3403-98-ES King Craft Division of Polk Canada Ltd., Applicant v. Raymond Burnell and Ministry of Labour, Responding Parties.
Employment Practices Branch File No. 63000179
4551-97-ES King Craft a Division of Polk Canada Ltd., Applicant v. Carl Hearn, Darlene Cameron, Dave Burghardt, Raymond Burnell, Tom Fraser, John Gliddon, Shaunna Hawkeye, Roanna Hopkins, Murray Hoyt, Donald Jackson, Jay Jones, Clarence Lockman, Paul Ollson, Scott Peloquin, Anthony Ross, Raymond St. Jean, Marleen White and Ministry of Labour, Responding Parties.
Employment Practices Branch File No. 60005518
BEFORE: Laura Trachuk, Vice-Chair.
APPEARANCES: C. White and Patrick Squire for the applicant; David A. Broad, Carl Hearn and Ray Burnell for the responding parties; Brian Fukuzawa and Murray Klein for the Ministry of Labour.
DECISION OF THE BOARD; October 3, 2000
These are two applications for review of two Orders to Pay filed pursuant to section 68 of the Employment Standards Act (the “Act”). The Employment Standards Officer found that the applicant (referred to as “King Craft”) was a successor employer to Hearn Kelly Printing Co. (referred to as “Hearn/Kelly”), as a result of a sale of a business in 1993. As that determination is a threshold issue in both files, the Board considered it appropriate to list both matters together. The Officer also found that Mr. Hearn was an employee of Hearn/Kelly who subsequently worked for King Craft. He therefore ordered King Craft to pay termination and severance pay to Mr. Hearn which reflected his period of time with Hearn/Kelly. He also ordered that King Craft was liable for vacation pay for 15 other employees. (Order to Pay No. 49909 relating to those two issues is appealed in Board File No. 4551-97-ES.) In Order to Pay No. 50063 (appealed in Board File No. 3403-98-ES) the Officer found that Raymond Burnell was constructively dismissed as a result of the changes to his employment by King Craft in 1997 and directed that the applicant pay him termination and severance pay which reflected his period of employment with Hearn/Kelly.
Prior to the hearing of this matter the parties agreed to a statement of facts. The matter was argued on the basis of those facts, as well as certain facts stipulated by King Craft and a number of documents which the parties agreed to put before the Board. The Board commends the parties on their efforts to make the hearing process efficient.
The following are the facts to which the parties agreed:
The Respondent [Carl Hearn] became employed by Murray Kelly Printing and Lithographing Company in or about November 17, 1975. The name of the corporation was changed to Hearn Kelly Printing Company Limited (“Hearn/Kelly”) in the early 1980’s. Hearn Kelly carried on business as a commercial printer at 384 Neptune Crescent, London, Ontario. It had two divisions and utilized trade names “Hearn/Kelly” and “Dexter”. Hearn/Kelly moved to the Neptune Crescent premises in or about the month of February, 1992. Gale Colour Inc. operating as “Dexter” was a wholly owned subsidiary of Hearn/Kelly.
Carl Hearn was the president and a director of Hearn/Kelly and was a minority shareholder, holding 40% of the voting shares through a holding company. He became a shareholder and director in 1979. He was one of six directors of Hearn/Kelly.
Prior to the receivership Carl Hearn was part of the sales staff of Hearn/Kelly which consisted of himself and three others. Approximately 70% of his compensation was in respect of a draw against commissions based on sales, on basis identical to other sales staff, and approximately 30% in respect of management salary.
King Craft, a Division of Polk Canada Ltd. (“King Craft”) carried on business as a calender specialty printer, with production facilities at Ann Street in London, Ontario.
Representatives of King Craft had toured the Hearn/Kelly facilities in June 1993 and October 1993 to investigate a possible acquisition of the Hearn Kelly operations as a going concern. Representatives of King Craft had made verbal indications to representatives of Hearn Kelly that they were interested in buying the Hearn Kelly operations or assets. The meetings in June and October involved Don Austin, Brian Reynolds and Steve Levschuk for King Craft and Carl Hearn for Hearn/Kelly.
The major secured creditor of Hearn/Kelly, Bill Gale, called the loan owing to him by Hearn Kelly in October, 1993 and upon default in payment by Hearn Kelly in respect of such demand, appointed Coopers & Lybrand as Receiver (the “Receiver”)
The Receiver entered the Hearn/Kelly premises on November 2, 1993 in the capacity as Receiver and Manager.
The Receiver employed Carl Hearn and the other employees of Hearn/Kelly and insofar as customers and the public were concerned, there was no change or interruption in the operation of the business. In particular, Carl Hearn continued to call on customers and take orders as did other members of the sales staff.
On the day prior to the appointment of the Receiver, Carl Hearn contacted King Craft and advised them of the pending appointment of the Receiver and that if they were interested in acquiring the business that they should act quickly.
King Craft personnel attended at the Hearn/Kelly premises on November 15 and November 17, 1993 to meet with staff, including Carl Hearn. On November 17, 1993, representatives of King Craft made a verbal offer of employment to Carl Hearn subject to King Craft acquiring the assets of Hearn/Kelly and made it quite clear to him that they wanted him to be part of their sales team upon their acquisition of the Hearn/Kelly assets from the Receiver and that he was expected to work continuously through the transition period, in order to preserve the goodwill of the business.
The Receiver issued a Record of Employment to Carl Hearn dated November 29, 1993 indicating the first day worked for the Receiver being November 1, 1993, the last day worked being November 12, 1993 and the final pay period ending date being November 17, 1993.
King Craft submitted a letter to Carl Hearn dated November 22, 1993 stating:
“Further to our discussions, this letter will confirm King Craft’s interest in using your services in the capacity of Director of Sales for Hearn/Kelly, subject to King Craft acquiring the Hearn/Kelly and Dexter operational assets on November 29, 1993.”
Carl Hearn accepted the offer verbally and continued to work on sales from the Neptune Crescent premises without interruption.
On or about November 29, 1993, King Craft purchased all of the assets of Hearn/Kelly, as a going concern, with the exception of one Heidelberg 5 Colour Press, which was subject to a Lease Agreement and was surplus because King Craft had an equivalent press to replace it.
Following the purchase from the Receiver King Craft continued to utilize the Hearn/Kelly and Dexter business names and continued to operate out of the Neptune Crescent facilities. Twenty-Eight out of Forty-nine total employees including all of the production coordinators of the Hearn/Kelly division were kept on and offered employment, together with the full Hearn/Kelly sales staff. King Craft also took on the sales and support staff in respect of the Dexter division consisting of five people. All of the sales staff of both the Hearn/Kelly and Dexter operations joined King Craft.
The Hearn/Kelly business continued following the closing of the acquisition by King Craft with no functional changes. In particular, it had the same sales staff, utilized the same equipment (with the exception of the Heildelberg press referred to above) from the same facilities and utilized the same production coordinators.
The customer base remained the same. The film used in the printing operations, which remained the property of the customers, was maintained and all of the computer information remained archived in the same fashion as previously.
King Craft utilized a truck for deliveries which bore the names Hearn/Kelly, Dexter and King Craft for a period of more than two years following the closing.
Carl Hearn was given credit for his commissions by King Craft for sales which he effected during the period from the employment of the Receiver through to the purchase of the assets by King Craft. These customers included Trillium Studios who had been a customer for seven to eight years, Ernst & Young which had been a customer for two years, Dun & Bradstreet which had been a customer for twelve years and Matshushita Electric which had been a customer for fours years. The payment was made upon the invoice being produced to the customer which post-dated Carl Hearn’s employment with King Craft.
Carl Hearn remained an employee of King Craft as director of sales for the Hearn/Kelly division until January 2, 1996 when he was terminated effective January 31, 1996.
King Craft has acknowledged that at the relevant time it had a 2.5 million dollar payroll for the purposes of the application of 58(2)(b) under the Employment Standards Act.
King Craft also provided the following stipulated facts with which no one disagreed. On November 2, 1993 Hearn/Kelly was placed into receivership by [one of its creditors] Gale Investments Inc. All employees of Hearn/Kelly (with the possible exception of Carl Hearn) were terminated by the Receiver and Manager on November 2, 1993. On November 4, certain of the Hearn/Kelly employees were hired by the Receiver and Manager for the limited purpose of completing work-in-progress. On November 8, 1993 King Craft executed a Letter of Intent with the Receiver and Manager to purchase assets of Hearn/Kelly. On November 18, 1993 Hearn/Kelly was assigned into bankruptcy. On November 24, 1993, Hearn/Kelly’s assets were sold to King Craft subject to conditions. On November 29, 1993 King Craft commenced an employment relationship with former Hearn/Kelly employees who are claimants in these proceedings. King Craft had interviewed these former Hearn/Kelly employees prior to November 29, 1993 and issued them letters offering employment subject to King Craft acquiring the Hearn/Kelly operational assets.
The relevant sections of the Act are as follows:
In this Act,
"employee" includes a person who,
(a) performs any work for or supplies any services to an employer for wages,
(b) does homework for an employer, or
(c) receives any instruction or training in the activity, business, work, trade, occupation or profession of the employer,
and includes a person who was an employee;
"employer" includes,
(a) any owner, proprietor, manager, superintendent, overseer, receiver or trustee of any activity, business, work, trade, occupation, profession, project or undertaking who has control or direction of, or is directly or indirectly responsible for, the employment of a person therein, and
(b) any associated or related corporations, individuals, firms, syndicates or associations treated as one employer under section 12, where any one has control or direction of, or is directly or indirectly responsible for, the employment of a person therein,
and includes a person who was an employer;
(4) If an employee is entitled to a payment upon termination of employment, the employer shall make the payment to the employee not later than seven days after the termination.
(1) In this section,
"business" includes an activity, trade or undertaking, or a part or parts thereof;
"sells" includes leases, transfers or disposes of in any other manner and "sale" has a corresponding meaning.
(2) 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.
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 and in calculating wages no account shall be taken of any vacation pay previously paid.
(2.1) 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) 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 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.
(9) A year of employment for which an employee has been paid severance pay shall be excluded in any subsequent calculation of severance pay for that employee.
(9.1) If an employer who sells a business within the meaning of section 13 purports to pay severance pay to an employee employed by the purchaser and if the amount paid at least equals the amount of severance pay to which the employee would have been entitled had he or she not been employed by the purchaser, the amount paid shall be treated as severance pay for the purposes of subsection (9).
The parties referred to the following authorities: Re Bendall December 3, 1992, ES 215/92, Randall; Re 970112 Ontario Ltd. c.o.b. Sketchley Cleaners, October 20, 1994, ESC 94-187, Muir; Re Metro International Trucks Ltd. September 19, 1996 ESC 96-201, Cummings; Re Campbell February 8, 1994 ESC 94-30, Randall; Re Hentschell Clocks Canada (1977) Ltd., April 23, 1981 ESC 981, Howe; Parry, Employment Standards Handbook (2d ed) (Carswell); Re Crone [1993] O.E.S.A.D. No. 135 Randall; Re Algoma Rubber Services Ltd., 1982 957, E.S.C. 1205, Eaton; Re Rizzo & Rizzo Shoes Ltd. (1998) 1998 CanLII 837 (SCC), 154 D.L.R. (4th) 193 (S.C.C.); Ontario (Employment Standards Officer) v. Equitable Management Ltd. (1990) 1990 CanLII 6973 (ON CTGD), 75 O.R. (2d) 506 (Div. Ct.); Oshawa Foods A Division of Oshawa Holdings Limited ( File No. 2630-96-ES, February 13, 1997); Benefit Plan Administrators Limited (File No.0591-98-ES, May 14, 1999); Riordan v. The War Office [1959] 3 All E.R. 552; Westburns Central Supply (File No. ES 68/92-169, Decision No. 221/92 December 10, 1992, Randall)
The Board has five issues to decide with respect to these two files.
Was the transaction between King Craft and Hearn/Kelly a sale of a business for the purposes of section 13(2)?
If the answer to the above is yes, is King Craft liable for vacation pay accrued by Hearn/Kelly employees to the date of the sale whom it subsequently hired?
If the answer to question 2 is yes, what is the effect of any period of unemployment the employees experienced prior to being hired by King Craft?
Was Carl Hearn an employee of Hearn/Kelly and therefore entitled to count his “employment” with that company for the purposes of termination and severance pay when he is terminated by King Craft in January, 1996?
Was Raymond Burnell constructively dismissed by King Craft in August 1997? If so, is he entitled to count his service with Hearn/Kelly for termination and severance pay purposes?
Issue 1. Was the transaction between the King Craft and Hearn/Kelly a sale of a business for the purposes of section 13(2)?
The Officer found that the transaction between Hearn/Kelly and King Craft was “a sale” under subsection 13(2). King Craft argues that the transaction between it and Hearn/Kelly was merely an asset purchase and not a sale. It points to the fact that the documents refer to an asset purchase and that good will is only valued at $11.00. It also relies upon the fact that it negotiated its own lease arrangement.
The Ministry denies that the transaction was a mere asset purchase. It notes that good will may be undervalued for tax purposes as it cannot be depreciated as fast as hard assets. But as far as the Ministry is concerned the most telling fact of the transaction was that the customer base remained the same. The files and computer archives remained.
Mr. Hearn argues that whether or not a receiver has given notice to employees, the relevant question under section 13(2) is “what changed hands”? In this case practically everything remained the same with the exception of the removal of one press. The premises were the same, the equipment was the same, all the sales staff and the production coordinators remained, in all, 28 out of 49 employees were hired. The same computers were used and the computer data remained the same.
The Board finds that the transaction between King Craft and Hearn/Kelly is a sale of a business for the purpose of section 13(2). King Craft essentially bought and maintained a going concern. It continued the same business with the same customer base, the same computers and computer data and many of the same employees. It hired the former principal of Hearn/Kelly to ensure the continuation of the operation. It used almost all of the same equipment. The sale was contingent on being able to negotiate a lease, but the lease was to ensure it could carry on the business at the same premises. After considering all aspects of the transaction, the Board finds that a sale of a business for the purposes of section 13(2) took place.
Issue 2. Is King Craft liable for vacation pay accrued to the date of the sale by Hearn/Kelly employees whom it subsequently employed?
The Officer found that King Craft was liable for vacation pay owing to 15 employees as a result of the sale.
King Craft argues that the decision of the Supreme Court in Rizzo & Rizzo Shoes, supra, means that all employees are deemed terminated in the event of a bankruptcy and that their right to vacation, termination and severance pay crystallizes at that point or seven days hence pursuant to section 7(4) of the Act. Vacation pay to that date is therefore a debt of the bankrupt company.
The Ministry responds that the decision of the Supreme Court in Rizzo & Rizzo Shoes, supra, was intended to permit employees to make a claim on the estate of a bankrupt employer. It does not refer to, or abrogate in any way, rights that arise in a sale of a business situation under section 13(2). To find otherwise would not be giving the Act the large and liberal construction required for the protection of employees.
The Ministry argues that in this case there was an instrument appointed receiver acting as an agent of the insolvent company in the sale. It was a sale from the insolvent company to the applicant. The receiver itself had nothing to sell. In the alternative, the trustee can be considered the conduit of the sale. (see Metro International Truck, (supra)) The Ministry posits a number of policy reasons why the purchaser should be liable in these circumstances including the inequity in making the purchaser of a non-insolvent company subject to these liabilities but not making a purchaser who buys a company through a receiver liable for the same obligations. The Ministry argues that notices of termination issued by receivers are irrelevant in these circumstances.
Mr. Hearn argues that there is nothing in the decision of the Supreme Court in Rizzo & Rizzo Shoes, supra, which affects the situation of an employee who works continuously through a sale regardless of whether there is a receivership. Mr. Hearn argues that there are a number of scenarios which can occur in a bankruptcy and to have employees rights depend upon whether it is a court or privately appointed receiver, or the bankrupt company itself which sells the business is an absurdity.
King Craft replies that the problem with interpreting Rizzo & Rizzo Shoes, supra, as proposed by the Ministry is that it creates an inequity between the employees whom it hired and those whom it did not. Those who were hired received a greater benefit than those not hired and they should be in the same position vis-a-vis their peers.
The Board has recently had to consider this question in 3226727 Canada Inc. c.o.b. as The Bentley/Agnew Group (Board File No. 3515-97-ES dated July 24, 2000.) In that decision it held that the Supreme Court’s decision in Rizzo & Rizzo Shoes, supra, does not mean that all employees are deemed to be terminated upon a bankruptcy but rather that employees who actually lose their employment as a result of a bankruptcy are entitled to enforce their rights upon termination under the Employment Standards Act. The decision of the Supreme Court and subsections 57(2.1) and 58(1.1) do not mean that employees who remain employed are considered terminated. On the contrary they are covered by the provisions of section 13(2) if the bankrupt business is sold and they continue working. In that decision the Board stated as follows:
The 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”.
Both 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).
However, the Board did not consider the present scenario in which the employees are unemployed for a short time and subsequently hired by the purchaser in Bentley/Agnew Group, supra.
Issue 3. What is the effect of any period of unemployment experienced by the employees prior to being hired by King Craft on its liability under section13(2).
King Craft argues that the bankruptcy occurred on November 18, 1993 and that the sale did not occur until November 29, 1993. At the hearing the parties seemed to agree that the 15 employees were not working during that period but the Board actually has no facts with respect to that question. According to King Craft, vacation pay was payable in those seven days by Hearn/Kelly pursuant to subsection 7(4). King Craft asserts that the debt for vacation pay crystallized on the seventh day which was before its own purchase and therefore remained a debt of Hearn/Kelly. King Craft argues that section 13(2) does not make a purchaser responsible for the debts of the vendor. Furthermore, the employment by the receiver ought not to bridge the gap in employment as the employees were hired by the receiver to perform a specific task. Most of the employees were terminated on November 2 and were rehired by the receiver on November 4 to continue the work in progress only. They were hired on different terms than when they were employed by Hearn/Kelly.
The Ministry argues that there are no time limits included in subsection 13(2). Regulation 327 which does refer to a thirteen week time limit applies to a different section of the Act and so does section 58. However, the Ministry argues that this is an insolvency situation in which nobody knew what was going to happen. It was not known whether the receiver would be able to sell the business or how long it would take and therefore there is no time limit during which a purchaser must hire an employee in order to assume the liabilities in section 13(2).
The Ministry also argues that the Board could find that the employees were hired within the even days set out in section 7(4) as Mr. Burnell’s employment letter, which was the only one available, is dated November 26 with a start date of November 29 and references earlier discussions with respect to his employment. However, Mr. Burnell had not worked since November 2. The Board cannot assume that the other employees also received the same letters on the same date.
Mr. Hearn argues that this aspect of the case does not apply to him as he was offered employment the day before the bankruptcy and was expected to work throughout to preserve the good will.
King Craft replies that as it commenced the business on November 29 that was the date employment begins and is therefore outside the seven day period set out in section 7(4). The document referred to by the Ministry with respect to Mr. Burnell was only an agreement to agree and the lease did not take effect until November 29.
King Craft's obligations with respect to vacation pay owing to the 15 employees arises from the language of section 13(2) and the definition of employee. Section 13(2) says:
“Where an employer sells a business to a purchaser who employs an employee of the employer, the period of employment of the employee with the employer shall be deemed to have been employment with the purchaser for the purposes of Part VII, VIII, XI and XIV”. Part VIII is “Vacation with Pay”. The definition of employee includes “a person who was an employee” and the definition of employer includes “a person who was an employer”. Therefore, in the plain language of section 13(2), a person who is hired by the purchaser who was an employee of the vendor is entitled to count her period of employment with the vendor for certain purposes including accruing vacation pay. In this case the 15 employees were employees of the vendor and were therefore entitled to continue to have their vacation pay accrue and to be paid by King Craft when it became due. The Board notes that although similar issues have been considered by Adjudicators in the past, it does not appear that anyone has considered that the plain words of the statute dictate that the word “employees” in subsection 13(2) must include anyone who was an employee.
- The above interpretation may highlight an uneasy tension between the provisions of sections 57(2.1) and 13(2) in a situation where employees actually are terminated as a result of a bankruptcy (i.e. cease working in the operation altogether) and are subsequently hired by the purchaser. Employees in such circumstances would be entitled to make a claim against the vendor prior to being hired by the purchaser. However, the Act does prevent employees from being paid vacation pay or severance pay which has already been paid (see section 30 and sections 58(9) and 9.1). An employees could possibly claim entitlement to statutory notice of termination or pay in lieu of the notice from the vendor and then from the purchaser if it subsequently terminates her. However, the entitlement to notice by both the former and new employer is not contrary to any policy objective given that both employers have benefited from the employee’s experience and the purpose of the section is to provide notice of the change in employment status. This interpretation is consistent with the large and liberal approach warranted by this remedial legislation.
Issue 4. Was Carl Hearn an employee of Hearn/ Kelly?
The Employment Standards Officer found that Carl Hearn had been an employee of Hearn/Kelly and was therefore entitled to include his period of employment with that company when claiming termination and severance pay when he was terminated by King Craft in 1996. King Craft argues however that as Carl Hearn was the president of the Hearn/Kelly, one of six directors and owned 40% of the business he cannot be considered an employee for the purposes of entitlement to termination and severance pay under the Act. King Craft also relies upon the fact that Mr. Hearn, in his role as owner and director, participated in discussions with it with respect to the future of the company including meeting to discuss the sale. In this case the control exercised by Mr. Hearn shows that he was a director more than an employee.
The Ministry took no position on this aspect of the case.
Mr. Hearn argued that he was entitled to count his years at Hearn/Kelly for the purposes of termination and severance pay when he was terminated by King Craft pursuant to section 13(2). He had been hired by the predecessor of Hearn/ Kelly in 1975 as an employee. He became an officer and shareholder four years later. He argued that what was relevant was that he was an employee at the time of the dismissal. There is no question that he was an employee of King Craft. Once it is determined that an employee is terminated, the Act only requires a calculation of years of service.
Mr. Hearn also argues that ownership of shares does not make him something other than an employee. The issue is whether he is a controlling mind. At the time of termination he was an employee and during his tenure with Hearn/Kelly his main aspect was as an employee. He was only a minority shareholder and only for part of his tenure. He was only one of six directors. The care and management of the company was invested in the Board. Mr. Hearn was a member of the sales staff and drew a percentage of sales as his salary just as the other staff did. He only received 30% of his salary for his managerial duties.
King Craft replies that it is material whether Mr. Hearn was an employee at the time he was hired by it as section 13(2) says “where an employer sells to a purchaser who hires an employee.”
The Board finds that Mr. Hearn was an employee of Hearn/Kelly. Section 13(2) says “where an employer sells a business to a purchaser who employs an employee of the employer”. The definition of employee includes a person who “performs any work for or supplies any services to an employer for wages”. Mr. Hearn performed work for Hearn/Kelly for wages and therefore fits within the definition and is an employee for the purposes of the Act.
Mr. Hearn might have been exempted from certain provisions of the Act, such as hours of work and overtime because of the managerial character of his duties and he might have had certain liabilities as a director. However he fits within the definition of employee for the purposes of section 13(2). He may also fit within the broad definition of employer contained in the Act but the Act does not appear to require a determination that an individual is either one or the other and being an employer does not appear to deprive one of the rights acquired by being an employee. In a number of prior decisions Adjudicators have found that where a director also has a contract of employment for wages he or she is an employee for the purposes of the termination and severance provisions of the Act. (See Re: Crone, supra; Re Algoma Rubber Services, supra and Muddy York Coat Works Limited, November 10, 1981, Egan)
The Board therefore, finds that Carl Hearn was an employee of Hearn/Kelly and was entitled to rely upon his years of employment with that company when he was terminated by King Craft.
Issue 5. Was Raymond Burnell constructively dismissed in August 1997? If so, is he entitled to count his service with Hearn/Kelly for termination and severance pay?
The Employment Standards Officer found that Raymond Burnell was constructively dismissed by King Craft and was entitled to include his employment with Hearn/Kelly in calculating his entitlement to termination and severance pay.
The parties agreed to provide the Board with a package of documents with respect to this matter. They disclose that Mr. Burnell was offered employment with King Craft to begin on November 29, 1993. He had received a record of employment from the receiver on November 2 and had not been employed in the interim. In March 1994, he was confirmed by King Craft as a full-time employee. On September 12, 1995 he became the pre-press supervisor. He worked the day-shift and his hours were 7:00 a.m. to 3:30 p.m. five days per week. He was laid off on May 14, 1997. The notice of lay off indicated that he would be laid off for a period not exceeding thirteen weeks. In August he was recalled to the position of afternoon shift pre-press supervisor. The memorandum offering him the position is dated August 29, 1997. It indicates that his salary will be the same but that he would also be offered a shift premium. However his new hours were 3:30 p.m. to 2:00 a.m., four evenings per week. Mr. Burnell signed the document offering him that position.
Mr. Burnell was offered the position of pre-press supervisor on the evening shift right before his thirteen week lay off was over. In the meantime he had applied for a seven month college course. Mr. Burnell claims that he never accepted the afternoon pre-press supervisor position outright but said that he would give it a try. After trying it for one shift he found that it was not acceptable. He went to work on the evening shift on September 3, 2000. He did not work the whole shift. The next evening he came to work and again did not work the whole shift. On that evening he asked if he could only work three or four hours per night. He said that if that was not possible he would resign. On September 8, 1997 he submitted a letter claiming that he was constructively dismissed.
On September 19, 1997 King Craft responded to Mr. Burnell. It denied that he had been constructively dismissed. It offered him two options, he could either work an eight week notice period at his regular hours or take two weeks pay. If he chose either option he was required to sign a release.
King Craft relies upon the fact that a memo appointing Mr. Burnell to an earlier position of film stripper refers to shift work. However that is not the position he held prior to the lay off. Mr. Burnell denies ever having worked the evening shift in the film stripper job but more importantly, he notes that the memorandum appointing him as the pre-press supervisor (the position he held prior to the lay off) does not mention shift work.
Mr. Burnell claims that he could not work the evening shift because of his wife’s health. She has asthma and sometimes needs the ventilator at night. He also describes how difficult he found it physically to work the evening shift at his age. He claims that he did not accept the offer of eight weeks of day shifts as working notice because he had enrolled in a seven month college course. He started school the day he sent his letter claiming constructive dismissal. It appears that he applied to the college course because he was not sure he would go back to King Craft. However, if he had been given his old job back he said he would have strongly considered returning.
King Craft argues that it need not calculate any period Mr. Burnell worked for Hearn/Kelly because he was terminated by that company on November 2 and did not work until hired by the applicant on November 29. It relies upon the “one week rule”, in section 7(4) so at most, Mr. Burnell would be entitled to three weeks notice.
King Craft also argues that shift work was always part of Mr. Burnell’s job, it was included in his contract and therefore it cannot be constructive dismissal to assign him to another shift. Mr. Burnell accepted the position and signed a document to that effect. He then resigned on the second shift. It is only in his letter of September 8 that he mentions constructive dismissal and asks for eight weeks wages. The company offered him working notice on his old shift. Mr. Burnell would not accept working notice as he had enrolled in a course. It is obvious, King Craft claims, that if he were actually recalled to the day shift he would not have returned.
King Craft therefore argues that it did not constructively dismiss Mr. Burnell as he accepted the job. He then refused to mitigate his loss by working the eight week notice period on his regular shift. King Craft asserts that an employer, once put on notice that certain changes to an employee’s job are unacceptable and considered constructive dismissal, should have an opportunity to address those changes. King Craft notes for example that if it could have accommodated the three or four hour shift Mr. Burnell wanted he would have accepted it, although offering that could be construed as constructive dismissal. The parties were therefore involved in a negotiation about the terms of his employment. The employer offered to return him to the day shift for eight weeks and it did not know why he refused it.
Mr. Burnell said that he did not wholeheartedly agree to take the evening shift position. If he had been asked to return to the day shift position permanently he would have strongly considered it.
The Ministry argues that the logical date to construe that the constructive dismissal took place was September 4. It claims that there can only be working notice in a constructive dismissal with the consent of the employee. The fact that Mr. Burnell commenced the position should not be considered condonation. It should not be held against him that he was prepared to give it a try. The Board should not give weight to the fact that Mr. Burnell used the words “resigned” rather than constructive dismissal on September 4. The issue is really whether there is a fundamental change in the employment relationship. It was the change in the job which caused Mr. Burnell to leave, not other factors.
King Craft replies that if an employee is not prepared to accept a shift change then it should be able to give working notice. If an employee claims constructive dismissal an employer should be able to say “you are right” and put them back in their job.
The Board finds that Mr. Burnell was constructively dismissed. Shift work was never part of the pre-press supervisor job. Changing from permanent days to permanent evenings is a fundamental change to Mr. Burnell’s terms of employment and constitutes constructive dismissal. As the Ministry argued, in such cases there may well be a period in which an employee attempts the new position. Mr. Burnell did initially agree to the change and did briefly attempt to do the job. The fact that he learned it was impossible for him to accommodate the change underlines that the change was so profound as to amount to a constructive dismissal. However, an employer is entitled, if it dismisses an employee, even constructively, to give him working notice under his old terms of employment. There is no reason that the employee must consent if the working notice is in the old job. However, in this case, King Craft did not just give him working notice it offered him the eight weeks employment in his old job as a settlement because it required him to sign a release. King Craft cannot demand a written release in order for an employee to receive the notice to which he is entitled. It cannot claim he refused to work the notice period if it required such a release.
The Board finds that Mr. Burnell was constructively dismissed and for the reasons set out under issues nos. 2 and 3 he is entitled to rely upon his employment with Hearn/Kelly in calculating his entitlement to termination and severance pay.
DISPOSITION
- For all of the reasons set out above the Board hereby affirms Order to Pay No. 49909 and Order to Pay No. 50063. Accordingly, the Board hereby directs that the monies held in trust be paid out to the claimants.
“Laura Trachuk”
for the Board