds that the change was welcomed by other employees, too: “The staff at the centre have embraced the new ownership, report better working conditions, increased benefits and general increase in morale and business.”

They also denied changing Ms. Andrade’s duties and said Ms. Mikhael’s comments to parents about the financial state of the daycare were “completely and unequivocally truthful.”

As the new ownership stretched into its second month, parents continued to express concerns. On Dec. 2, a group of 20 parents wrote to the Mikhaels to again voice their unhappiness with teachers leaving and the curriculum changing, as well as safety concerns about renovations being done during daytime hours and contractors walking in and out of the building without showing ID.

In a response sent Dec. 4, the Mikhaels told parents this was their first acquisition of an operating school and acknowledged they had made mistakes in the transition.

“Maybe our initial mistake of new contracts with educators was too much to overcome. It now seems that all initiatives to bring added improvements are taken with distrust and cynicism,” said the e-mail, adding: “It is simply unfair for the children to have to go through this and we truly regret that this turnover has happened.”

At the same time, Lullaboo enrolled parents in its fundraising campaign for the SickKids Foundation, which aimed to raise $100,000 by the end of the year. In an e-mail to parents on Dec. 13, the company said it was automatically adding $3 to biweekly bills for the donation drive, though it gave them a week and a half to opt out if they were not “willing to donate that small amount.”

The Globe spoke with three parents who have withdrawn their children from the school or are in the process of doing so. They said they were in touch with other families who are moving their children to new centres.

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