Oppression Remedy, Wrongful Dismissal, Corporate Reorganisations
November 8, 2022
Article by:
Janna CrownMike Hamata
Previously printed in The Lawyer’s Daily, a LexisNexis Canada publication.
In Wisser v. CEM International Management Consultants Ltd. 2022 ABQB 414, Alberta Court of Queen’s Bench (as it then was) confirmed the oppression remedy can ground liability for non-employer corporations and their directors, where the corporate restructuring’s purpose is to avoid wrongful dismissal liability.
Background
The Alberta Court of Queen’s Bench issued a decision in June 2022 considering duration of employment and oppression within the context of a wrongful dismissal action. The plaintiff had a lengthy history with the employer, CEM International Management Consultants Ltd (CEM): he briefly worked with CEM in 2005, was rehired in 2007 and then became an independent contractor in 2009. In 2011, the plaintiff became an employee again and worked for CEM for five years before his employment was terminated without cause. The plaintiff’s termination was a result of an economic shift, which ultimately resulted in the company changing its name and then selling its assets and restarting as a different business.
The issues on termination were: what was the correct length of service in order to calculate severance (e.g. was the plaintiff’s service continuous); was the pay received by the plaintiff severance or vacation pay; and who was liable for severance since the employer no longer existed?
Length of service
The employer argued that the plaintiff’s employment had been terminated in 2009, when he became an independent contractor, and that severance should be limited to the date when he rejoined CEM. The employee argued that his entire service from 2007 onwards with the company should count towards severance. The court found that the issue of whether the plaintiff was properly terminated in 2009 was connected to the issue of the proper
characterization of the pay the employee received upon termination from CEM in 2009.
The court found that the amount paid to the plaintiff upon termination in 2009 was vacation pay and not severance pay. The court made this finding considering the following factors: the evidence showed that the amount of severance considered was initially $5,000; the payroll records characterized this payment as “vacation pay” as did the pay stubs; there was no additional payment to the plaintiff for vacation pay (and he had vacation pay owed to him); and there was no written policy preventing employees from carrying over vacation pay from one year to the next.
The court also found that the employee was a dependent contractor (DC), not an independent contractor (IC) because despite the fact that several aspects of his relationship to CEM were that of an IC, the employee had no change in his reporting structure or supervision, and his only client was the company. This rendered his employment continuous. The court also held that in the alternative, his employment would still have been continuous because the only thing that changed was the basis for the employee’s compensation during the 18 months he was a DC. As a result, the court set the length of service at 7.5 years.
Oppression remedy
CEM was struck from the corporate registry for failing to file its annual returns in 2017 and 2018. The remaining shareholders purchased the remainder of the assets, ceased operating CEM and formed a new company (199 Alberta) with themselves as directors and shareholders. At the time the plaintiff commenced the action, CEM was still operating. The court found that the plaintiff could bring a claim for an oppression remedy as he was a claimant within s. 239 of the Alberta Business Corporations Act; that he had reasonable expectations of the defendants which were not met; and that the defendants’ failure to meet those expectations constituted conduct that was oppressive or unfairly prejudicial or unfairly disregarded his interests (para. 63).
The court noted that “the only thing accomplished by restarting their business under a new corporate identity was to shed any liability for [the employee’s] severance” (para. 79). The court found that the new company and its directors were liable, holding that the new company “and the individual directors enjoyed and continue to enjoy the profitability of that new company without regard to the interest of their former employee who had his meritorious claim in a timely way” (para. 98).
Award
The court awarded 10 months’ salary based on the compensation amount in his 2011 employment agreement, plus four per cent per month for “health and life benefits”, less mitigation and severance received from the employer for the 2015 termination. Damages were ordered jointly and severally against 199 Alberta and its directors and shareholders.
Takeaway
A change of status from employee to DC is not automatically a break in service. A contextual analysis is required. Further, in certain circumstances wrongfully terminated employees obtain a judgment for damages from a corporation who was not the employer, and may not have existed during employment by virtue of an oppression claim. Liability can attach personally to directors and shareholders. If the sole purpose of corporate restructuring is to avoid severance liability, an oppression claim might be a way to defeat that purpose.
While every effort has been made to ensure accuracy in this article, you are urged to seek specific advice on matters of concern and not to rely solely on what is contained herein. The article is for general information purposes only and does not constitute legal advice.
November 8, 2022
Previously printed in The Lawyer’s Daily, a LexisNexis Canada publication.
In Wisser v. CEM International Management Consultants Ltd. 2022 ABQB 414, Alberta Court of Queen’s Bench (as it then was) confirmed the oppression remedy can ground liability for non-employer corporations and their directors, where the corporate restructuring’s purpose is to avoid wrongful dismissal liability.
Background
The Alberta Court of Queen’s Bench issued a decision in June 2022 considering duration of employment and oppression within the context of a wrongful dismissal action. The plaintiff had a lengthy history with the employer, CEM International Management Consultants Ltd (CEM): he briefly worked with CEM in 2005, was rehired in 2007 and then became an independent contractor in 2009. In 2011, the plaintiff became an employee again and worked for CEM for five years before his employment was terminated without cause. The plaintiff’s termination was a result of an economic shift, which ultimately resulted in the company changing its name and then selling its assets and restarting as a different business.
The issues on termination were: what was the correct length of service in order to calculate severance (e.g. was the plaintiff’s service continuous); was the pay received by the plaintiff severance or vacation pay; and who was liable for severance since the employer no longer existed?
Length of service
The employer argued that the plaintiff’s employment had been terminated in 2009, when he became an independent contractor, and that severance should be limited to the date when he rejoined CEM. The employee argued that his entire service from 2007 onwards with the company should count towards severance. The court found that the issue of whether the plaintiff was properly terminated in 2009 was connected to the issue of the proper
characterization of the pay the employee received upon termination from CEM in 2009.
The court found that the amount paid to the plaintiff upon termination in 2009 was vacation pay and not severance pay. The court made this finding considering the following factors: the evidence showed that the amount of severance considered was initially $5,000; the payroll records characterized this payment as “vacation pay” as did the pay stubs; there was no additional payment to the plaintiff for vacation pay (and he had vacation pay owed to him); and there was no written policy preventing employees from carrying over vacation pay from one year to the next.
The court also found that the employee was a dependent contractor (DC), not an independent contractor (IC) because despite the fact that several aspects of his relationship to CEM were that of an IC, the employee had no change in his reporting structure or supervision, and his only client was the company. This rendered his employment continuous. The court also held that in the alternative, his employment would still have been continuous because the only thing that changed was the basis for the employee’s compensation during the 18 months he was a DC. As a result, the court set the length of service at 7.5 years.
Oppression remedy
CEM was struck from the corporate registry for failing to file its annual returns in 2017 and 2018. The remaining shareholders purchased the remainder of the assets, ceased operating CEM and formed a new company (199 Alberta) with themselves as directors and shareholders. At the time the plaintiff commenced the action, CEM was still operating. The court found that the plaintiff could bring a claim for an oppression remedy as he was a claimant within s. 239 of the Alberta Business Corporations Act; that he had reasonable expectations of the defendants which were not met; and that the defendants’ failure to meet those expectations constituted conduct that was oppressive or unfairly prejudicial or unfairly disregarded his interests (para. 63).
The court noted that “the only thing accomplished by restarting their business under a new corporate identity was to shed any liability for [the employee’s] severance” (para. 79). The court found that the new company and its directors were liable, holding that the new company “and the individual directors enjoyed and continue to enjoy the profitability of that new company without regard to the interest of their former employee who had his meritorious claim in a timely way” (para. 98).
Award
The court awarded 10 months’ salary based on the compensation amount in his 2011 employment agreement, plus four per cent per month for “health and life benefits”, less mitigation and severance received from the employer for the 2015 termination. Damages were ordered jointly and severally against 199 Alberta and its directors and shareholders.
Takeaway
A change of status from employee to DC is not automatically a break in service. A contextual analysis is required. Further, in certain circumstances wrongfully terminated employees obtain a judgment for damages from a corporation who was not the employer, and may not have existed during employment by virtue of an oppression claim. Liability can attach personally to directors and shareholders. If the sole purpose of corporate restructuring is to avoid severance liability, an oppression claim might be a way to defeat that purpose.
While every effort has been made to ensure accuracy in this article, you are urged to seek specific advice on matters of concern and not to rely solely on what is contained herein. The article is for general information purposes only and does not constitute legal advice.