Original and Successor Employers Both Liable for Oppression Remedy After Wrongful Dismissal

In a recent Alberta wrongful dismissal case, the court, using the oppression remedy analysis, ruled that the original and successor corporations and the directors and shareholders were liable to pay the full judgment.

Background

The employee, in this case, had provided services to the original employer, alternatively as an employee and independent contractor, for roughly seven-and-a-half years. His employment was terminated on a without cause basis in March 2015, following which he brought a claim for wrongful dismissal against the original employer.

Shortly after the claim was commenced, the original employer ceased operating and its two principals incorporated a new company, 1994992 Alberta Ltd., which acquired all the assets of the original employer and continued doing business the same way, without any changes, ultimately becoming a successor employer. A “successor employer” is a new employer that continues its predecessor’s business in substantially unchanged form and hires employees of the predecessor as a majority of its workforce.

The employee sought to recover damages jointly and severally against the successor employer and the directors personally under the oppression sections of the Alberta Business Corporations Act (ABCA). He argued that the individual directors of the original employer had taken the assets out of the original employer’s company shortly after his claim was filed and created the new company solely in an attempt to avoid liability to him. The defendants disputed this, claiming they incorporated the new business to re-enter the marketplace as “a new service provider with a new product.”

The court had to determine the notice period that the employee was entitled to, given that he had provided services both as an employee and as an independent contractor, and who was ultimately responsible at law for these damages, the original employer or the successor employer.

Court decision

Concerning the matter of the notice period, the court found that at no time did the original employer ever advise the employee that conversion from an employee to an independent contractor could adversely impact his rights on a future termination. Further, although some aspects of the continuing relationship reflected an independent contractor arrangement, there was no change in the employee’s job description, to the reporting structure or level of supervision over the employee or to his title within the company. Also, the employee remained completely dependent on the original employers for his income and did not have any other clients or offer his services to any other client.

As a result, the court found that the employee was more of a dependent contractor and, therefore, there had been no break in his service during this time. The court concluded that the employee, while classified as an independent contractor, remained an employee throughout this entire period.

Workers who are terminated without cause are entitled to reasonable notice of termination. If adequate notice is not given, they may sue for wrongful dismissal. The court determines reasonable notice based upon the character of the employment, years of service of the employee, the age of the employee and the availability of similar employment among other factors.

Therefore, in this case, based on his length of service, his age (63 at the time of dismissal), his position which was neither management nor a key employee of the business and the status of the consulting market at the time of his termination, the court found that he should have received 10 months’ notice of termination.

The court then turned to the issue of who was responsible for the 10 months of pay in lieu of notice owing to the employee.

In assessing whether an oppression remedy was available, the court had to determine:

• whether the employee was a “claimant” within s.239 ABCA and thus eligible to claim relief under the oppression sections of the ABCA;
• whether he had “reasonable expectations” of the defendants which were not met; and
• whether the defendants’ failure to meet those expectations constituted conduct that was oppressive or unfairly prejudicial, or that unfairly disregarded his interests.

The directors of both the original and successor employers had paid all but one of the original corporation’s debts, the amount that it owed to the employee for wrongful dismissals. SInce the new corporation had taken control of all the benefits that flowed from the original corporation’s business and ignored the sole outstanding debt of the original corporation, namely, the outstanding compensation owed to the employee, as a result, the employee was considered a creditor, a person owed money to, able to collect under the ABCA.

The court also concluded that the decision by the two principals to restructure the original employer was prejudicial and disregarded the employee’s interests entirely, rendering the actions oppressive. Oppressive conduct in previous decisions relied on by the Court, “is described as coercive, abusive, done in bad faith.” However, the court noted that in this case, they did “not believe that the Defendants’ conduct was, on the evidence, bad faith conduct. However, it certainly treated [the employee]’s interests as being of no importance and involved an unnecessary and very detrimental alteration to the [corporation’s] share structure by gutting whatever value was there and moving the intellectual property, goodwill, employees and management to a new company.”

Therefore, in the court’s opinion, the employee was,

• a claimant as contemplated under the ABCA,and,
• a long-service employee to a small company with the only outstanding claim against the original employer at the time it ceased operations.

The court ruled that the two individual directors are jointly and severally liable along with the new and original company for the 10 months notice period owed to the employee, noting that the directors

“were clearly acting in their capacity as the only two directors and shareholders of [of the original employer] when they ceased the operations of [the original employer], transferred its assets to themselves, started up the same operations under a new name and appointed themselves directors and majority shareholders again.” They continued to enjoy the profitability of the new company “without regard to the interests of their former employee who had advanced his meritorious claim in a timely way.”

Charles Osuji is a lawyer in Calgary and owner of Osuji & Smith Lawyers, stated in an article in Lawyer’s daily (Friday, August 12, 2022),

“Applying the oppressive remedy principle to employment law in the case is novel, as the court likened an aggrieved employee complainant to a mistreated shareholder/creditor of the corporation. While there are no instances of fraud to trigger the doctrine in this case, it is notable that the oppressive, unfair and prejudicial timing of the defendant directors’ conduct was crucial to warrant the court to pierce the corporate veil and hold the directors personally liable.”