Former employer pays after relationship with successor sours

B.C. court awards former Philips Electronics worker 12 months’ pay in lieu of notice — clause at time of sale could have avoided problem

Stuart Rudner

The British Columbia Court of Appeal recently addressed an unusual situation in which a worker brought a wrongful dismissal claim against his former employer after agreeing upon a termination package with its successor. Ultimately, the court found there was nothing prohibiting such “concurrent” claims.

Thomas Major was employed by Philips Electronics for about seven years. In 2001 he was asked to relocate from the United States to Richmond, B.C., to take the position of site manager at its plant there.

He agreed, and moved to B.C. in May. Two months later, in July, Philips announced it would be shutting down the plant in Richmond and all employees would be terminated effective Aug. 31.

Subsequently, Holley Communications Canada entered into an agreement to purchase the plant from Philips. Holley then offered Major employment on substantially the same terms as his employment with Philips. Major accepted the offer and became an employee of Holley on Sept. 14, 2001. His agreement with Holley specifically provided that his prior employment with Philips would be recognized for the purposes of seniority, vacation and other benefits.

Although it appeared as though Major had dodged a bullet and avoided unemployment by signing on with Holley, circumstances soured quickly.

Major’s relationship with his new employer was fraught with, to put it mildly, differences of opinion. On Oct. 9 his employment was terminated. Holley offered 17 weeks’ pay in lieu of notice, which Major accepted. Pursuant to the settlement, Major executed a release in favour of Holley. However, he specifically deleted a provision which would have released Holley’s predecessors. He then started an action for wrongful dismissal against Philips.

Due to procedural circumstances, there were actually two trials in this matter. In the first, a “summary trial,” Philips argued that a “novation” had occurred when Major accepted the offer from Holley. In essence, the argument was that there had been an agreement between the three parties which extinguished the existing contract (between Major and Philips) and created a new one (between Major and Holley).

The court cited precedent for the approach that a finding of novation should not be made in the absence of an express agreement to that effect. It found there was no evidence of such an agreement in this case and therefore no novation.

Philips also argued Major had not explicitly reserved his rights against it when he accepted the new employment arrangement.

The evidence was that he had never been asked, one way or the other, if he intended to reserve any such rights. The court found the facts were insufficient to support this defence put forward by Philips.

At the second trial the court found Philips and Holley owed equal and independent obligations to provide reasonable notice of termination, or pay in lieu thereof. The court confirmed the existing law that the sale of a business as a going concern constitutes a constructive dismissal.

The court also referred to case law which provides that in the absence of an express agreement to the contrary, a successor employer in such circumstances must recognize the prior employment for the purposes of termination and severance (which Holley had expressly agreed to do in this case.)

Nothing in the case law, however, stated that the availability of a claim against the successor employer precluded a claim against the predecessor, although it was recognized that a plaintiff could not have double recovery. In other words, the employment with and claim against the successor employer does not preclude a claim against the predecessor. However, it would diminish the quantum of damages to be recovered.

Finally, Philips argued that s. 97 of the B.C. Employment Standards Act supported its position. This section provides that if a business is sold, essentially as a going concern, then the employment of an employee who remains with the successor employer is deemed to be continuous and uninterrupted. However, the court found this section did not extinguish any common law rights — it applied only for the purposes of the act itself. This defence therefore failed as well.

As a result, the trial court found, and the Court of Appeal agreed, that Major was entitled to sue Philips for wrongful dismissal. The Court of Appeal found Major had mitigated his damages by accepting employment with Holley and that this reduced the amount of damages to be paid by Philips. The Court of Appeal agreed that a notice period of 12 months was appropriate for the termination by Philips. From this was to be deducted amounts already paid by Philips, and the 17 weeks paid by Holley.

Employers should note that Philips could have made an effort to have an agreement in place pursuant to which Major would forego any future claim against it. They failed to do so, perhaps assuming that he had found new employment and there would therefore be no reason for Major to pursue them. While hindsight is always 20/20, perhaps others can learn from Philips’ misfortune.

For more information see:

Major v. Philips Electronics Ltd., 2005 CarswellBC 666, 39 C.C.E.L. (3d) 200 (B.C. C.A.)

Stuart Rudner practices commercial litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or by e-mail at [email protected].

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