3226727 Canada Inc. c.o.b. as The Bentley/Agnew Group v. Peter Ares et al and Ministry of Labour, 2000 CanLII 11853

3515-97-ES 3226727 Canada Inc. c.o.b. as The Bentley/Agnew Group, Applicant v. Peter Ares et al and Ministry of Labour, Responding Parties.

BEFORE: Laura Trachuk, Adjudicator/Referee.

APPEARANCES: Bruce Pollock and Ron Gamble for the applicant; Mark Alchuk for the Ministry of Labour; Kim Elliott Employment Standards Officer.

DECISION OF THE BOARD; July 24, 2000

1This is a request for review of an Order to Pay pursuant to section 68 of the Employment Standards Act (the “Act”). The Employment Standards Officer found that pursuant to subsection 13(2) of the Act, the applicant was a “successor employer” to Agnew Group Inc. and was therefore liable for vacation pay accrued by employees for the period June to November 1995 when they worked for that company.

2In a decision by Adjudicator/ Referee dated November 16, 1998, notice was given to Coopers and Lybrand Limited and Price Waterhouse Limited as the applicant had indicated that it would be seeking to add them as parties. The applicant subsequently decided not to seek to add them as parties and they did not seek to participate in the hearing of this matter.

3Prior to the hearing, the applicant and the Ministry of Labour reached an agreed statement of facts (attached as Appendix A, exhibits excluded). The submissions of the applicant and the Ministry were based solely on the agreed statement of facts and the documents they had appended. The Adjudicator/Referee commends counsel for their efforts in facilitating an efficient hearing. None of the individual employees attended the hearing.

4In paragraph 10 of the statement of facts, the parties agree that the transaction between Coopers and Lybrand Limited and the applicant on February 16, 1996 was a “purchase” within the meaning of section 13. The issue for the Adjudicator/Referee to decide is whether, as a result of that purchase, the applicant is liable for vacation pay accrued during the period June to November, 1995 during which its employees were working for the Agnew Group Inc.

5The relevant sections of the Act provide as follows:

1. In this Act,

“wages” means any monetary remuneration payable by an employer to an employee under the terms of a contract of employment, oral or written, express or implied, any payment to be made by an employer to an employee under this Act and any allowances for room or board as prescribed in the regulations or under an agreement or arrangement therefor but does not include,

(a) tips and other gratuities,

(b) any sums paid as gifts or bonuses that are dependent on the discretion of the employer and are not related to hours, production or efficiency,

(c) travelling allowances or expenses,

(d) contributions made by an employer to a fund, plan or arrangement to which Part X of this Act applies;

7. (4) Payment on termination.—Any payment to which an employee is entitled upon termination of employment, other than termination pay and severance pay, shall be paid by the employer to the employee not later than seven days after termination of employment.

8. (1) Definitions. —In this section,

"business" includes an activity, trade or undertaking, or a part or parts thereof; (“entreprise”)

"sells" includes leases, transfers or disposes of in any other manner and "sale" has a corresponding meaning. (“vend”, “vente”)

(2) Continuity of employment—Where an employer sells a business to a purchaser who employs an employee of the employer, the employment of the employee shall not be terminated by the sale, and the period of employment of the employee with the employer shall be deemed to have been employment with the purchaser for the purposes of Parts VII, VIII, XI and XIV.

(3) Part XIV to be complied with. — Where an employer sells a business to a purchaser who does not employ an employee of the employer, the employer shall comply with Part XIV.

13.1 (1) Successor employers. —This section applies with respect to the following types of services provided at a premises directly or indirectly by or to a building owner or manager:

(6) If the successor employer employs an employee of the previous employer, the previous employer shall pay the employee the amount of any vacation pay accrued in respect of the employee when he or she begins employment with the successor employer.

28. (1) Vacations.—Every employer shall give to each employee a vacation with pay of at least two weeks upon the completion of each twelve months of employment.

(2) Idem.—The amount of pay for such vacation shall be not less than an amount equal to 4 per cent of the wages of the employee in the twelve months of employment for which the vacation is given and in calculating wages no account shall be taken of any vacation pay previously paid.

30. Vacation pay.—Where the employment of an employee ceases before the completion of a twelve-month period of employment or the employee has not been given a vacation with pay under section 28, the employer shall pay to the employee an amount equal to 4 per cent of the wages of the employee in any twelve-month period or periods or part thereof an in calculating wages no account shall be taken of any vacation pay previously paid.

31. (2.1) Termination when bankruptcy, etc. —An employer shall be deemed to have terminated the employment of an employee if the employment is terminated by operation of law,

(a) as a result of the bankruptcy of the employer, whether or not it is the employer who initiates bankruptcy proceedings;

(b) as a result of the insolvency of the employer; or

(c) as a result of any operations of the employer being placed in receivership.

58. (1.1) Termination when bankruptcy, etc. —An employer shall be deemed to have terminated the employment of an employee and the termination shall be deemed to have been caused by the permanent discontinuance of all or part of the business of the employer at an establishment if the employment is terminated by operation of law,

(a) as a result of the bakruptcy of the employer, whether or not it is the employer who initiates bankruptcy proceedings;

(b) as a result of the insolvency of the employer; or

(c) As a result of any operations of the employer being placed in receivership.

6The applicant argues that the Order to Pay should be rescinded because in making her decision the Employment Standards Officer failed to consider subsection 57(2.1) and subsection 58(1.1) which were added to the statute in September 1995. The effect of those subsections, the applicant claims, is to make vacation pay due and owing to employees upon a bankruptcy. In this case, that means that the vacation pay in question was an existing debt of the Agnew Group Inc. in January, 1996. The applicant argues that section 13 does not have the effect of transferring existing debts upon the sale of a business so liability for vacation pay was not assumed by the applicant.

7According to the applicant, the employees were all terminated as a matter of law in January, 1996 pursuant to subsection 57(2.1). The applicant claims that the words “deemed to have terminated the employment of an employee if the employment is terminated by operation of law” means all employees are deemed terminated upon bankruptcy whether or not they are still working. The effect of that termination is to make any wages to which an employee was entitled on the date of the bankruptcy payable. The definition of wages includes accrued vacation pay. The applicant claims that section 30 provides that vacation pay is payable when employment “ceases” because it is equally applicable if an employee resigns as it is if an employee is terminated. The vacation pay, in this case, was payable no later than seven days after the termination of employment pursuant to subsection 7(4). That means seven days after the assignment in bankruptcy on January 12, 1996, pursuant to subsection 57(2.1). Thus, vacation pay was due to all employees on January 19, 1996. The applicant’s purchase did not close until March 9, 1996. By that time the vacation pay was alive only as an existing debt of the Agnew Group Inc. The debt was due on January 19, 1996 and not on June 1, 1996 as determined by the officer. As section 13 does not make purchasers liable for pre-existing debts the order should be rescinded.

8The applicant relies upon Hilker (Re) [1997] O.E.S.A.D. No.230 in which the Adjudicator/Referee found that termination pay was payable by an employer who had made an assignment in bankruptcy and not by the company which had purchased the business from the trustee. The applicant also refers to the decision of the Supreme Court of Canada in Rizzo & Rizzo Shoes Ltd,. (Re) 1998 CanLII 837 (SCC), [1998] 1 S.C.R.27.

9The Ministry of Labour relies upon Metro International Trucks Ltd., (Re) [1996] O.E.S.A.D. No.211, which summarizes a series of decisions that take a different approach from Hilker, supra. The Ministry argues that vacation pay entitlements are not live debts, but are debts accruing. Accrued vacation pay flows through to the purchaser. The Ministry asserts that although the decision of the Supreme Court in Rizzo & Rizzo Shoes, supra, provides that employees can make a claim in bankruptcy it cannot be read as taking away a common sense reading of section 13. The Ministry claims that if the Adjudicator/Referee were to interpret the Act in the manner urged by the applicant everything would become due and owing upon termination but a plethora of cases say the opposite. In this case, there is an admission that there is an ongoing business. There is also no problem with the statutory 13 week gap in employment as employment has been continuous (see Regulations 327). The Ministry acknowledges that if there were a gap in employment of more than 13 weeks then the vacation pay entitlement would crystallize as employees would actually be terminated. However, where employment is continuing, vacation pay is accruing and flows through to the purchaser. The Act is designed to protect the rights of employees who will not know when to make a claim when there has been a sale. It is immaterial whether or not there has been a bankruptcy or insolvency as vacation pay is a debt accruing and therefore it flows through with the sale. The Ministry argues that if the Adjudicator/Referee were to find otherwise, section 13 would have no meaning in a bankruptcy situation.

10The applicant replies that the facts in Metro International Trucks, supra, took place prior to the amendments to the Act. After those amendments, employees were entitled to go to Agnew Group Inc. seven days after the bankruptcy and say “pay up”. If they are entitled to do that, then the debt was owing on that date. The applicant argues that that is consistent with Metro International Trucks, supra, which stands for the proposition that a debt owing is not transferred on a purchase but a debt accruing is.

Decision

11The issue before the Adjudicator/Referee is as follows:

Was vacation pay for the period of June to November 1995 for employees who subsequently worked for the applicant, a crystallized debt which accrued to Agnew Group Inc. as a result of the bankruptcy or was it a debt accruing which became payable by the applicant in June 1996?

12Subsection 13(2) of the Act provides that where a purchaser employs an employee of the purchased business, his or her employment is not terminated by the sale and employment is deemed continuous for the purpose of part VIII, “Vacation with Pay”. Therefore the Act contemplates that a purchaser will be responsible for vacation pay which has accrued but not become payable on the date of purchase. June 1 was the date upon which the employees of Agnew Group Inc. normally received their annual vacation pay entitlement. The Employment Standards Officer found that employees were entitled to vacation pay on June 1, 1996 which had accrued in the previous year (except the amounts paid by the receiver). On June 1, 1996 the employees were employed by the applicant. In Metro International Trucks, supra, the Adjudicator/Referee held that vacation pay was a debt accruing in a sale resulting from a bankruptcy and is therefore payable by the purchaser when it becomes due after the date of purchase. This Adjudicator/Referee agrees with the analysis in that decision. However, the applicant argues that the circumstances are different in this case as a result of the addition of subsections 57(2.1) and 58(1.1) to the Act.

13The Board does not find that subsections 57(2.1) and 58(1.1) should be interpreted as suggested by the applicant. Those sections do not mean that all employees are terminated by the bankrupt employer in a bankruptcy situation. Subsection 57(2.1) provides that where employees are actually terminated as a result of a bankruptcy i.e. by operation of law, they are deemed terminated for the purposes of the Act. However, employees who continue to work, are not deemed to be terminated for the purposes of the Act. The provisions of subsection 13(2) therefore continue to apply to them upon a sale of a business including the accrual of vacation pay as the Adjudicator/Referee found in Metro International Trucks, (supra). This is consistent with the language of section 30 which says that where employment “ceases” prior to the completion of a twelve-month period of employment an employer shall pay vacation pay. The employment of these employees never “ceased”.

14Both the Ministry and the applicant referred to subsection 57(2.1) as the “Rizzo” amendment. By this they apparently meant that the section was included to deal with the issue ultimately considered by the Supreme Court in Rizzo & Rizzo Shoes,(supra). Prior to that decision, and the amendments to the Act, there was some question as to whether employees who were terminated i.e. whose employment ceased, as a result of a bankruptcy were “terminated” for the purposes of the Act and therefore entitled to make a claim for termination and severance pay as unsecured creditors. The issue as the Supreme Court described it was “…does the termination of employment caused by the bankruptcy of an employer give rise to a claim provable in bankruptcy for termination pay and severance pay in accordance with the provisions of the ESA?”(paragraph 17, emphasis added) The Supreme Court held that a termination as a result of a bankruptcy is a termination for the purposes of the Act. However, in the meantime subsection 57(2.1) had been added to the Act, presumably to respond to the Court of Appeal decision which held that employees terminated as a result of a bankruptcy were not entitled to termination and severance pay. The Supreme Court did not say, nor does the legislation say, that employees who are not in fact terminated are deemed terminated as a result of a bankruptcy. The Court’s analysis is based on the language of the Act prior to the amendments but also on the purpose of the Act to assist employees with the “economic dislocation caused by unemployment”. That analysis obviously does not apply to employees who remain employed. Such an interpretation would not make sense and would mean that the sale of a business provisions would never apply in a bankruptcy situation. If that were intended the legislature would surely have made that clear. The Board notes that where the legislature intended that vacation pay not be payable by a “successor employer” it has specifically said so in subsection 13.1(6).

15In the Hilker decision (supra) the Adjudicator/Referee held that as a result of the first Rizzo & Rizzo Shoes decision all employees are terminated in the event of a bankruptcy. However, even if the earlier court decision could be interpreted in such a way, the decision of the Supreme Court does not stand for such a proposition. The decision of that Court does not mean that employees who continue to work in an ongoing operation are deemed to be terminated because of a bankruptcy. That decision applies to employees who actually lose their employment and so do subsections 57(1.2) and 58(1.1). The question of whether section 13 applies when there has been a period of unemployment followed by hiring by the purchaser is not before me in this case.

16The Adjudicator/Referee therefore finds that the applicant is responsible for vacation pay that accrued in the period June to November, 1995 for employees whom it acquired when it purchased the business.

DISPOSITION

17The applicant did not take any issue with the amount included in the Order to Pay. The parties agreed that the sole outstanding issue was the question of liability. For the above reasons the Adjudicator/Referee finds the applicant liable and confirms the Order to Pay.

“Laura Trachuk”

for the Board

This decision is issued under the administrative auspices of the Ontario Labour Relations Board, 505 University Avenue, 2nd. Floor, Toronto, Ontairo, M5G 2P1

OLRB FILE NO. 3515-97-ES

ONTARIO LABOUR RELATIONS BOARD

AGREED STATEMENT OF FACTS

BETWEEN:

3226727 CANADA INC. c.o.b. as THE BENTLEY/AGNEW GROUP ("Bentley/Agnew Group")

-and-

MINISTRY OF LABOUR EMPLOYMENT PRACTICES BRANCH

WHEREAS 413 employees of the now bankrupt company, Agnew Group Inc. ("Agnew") have had claims assessed for termination, severance and vacation pay against Agnew under the Employee Wage Protection Program ("EWPP") of the Employment Standards Branch (ESB File: 60006470 (formerly 60006409 and/or 60005307));

AND WHEREAS on or about September 8, 1997, Ms. Kim Elliott, Employment Standards Officer, ruled that Bentley/Agnew Group was liable for the payment of vacation pay for the period June 1, 1995 to November 19, 1995, to all claimants;

AND WHEREAS on or about October 28, 1997, Ms. Elliott issued the Order to Pay No. 49477 against Bentley/Agnew Group for payment of the sums of $126,750 and $12,675 representing accrued vacation pay and the statutory administrative costs levied against Bentley/Agnew Group, respectively.

AND WHEREAS on or about December 10, 1997, Bentley/Agnew Group paid to the Director of the Employment Standards Branch in trust the total sum of $139,425 and filed with the Ontario Labour Relations Board on [sic] Application for Review of an Order to Pay (the "Application") made pursuant to s.68 of the Employment Standards Act (the "Act");

AND WHEREAS by decision of Ms. Mary Ellen Cummings, Adjudicator/Referee, dated February 25, 1999, the Ontario Labour Relations Board convened a hearing on June 29 and 30, 1999, to hear all evidence and argument on the question of who is liable for the vacation accrued June 1, 1995 to November 19, 1995, while the employees were working for Agnew Group Inc.;

AND WHEREAS by decision of Ms. Laura Trachuk, Adjudicator/Referee, dated June 30, 1999, the Ontario Labour Relations Board consented to adjourn the Application sine die for a period not exceeding one year;

AND WHEREAS the parties wish to adduce all evidence by way of Agreed Statement of Facts;

THE PARTIES state as follows:

1. Prior to January 12, 1996, Agnew employed a number of employees in its retail stores, distribution centres and head office located in the province of Ontario. Agnew had an established practice to pay out vacation pay annually on or about June 1 of each year.

2. Agnew filed an Assignment for the General Benefit of Creditors and was adjudged bankrupt on January 12, 1996. Price Waterhouse Limited ("Price Waterhouse") was appointed Trustee in Bankruptcy of the estate. Subsequent to the appointment of Price Waterhouse as Trustee in Bankruptcy,. Coopers & Lybrand Limited ("Coopers") was appointed, on the same day, Receiver and Manager of Agnew by The Royal Trust Company and the Royal Bank of Canada, a secured creditor.

3. The employees were advised of such bankruptcy on or about January 12, 1996, by way of a written notice to employees of Agnew.

4. The Notice informed employees that the effect of the bankruptcy was to terminate their employment effective January 12, 1996.

5. The employees were further advised that Coopers intended to operate the profitable Agnew stores with a view towards seeking a purchaser for such business. Thus, Coopers informed employees that it would pay all wages, earned commissions and vacation pay entitlements from January 12, 1996, until their services were not longer required.

6. As stated in the Notice, Coopers agreed to provide funding to pay any outstanding wages or salaries owing for the payroll period from December 30, 1995 to January 22, 1996, as well as unpaid vacation pay accrued since November 22, 1995, but excluding any other vacation pay, severance and termination pay claims arising by reason of the termination of employment by Agnew effective upon its bankruptcy. The secured creditor had had [sic] a director appointed to Agnew on November 22, 1995.

7. On or about January 18, 1996, Agnew issued to all of its employee a Record of Employment as required by Human Resources Development Canada upon termination of employment stating last day worked was January 12, 1996, and the termination was due to voluntary bankruptcy by company.

8. On or about January 17, 1996, employees were advised by memorandum from George Davey, on behalf of Coopers, attached hereto as Exhibit 4, that the direct deposits made to their accounts on January 19, 1996, were in respect of firstly, wages for the period January 1 through January 19, 1996, and secondly, vacation pay for the period November 19, 1995, through January 12, 1996.

9. Employees were advised by such memorandum that accrued vacation pay for the period July 1 (should be June 1) through November 18, 1995, would not be paid and that such amount constituted a claim against Agnew to the EWPP. Employees were also advised to file a proof of claim with Price Waterhouse, as Trustee in Bankruptcy, with a copy to the Ministry of Labour. Over 400 employees filed claims against Agnew for vacation pay that had accrued during the period June 1, 1995 to November 18, 1995, and for payment of severance and termination monies.

10. On February 16, 1996, Coopers entered into an Agreement of Purchase and Sale with Bentley/Agnew Group whereby Bentley/Agnew Group acquired certain assets from Coopers. On or about such time, Bentley/Agnew Group offered employment to certain employees working in the Agnew stores on such terms and conditions which were embodied in individual offers of employment. This purchase falls within section 13 of the Act. The sale closed on March 9, 1996.

11. On March 9, 1996, Coopers terminated the employment of those employees it had employed beginning on or about January 14, 1996. On March 18, 1996, Coopers issued to all of its employees the Record of Employment required by Human Resources Development Canada stating termination due to company being sold.

12. The employees were paid by Coopers all vacation pay earned for the period January 12, 1996, to the date of the termination of their employment.

13. By letter dated September 8, 1997, Ms. Kim Elliott, Employment Standards Officer, advised Bentley/Agnew Group that, as a successor Employer, it was liable for the payment of vacation pay for the period June 1, 1995 to November 19, 1995, to all claimants in their employ.

14. On or about October 28, 1997, Ms. Elliott issued an Order to Pay requiring Bentley/Agnew Group to pay to the Director of the Employment Standards Branch in Trust the net amount of $139,425 which represents accrued vacation pay in the amount of $126,750 and an administration fee of $12,675.

15. On or about December 10. 1998, Bentley/Agnew Group deposited the monies owing with the Director in Trust and filed the present Application for Review of the Order to Pay #49477.

16. Bentley/Agnew Group agrees with the accuracy of the calculations of the Employment Standards Officer with respect to each of the claimants.