No severance pay for outsourced staff

Bombardier Aerospace workers whose jobs were outsourced, and who accepted employment with the outsourcing company, have no right to severance: Ontario court

An outsourced employee who accepts employment with the company doing the outsourcing likely has no right to severance pay from his previous employer, according to a recent Ontario court ruling.

The decision involved a group of 45 former Bombardier Aerospace employees whose department was outsourced. They accepted jobs with the new employer and then filed a claim for severance pay from Bombardier.

Before Sept. 7, 2003, the workers were employed within Bombardier’s information technology services (ITS) group in Downsview, Ont. All had a minimum of five years of service to Bombardier.

In July 2003 Bombardier entered into a contract with Conseillers en Gestion et Informatique CGI Inc. (CGI). The contract required CGI to assume all of the services, functions and responsibilities performed by the ITS group.

Under the outsourcing contract, CGI agreed to make offers of full-time employment to most of the ITS employees on terms and conditions of employment equivalent to those they had at Bombardier. The workers were given eight weeks’ notice that their employment at Bombardier would be terminated on Sept. 7, 2003.

The 45 workers involved in this case accepted employment with CGI. Under the terms of the contract, CGI agreed to recognize each of the affected employees’ original dates of hire with Bombardier for the purpose of determining notice of termination and severance pay under the applicable employment standards legislation and common law should their employment be terminated.

In March 2004 the workers launched the lawsuit against Bombardier, claiming they were entitled to receive the statutory severance payments under the Employment Standards Act (ESA) when Bombardier terminated their employment.

Bombardier said the workers would have been entitled to severance pay if not for s. 9(1) of the ESA. That section states that:

“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 employee’s length or period of employment.”

Bombardier said the outsourcing of the ITS group to CGI constituted a sale of a part of its business and, because CGI employed the workers, their employment is “deemed not to have been terminated or severed.”

But the workers argued Bombardier didn’t sell a business, or part of its business, to CGI. It simply outsourced the work. Alternatively, the workers said the terms and conditions of their employment with CGI were fundamentally different from the terms and conditions of their employment with Bombardier and therefore CGI did not employ them within the meaning of s. 9.

A sale or a transfer of work?

Justice Gertrude Spiegel of the Ontario Court of Justice said counsel told her there were no court decisions to provide assistance on the interpretation of s. 9 of the ESA. But a number of decisions by the Ontario Labour Relations Board (OLRB) and adjudicators and referees appointed under provisions of the act have addressed the issue.

One case the workers brought forward was C.U.P.E. v. Metropolitan Parking Inc., a 1979 OLRB decision. In that case, in looking at the Ontario Labour Relations Act, the board made a distinction between a transfer of work and a transfer of business.

“For a transaction to be considered a ‘sale of a business’ there must be more than the performance of a like function by another business entity,” the board said. “There must be a transfer from the predecessor from the essential elements of the business as a block or as a ‘going concern.’ A business is not synonymous with its customers or the work it performs or its employees. Rather, it is the economic organization which is used to attract customers or perform the work.”

The former Bombardier workers argued that what was transferred to CGI was not a “going concern” and therefore was not a sale of a “business” within the meaning of s. 9 of the ESA.

But Bombardier begged to differ. It relied on the 1987 decision of Referee Brown in Re Merrill Lynch Canada Inc. In that case it was held that the use of the term “business” is much broader and more encompassing under the sale of business provisions in the ESA than under the comparable provisions of the Labour Relations Act.

Justice Spiegel agreed with Bombardier’s viewpoint. In her view, the more restrictive definition of business that has been applied by the OLRB in respect of the Labour Relations Act is not consistent with the object and purposes of s. 9 of the ESA. She said the transaction between Bombardier and CGI constituted a sale of business under s. 9.

“All of the affected employees were re-employed by CGI and continued to apply essentially the same skills and functions and in many cases used the same facilities and equipment,” she said. “It should be noted that Bombardier also transferred significant assets to CGI including servers and a mainframe as well as desktop and laptop computers.”

Ontario legislation silent on terms of employment

Justice Spiegel then turned her attention to the workers’ alternate claim, that the terms of their employment were fundamentally different and therefore s. 9 did not apply and they were entitled to severance pay.

She said the fact s. 9 is totally silent on the issue of terms of employment with the purchaser was significant.

“Had the legislature intended that the section not apply where the terms are fundamentally or radically different it could have easily used language to express that intent,” said Justice Spiegel.

She also said there is nothing in the ESA or the common law that obliges an employee to accept employment with the purchaser.

“The employee always has the option of rejecting the purchaser’s offer of employment and treating the vendor’s sale of the business as termination and severance of employment and claiming the benefits resulting from such termination and severance,” said Justice Spiegel. “It seems to me that it would be inequitable for the employee to accept employment with the purchaser and thereby garner the benefits of the section in so far as the calculation of his or her period of employment and yet seek to avoid the consequences of the section in so far as it deems there to have been no severance of the employment with the vendor.”

Therefore, if an employee accepts employment with the purchaser, it is irrelevant that the terms and conditions of employment are different from those that existed with the previous employer, she said.

Even if she is wrong in that interpretation, Justice Spiegel said the evidence shows the terms of employment between Bombardier and CGI were not that different for the workers. One of the main differences between Bombardier and CGI was pensions — at Bombardier, the workers had a pension plan. At CGI, there was no pension plan.

But with the help of Towers Perrin, an outside consulting firm, the company calculated the present value of the loss of the pension benefit for each employee. This amount was then translated into an upward salary adjustment for each employee. Therefore, the company argued the workers had been compensated for any potential pension losses arising from their employment with CGI.

She said the burden was on the workers to show the terms and conditions of employment with CGI were so radically different than that they enjoyed with Bombardier that the terms of s. 9 did not apply.

“I am of the opinion that the (workers) have failed to satisfy this burden,” said Justice Spiegel. The court dismissed the workers’ claim for severance pay.

For more information see:

Abbott v. Bombardier Inc., 2005 CarswellOnt 2148 (Ont. S.C.J.)

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