Severance obligation didn’t end when successor employer took over

B.C. court rejects company’s claim that it no longer owed pay in lieu to an ex-employee who went on to work under the same terms of employment for a successor employer

Major v. Philips Electronics Ltd., 2005 CarswellBC 666, 2005 BCCA 170 (B.C. C.A.)

The British Columbia Court of Appeal has rejected a company’s claim that it no longer owed pay in lieu to an ex-employee who went on to work under the same terms of employment for the company which took over the business.

Thomas Major was a manager for Philips Electronics Ltd. In May 2001 he became the site manager of a plant in Richmond, B.C. That July the company was sold to Holley Communications Canada Inc., which offered Major employment on the same terms he’d had with Philips.

On Sept. 14, 2001, he accepted the offer which provided that his seniority, vacation entitlements and other benefits would accrue from September 1994, the date he started working for Philips. His position and duties remained unchanged.

The relationship did not work out and less than a month later he was terminated and offered 17 weeks’ pay in lieu. Major accepted the written offer and released Holley from further obligation after deleting a provision which released Holley’s “predecessors” from any legal claim. Major started an action against Philips.

Philips responded with two actions against Major’s claims, but lost both. Philips appealed.

Philips claimed Major gave up any rights to claim damages when he entered into the new contract with Holley. This created a novation (a three-way agreement whereby an existing contract is extinguished and a new one takes its place) so Philips’s obligation no longer existed, argued the company.

Because Major had a contractual right to sue Holley for damages based on his period of employment going back to his Philips years, he was precluded from bringing action against Philips itself. The trial judge was thus wrong to rule Philips and Holley owed “equal and independent” obligations to pay damages in lieu of notice.

The Court of Appeal rejected these arguments. The trial judge had been correct in ruling a novation had not been established. The substitution of obligations has to be clearly established by explicit assent or clear circumstantial evidence, noted the court.

Here Philips could not identify one document or conversation in which it was expressly said to Major that in accepting his new employment with Holley he was abandoning his rights against Philips. The trial judge had considered the circumstantial evidence, but was justified in ruling no novation had occurred, ruled the court.

Holley’s commitment to recognize Major’s prior service with Philips overlapped Philips’s obligation to give reasonable notice. But it did not supplant it, as the obligations arose out of separate employment contracts, the trial judge had ruled.

The Court of Appeal agreed, noting the trial judge had made the point that Major was not entitled to “double recovery” and that Philips and Holley could have avoided this situation by arranging an explicit novation or by coming to an indemnity agreement between them. There was no legal precedent that supported Philips’s claim that Major couldn’t sue it under these circumstances, the Court of Appeal ruled.

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