Successor employer not responsible for wrongful dismissal damages

Bankrupt company responsible for wrongful dismissal damages, not the successor that never employed him, says Alberta court

The Alberta Court of Appeal has dismissed an employee’s attempt to collect wrongful dismissal damages against the company that bought out his bankrupt employer.

Allen Kennett started working for Superior Cabinets in November 1998. In early December 1999 he suffered a work-related heart attack and was unable to work until at least Jan. 14, 2000.

On Jan. 13, 2000, all of the assets of the company were seized by a major creditor. On the same date that creditor, Millwork, purchased all of the assets of the insolvent business, including the right to use the name Superior Cabinets, with the intention of carrying on the business.

On Jan. 13, 2000, a representative of Millwork met with most of the former employees and told them the business would be continued by Millwork for the time being and offered those present a job with Millwork. Kennett was not at the meeting. On Jan. 14, he contacted Millwork and was told he would not be offered employment.

Millwork subsequently carried on the business in the same location, using the same trade name and with the same telephone and fax numbers. It employed most of the former employees who did the same work, provided the same services and sold the same products as before the change in ownership.

Kennett launched a wrongful dismissal action against his former employer and against the successor company.

Alberta’s Employment Standards Code

Kennett argued that s. 5 of the province’s Employment Standards Code should be given a broad interpretation so as to confer on an individual in his position the right to recover damages for wrongful dismissal against the successor of a former employer.

The code gives employees certain minimum severance rights against employers. Section 5 provides that:

“For the purposes of this act, the employment of an employee is deemed to be continuous and uninterrupted when a business, undertaking or other activity or part of it is sold, leased, transferred or merged or if it continues to operate under a receiver or receiver-manager.”

Kennett’s employment was terminated without notice when his insolvent employer sold all its business assets to a major secured creditor who then continued the business. He was not hired by the purchaser. He maintains that s. 5 deems his employment to have been “continuous and uninterrupted” and therefore gives him a right to maintain an action for wrongful dismissal damages against the purchaser, notwithstanding the fact he was never employed by the purchaser.

The court’s decision

A lower court ruled that, under the act, Kennett was certainly entitled to seek wrongful dismissal damages against his former employer but had no such claim against the successor employer because it never employed him.

That judge said s. 5 of the act could not be read so broadly as to create an employment relationship between Kennett and the successor employer for the purposes of a wrongful dismissal action.

Kennett appealed that ruling.

The Alberta Court of Appeal agreed with the lower court. It said s. 5 “does not deem (Kennett’s) employment to have been continuous and uninterrupted so as to give him a cause of action for damages for wrongful dismissal against (the purchaser.)”

It dismissed the appeal.

Other issues

Interestingly, the Court of Appeal also offered some commentary on two findings the lower court made in favour of the Kennett that weren’t addressed in the appeal.

The lower court said Kennett was entitled to be paid the termination notice provisions contained in the Employment Standards Code by the successor employer.

Second, it held that in failing to pay Kennett the minimum termination pay provided by the code, the purchaser “breached their obligations of good faith and fair dealing” and awarded Kennett $3,000 in aggravated damages.

The Court of Appeal said the trial judge’s decision on the termination notice provisions appears to assume that s. 5 requires a successor business like Millwork to pay employees of the former employer whose employment has been terminated by the former employer, and who are not hired by the successor company, the amounts payable under the code for termination in lieu of notice as well, presumably, as other benefits provide by the code.

“The effect of such an interpretation would be to render a successor company liable for all amounts payable under the code by the former employer,” the Court of Appeal said. “In dismissing (Kennett’s) appeal, we make no comment on the correctness of the trial judge’s findings on these two issues. In our view, these issues remain open for argument in this court in a proper case.”

For more information see:

Kennett v. Superior Millwork Ltd., 2005 CarswellAlta 236, 2005 ABCA 84 (Alta. C.A.)

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