One hundred and fifteen former Nortel employees brought a motion seeking to impose personal liability on the former directors of Nortel Networks Limited (NNL) and Nortel Networks Corporation (NNC) for unpaid severance payments under section 119 of the Canada Business Corporations Act (CBCA).
The employees argued that the severance payments were akin to retention payments for services performed.
The directors raised defenses including that severance payments are not covered by section 119, they exercised due diligence, and some claimants were employed by a different subsidiary (NNTC).
The court dismissed the motion, finding that severance payments are not for 'services performed' under CBCA s. 119, but rather compensation for loss of employment.
The court also found that the directors had a valid due diligence defense and that the 'true employer' test would have identified NNL as the employer for all employees, despite payroll being handled by NNTC.
The court also noted that releases signed by some employees would have covered the claim.
