Canadian Employment Law Today

Canadian HR Reporter, 2020 Canadian Employment Law Today | 3 Cases and Trends Ontario company's buyer didn't consult employment standards Company founder stayed on as an employee, but agreement and release couldn't remove previous service from notice entitlement BY JEFFREY R. SMITH THE SALE of a business can be complicat- ed, particularly when the original founder stays on with the company as an employee. It became more complicated for one Ontario company that thought it had contracted out of the notice requirements for an employee's prior service before the purchase of the com- pany but found it could not — and had to pay more than $300,000 in termination and sev- erance pay. Wayne Groves, 65, founded UTS Consul- tants, an engineering consulting company based in Fergus, Ont., in 1992 and served as the company's president. Twenty-two years later, in July 2014, Groves agreed to sell the company to Oakville Enterprises Corpora- tion (OEC). e transaction involved Groves, his wife, and a third shareholder selling all of their shares to OEC, Groves' wife resigning as an employee of UTS, and Groves resigning as director of the company. ey also signed a release absolving UTS and OEC from "all claims, demands, actions, causes of action, debts" that could arise from their connection with UTS, as well as "any claims for unpaid remuneration, termination or severance pay." Once Groves signed his resignation let- ter, UTS provided him with an employment agreement for him to continue working for UTS as president. e agreement included a termination provision that allowed the com- pany to terminate him without cause upon provision of four weeks' base salary for every year of service — from the date of the agree- ment and excluding his previous service — with "a guaranteed minimum notice or pay in lieu of notice equal to three months base salary; provided that the maximum notice period or pay in lieu of notice that you will receive shall in no circumstances exceed 12 months." e provision also stated that ter- mination pay wouldn't be less than the statu- tory minimum and any severance package would include medical and dental benefits during the notice period. Groves worked as a president for UTS for three years until Sept. 26, 2017, when the company terminated his employment with- out cause. OEC informed Groves of his ter- mination at the OEC main office while the locks were changed at the UTS office and it was announced to UTS staff. Rejected severance offer UTS told Groves it would pay him his regu- lar salary and benefits for 13 weeks until Dec. 26 plus variable pay for the rest of the calendar year and outstanding vacation pay if he signed a release. Groves rejected the of- fer and sued for wrongful dismissal, arguing that the termination provision waived ter- mination pay and severance pay entitlement under the Ontario Employment Standards Act, 2000 (ESA) — since it didn't recognize his full service time with UTS — calculated such pay on base pay only, and had no provi- sion for severance pay if pay in lieu of notice was provided. UTS paid him the equivalent of three months' pay and continued his ben- efits for a three-month notice period. e court noted that when interpreting employment agreements, any vagueness should be interpreted in favour of the em- ployee due to the traditional imbalance of power and information between the em- ployer and the employee. In addition, a ter- mination provision that potentially allows the employer to violate employment stan- dards is unenforceable, regardless of wheth- er or not if violates employment standards at the time. e court found that the termination pro- vision didn't comply with the ESA because, although it provided a minimum amount of notice of three months, it had a maximum of 12 months' notice. e exclusion of Groves' service with UTS prior to the sale and his resignation as president was also contrary to the ESA — employment agreements can't contract out of ESA minimums and Groves' employment with UTS was uninterrupted, as he only resigned as a director of the com- pany, not from his employment, the court said — not to mention the fact that the ESA "provides that non-continuous service must be included in quantifying severance pay." "e resignation did not sever the em- ployment relationship between Mr. Groves and UTS," said the court. "It was an entirely artificial attempt to create an interruption in employment when in fact there was none." In addition, the ESA requires severance pay to be given to employees with five or more years of service. When Groves' service before the sale of UTS was included, he had more than 25 years with the company. Under the ESA's formula, he was entitled to 24.75 weeks of severance pay in addition to eight weeks of termination pay, for a total of 32.75 weeks' pay – much more than the 12 weeks' pay in lieu of notice UTS actually provided. e court also found that the release Groves signed when he resigned as a direc- tor of UTS as part of the sale didn't prevent him from suing for wrongful dismissal. Al- though Groves agreed by signing it to release UTS from all claims arising from his term as a director and shareholder of the company and any claims for unpaid remuneration, severance or termination pay, the same prin- ciple applied as to the termination provision — he "could not release his prior service for the purposes of calculating termination and severance pay under the ESA," the court said. e court considered the fact that Groves was 65 years old and had more than a quar- ter-century of service with UTS. His role with the company was important and high- level and he had a lot of experience and skills. Given these factors, the court determined that Groves was entitled to a reasonable notice period of 24 months — there were no "exceptional circumstances" warranting a notice period greater than the traditional maximum, said the court. UTS was ordered to pay Groves 24 months' worth of salary, benefits, variable compensa- tion, bonus, lost bonus potential during the notice period and vehicle allowance — a total of $339,873.30 minus the three months' pay UTS had already paid to him. See Groves v. UTS Consultants Inc., 2019 ONSC 5605 (Ont. S.C.J.). Employment law blog Canadian Employment Law Today invites you to check out its employment law blog, where editor Jeffrey R. Smith discusses recent cases and developments in employment law. The blog features topics such as work refusals, employees who quit and change their mind, and termination agreements. You can view the blog at www.employmentlawtoday.com.

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