Severance issue lingered after employee transfer

Philips Electronics learned to its chagrin that dismissed employees can collect severance from two former employers.

An electrical engineer, Thomas Major, worked for over seven years with Philips at increasingly senior positions. Just six months before he was fired, in what appeared to be a show of confidence, Philips transferred Major from India to become its site manager in Richmond, B.C. But only two months after Major’s move, Philips sold the Richmond plant to Holley Communications. Philips took care of Major by requiring Holley to ensure that it recognize Major’s past service with Philips for severance purposes. Major, for his part, accepted Holley’s offer, which recognized that service. Only 25 days later, Holley fired Major without cause, offering him 17 weeks’ severance which, according to its calculations, included the seven years with Philips.

Major accepted Holley’s package and signed its release. But he first crossed out the clause waiving claims against Holley’s predecessors. As would become clear, Major wanted to preserve his right to go after Philips.

After being paid out by Holley, Major sued Philips for wrongful dismissal. Philips’ defence was that when Major accepted Holley’s job offer, Holley stepped into the shoes of Philips, inherited its employment law obligations, and the plaintiff’s claims against it were extinguished.

The trial judge disagreed, ordering Philips to pay Major 12 months’ severance. Silence, said the court, was not acceptance. Both when Philips gave notice to Major and when Holley made its job offer, Major’s right to sue Philips was simply never addressed.

Outraged with this decision, Philips appealed to the British Columbia Court of Appeal. In its recent decision, that court confirmed that Philips was liable, holding that, since Major never waived any claim against Philips, he maintained his right to sue.

Major’s uncontradicted evidence was that he was never asked by Philips about his employment rights. Moreover, Holley never informed him that his claims against Philips would be quashed, either when he accepted Holley’s job offer or when he took the severance package. Instead, Major removed the wording releasing Philips from the release. Holley paid the package anyway.

So why could Major have Holley’s cake and eat Philips’ too? Holley’s recognition of past service, said the Court of Appeal, overlapped with Philips’ obligation to provide severance. But, it did not replace it.

At law, separate employment contracts are created with each new employment, so Major could settle with Holley under the contract created by the Holley offer but still sue Philips for severance under the employment relationship created when he joined Philips.

The Court of Appeal did note that from the 12 months’ severance must be deducted the advance notice that Philips provided to Major of the plant closure and both the wages and severance he received from Holley.

I offer the following advice to employers selling any part of their business:

1. Have the purchaser agree to indemnify you for any severance claim. The court noted that this would have entirely resolved Philips’ problem.

2. Provide employees with as much advance notice as possible. Although notifying your employees of a plant shutdown may not always be viable, an employer could eliminate all claims with adequate notice.

3. Ask employees, prior to any sale, to waive their rights. Major succeeded because Philips had not forced him to waive his claims when it sold the plant to Holley. I often have my clients request their employees to sign releases before closing when they are offered employment with the purchaser.

4. Factor employees’ severance cost into the purchase price.

5. Insist on a job offer from the purchaser that explicitly extinguishes any claim against you. To prove the Holley offer cancelled the old contract, Philips would have had to show Major had been expressly told that he was abandoning his rights against Philips by accepting Holley’s offer.

Howard A. Levitt is counsel to Lang Michener LLP. He is author of The Law of Dismissal in Canada and The Quick Reference to Employment Law, and editor-in-chief of The Dismissal and Employment Law Digest. He practises throughout Canada. He can be reached at hlevitt@langmichener.ca

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If you, or someone you care about, is dealing with employment law issues in the Toronto, Ontario Region, contact Lang Michener LLP.

This article is taken from an interview with Howard A. Levitt, Employment Lawyer at Lang Michener LLP , a Toronto, Ontario Employment Law Firm. Note that laws vary from province to province. Please consult with a lawyer in your own area to be sure of the laws and specific issues in your own jurisdiction.