Over the past decade, outsourcing has become an important tool for corporations looking to cut costs.
While much of the recent focus has been directed at overseas outsourcing, outsourcing closer to home is nothing new. Companies have long contracted out various functions to third-party service providers in the expectation of substantial costs savings.
However, a recent decision from the Employment Standards Branch in British Columbia will give employers cause for concern.
In a complaint filed against the Nanaimo Seniors Village Partnership and Well-Being Seniors Services Ltd, the Employment Standards Branch ordered these employers to jointly pay more than $700,000 in termination pay to former employees who were transferred to a labour contractor after the seniors centre decided to outsource some of its nursing services.
This is one of the largest amounts the Employment Standards Branch has ever awarded against an employer in B.C.
The Nanaimo Seniors Village, a licensed residential care facility located in Nanaimo, B.C., is owned and operated by the partnership. The majority partner is Retirement Concepts Senior Services Ltd., which wholly owns Well-Being. The care services at the facility are provided by licensed practical nurses, resident care aides, registered nurses and activity aides. There are full-time, part-time and casual employees in each job classification.
In January 2004, Well-Being and the partnership entered into a contract where Well-Being would take over the care services at the Nanaimo Seniors Village. The full transition to Well-Being’s payroll was not completed until the end of May 2004. During the early summer of 2004, the partnership began to contemplate terminating the contract for care services with Well-Being and tendering it to a separate labour contractor. The partnership sent out a letter to Well-Being’s employees on July 14, 2004, indicating that a change in the contract care provider was going to be coming and that Well-Being was to be replaced.
‘Not lay off notices’
On August 4, 2004, each employee of Well-Being received another letter stating that their employment with Well-Being would end at 7 a.m. on Sept. 9, 2004. That letter was followed by a memo dated August 5, 2004, indicating that the letters were “not layoff notices” and that “no one has been laid off.”
After the contract for services took effect with CareSource on Sept. 9, the director of Employment Standards received 96 complaints from employees, most of whom continued to work at Nanaimo Seniors Village. They claimed that the partnership and Well-Being contravened the Employment Standards Act by failing to pay group termination pay.
Under the Employment Standards Act, employees are entitled to between one and eight weeks’ pay on the termination of their employment, depending on their length of service. Where an employer lays off more than 50 employees in a two-month period, it must provide these employees with an additional eight to 16 weeks of “group termination pay.”
However, recognizing that in many commercial transactions employees may change actual employers but nonetheless remain employed in the same position with no break in time between the two employers, the Employment Standards Act also provides that where there is a disposition of either the whole or a portion of a business, and the employees have uninterrupted employment with the new company, the employment is deemed continuous for the purposes of the Employment Standards Act.
This means the employees’ past service is recognized for the purposes of calculating entitlements for vacation pay, but also that the former employer is not required to pay these transferred employees termination pay as well.
The Employment Standards Branch is clear that the contracting out of the Nanaimo Seniors Village employees to CareSource was a disposition of part of the business pursuant to the Employment Standards Act. But problems arose when it also found the employment between Well-Being and CareSource was not continuous, and therefore the termination provisions of the Employment Standards Act applied. The Employment Standards Branch found that based on how employees’ work shifts were scheduled, they were, in fact, terminated just before the transfer of the business to CareSource and, accordingly the termination pay provisions of the Employment Standards Act were triggered.
Notice was over-cautious
In an abundance of caution, Well-Being provided its employees with four weeks’ advanced notice of the transfer to CareSource in its Aug. 9 letter to employees, where it advised the employees their employment would end at 7 a.m. on Sept. 9. Well-Being and the partnership clearly did not believe they were triggering the termination provisions of the Employment Standards Act when the work was contracted out to CareSource. But by being overcautious it provided sufficient advanced notice to meet its ordinary statutory obligations on termination in order to manage this contingency. Unfortunately, to add insult to injury, the Employment Standards Branch also found that a number of casual employees who had worked at Nanaimo Seniors Village were not in fact sufficiently “casual” and should be included in assessing the number of terminated employees.
As a result, the Employment Standards Branch determined 112 employees were terminated and each of these employees was entitled to an additional 12 weeks’ group termination pay, even though all but nine of them continued in their old positions without interruption with CareSource. In that regard, these employees enjoyed a windfall of almost four months’ wages while Well-Being and the partnership were forced to pay a final assessment of $729,261.87.
This decision poses a risk to any business considering whether it will contract out labour services. First, it was difficult to anticipate that the Employment Standards Branch would impose liability on the old employer in these circumstances based on previous decisions. In that past, the branch had always sought to find continuous employment in similar situations in order to ensure employees retained entitlements based on length of service.
The decision is also troubling because it was clearly never the intention of lawmakers that employees should receive a double payment from their old and new employers just because there happened to be a gap of mere hours between the employees’ old and new employment at the time a business is sold or services are contracted out.
Not surprisingly, the branch’s decision is currently under appeal. However, in the meantime, it is clear that the Employment Standards Branch is applying a very technical approach to these provisions of the Employment Standards Act. If a company is considering selling its business or contracting out certain services it needs to plan carefully and ensure that it does not inadvertently trigger the termination provisions of the Employment Standards Act by terminating its employees even hours prematurely.
Randy Kaardal is the head of the labour and employment group at the Vancouver office of Blake, Cassels and Graydon. He may be reached at (604) 631-3323 or at email@example.com.