1489-00-ES Bruce Edmeades Sales Limited, Applicant v. Mark Lichti, Barry Nevin and Ministry of Labour, Responding Parties.
Employment Practices Branch File No. 60007136
BEFORE: Laura Trachuk, Vice-Chair.
APPEARANCES: Jack Nanson, Larry Helm and Ian Walker for the applicant; Mark Lichti, John Lloyd and Sonya Lichti for Mark Lichti; Barry Nevin on his own behalf; M. Klein for the Ministry of Labour.
DECISION OF THE BOARD; May 28, 2001
1This is an employer request for review of Order to Pay No. 55285. The request for review is filed pursuant to section 68 of the Employment Standards Act (referred to as the "Act").
2The Employment Standards Officer found that the applicant, Bruce Edmeades Sales (referred to as "BES") and Cassidy's Ltd. (referred to as "Cassidy's") should be treated as one employer pursuant to section 12 of the Act. Cassidy's went into receivership in December 1999. The Officer therefore found that the applicant is liable for termination and severance pay owing to Mark Lichti and Barry Nevin. The Ministry of Labour subsequently took the position that Mr. Lichti and Mr. Nevin were entitled to termination and severance pay from the applicant pursuant to section 13 of the Act. The applicant has not objected to the Ministry relying upon a different ground of liability to the one used by the Officer. However, the applicant denies that it is liable for termination and severance pay for Mr. Lichti and Mr. Nevin pursuant to any section of the Act.
Facts
3The relevant facts are not really in dispute. Mr. Lichti and Mr. Nevin were originally employed by 302123 Ontario Ltd. O/A Sanitation Maintenance Systems (referred to as "SMS"). Mr. Lichti commenced employment in 1986. He was also a director and shareholder of the company. Mr. Nevin commenced employment in April 1994. SMS was in financial difficulties and in May of 1998 Cassidy's purchased the company and employed Mr. Lichti and Mr. Nevin. Cassidy's also lost money with the SMS part of its business in Stratford. Therefore, sometime between January and March 1999 it entered into a "strategic alliance" with BES. BES offered employment to Mr. Lichti and Mr. Nevin in March 1999. They commenced employment with BES on April 5, 1999. Mr. Nevin was terminated by BES on July 27, 1999. Mr. Lichti was terminated on September 30, 1999.
4Cassidy's was a restaurant equipment and smallware business. SMS was a sanitation supply business which supplied paper products, chemicals, detergent etc. for cleaning. By purchasing SMS, Cassidy's acquired a sanitation division in Stratford. It found a purchaser for the building housing the SMS warehouse and showroom and then leased it from the purchaser. It acquired the SMS inventory, clients and employees. After SMS was purchased by Cassidy's, the sales representatives sold the same products as before, plus Cassidy's warewash system and smallwares and restaurant supplies. BES is a "broadline food service distributor". It sells and distributes food as well as food service products. It was a competitor of Cassidy's in the Stratford area prior to the alliance. Mr. Nevin was a sales representative out of Cassidy's Stratford location. Mr. Lichti had a more administrative role but also did some sales. Mr. Lichti, Mr. Nevin and the two other Cassidy's sales representative were hired by BES as sales representatives. After being hired by BES the sales representatives sold the same products as before plus all of the BES line.
5The strategic alliance between BES and Cassidy's involved BES taking over the SMS part of Cassidy's business in Stratford. Cassidy's continued to lease the Stratford building and charged BES for the use of it. It invoiced the inventory in the warehouse to BES but it does not appear that money changed hands. The invoice was reversed by way of a credit note when BES also decided not to continue operating out of the location. BES provided a sales force and distribution for the SMS product. BES incorporated Cassidy's customer accounts into its database. Cassidy's continued to use the customer account list as well for its smallwares business. BES asked all of the former Cassidy's sales representatives to identify customer accounts according to volume of sales and priority. The BES minimum order policy was higher than Cassidy's, so some of the smaller accounts could no longer be serviced. Customers had to file applications to qualify for credit from BES. The sales representatives were given some of the existing BES accounts in their territories. BES also started a retail outlet at the Stratford location.
6Cassidy's continued to operate its restaurant equipment and smallwares business elsewhere until it filed for bankruptcy. BES only operated out of the Stratford location until September 1999. Cassidy's subsequently sublet the building to a different company. According to the applicant's witnesses, the alliance between it and Cassidy's was never committed to paper. There are no purchase agreement or other contractual documents between them.
7Larry Helm, the applicant's president and C.E.O., testified about the alliance. He explained that equipment and smallwares was only 2% of the applicant's business. Cassidy's had a smaller customer base in the area than BES did. However, the Cassidy customers had the potential to buy more product from BES. BES and Cassidy's agreed that since they had similar customers, BES would hire the Cassidy's sales representatives and train them on the BES technology and product. The plan was to build on the sales representatives' customer base. Mr. Helm advised that also under the alliance, BES would buy product from Cassidy's to take advantage of its buying power. (Cassidy's was the biggest equipment and smallwares supplier in Canada.) BES would also take advantage of Cassidy's capacity for design and installation. The alliance also involved making the Stratford location a cash and carry outlet for the applicant's broad range of product. BES paid rent to Cassidy's for the location.
8On March 4, 1999 the vice-president of Cassidy's advised Mr. Lichti and Mr. Nevin that their employment was being terminated. At the same meeting, the applicant's human resource manager offered them employment. The positions were subject to different terms than they had with Cassidy's. Mr. Lichti and Mr. Nevin accepted the offers and their employment with the applicant commenced on April 5, 1999. They continued to work for Cassidy's for the month between March 4 and April 5, 1999. They did not receive any termination or severance pay from Cassidy's. The other Cassidy's staff in Stratford, including Mr. Lichti's wife, were terminated by Cassidy's. They received a month's notice as well as applicable termination pay. Only the outside sales staff were hired by BES. In the letters offering the positions, BES advised Mr. Nevin and Mr. Lichti that they would be considered new employees but would be given credit for experience for vacation and the start of paid benefits. The letter also said "As part of the alliance, Bruce Edmeades will take over the operation of Cassidy's former sanitation division in Stratford (formerly SMS) and operate as a branch of Bruce Edmeades Sales Ltd.". Mr. Lichti and Mr. Nevin signed the letters accepting the offer. Mr. Lichti and Mr. Nevin were provided with records of employment from Cassidy's.
9Mr. Lichti was given a vehicle when he was terminated by Cassidy's which he said was worth $2,000.00. He explained that he was given the vehicle as compensation for the loss of his investment.
10Mr. Lichti was given notice of termination by BES on August 23, 1999. Notice was to take effect on September 30, 1999. Mr. Nevin was terminated on July 27, 1999 and given one week's pay in lieu of notice.
11Mr. Lichti and Mr. Nevin reported to Ian Walker, the BES human resources manager. However, Mr. Nevin testified that he also continued to answer to Mike Vivian, Cassidy's sales manager, for the food service line. Mr. Nevin said that Mr. Vivian was present when he was terminated by BES.
12It was clear from their testimony and argument that Mr. Lichti and Mr. Nevin feel that the applicant never gave them a fair opportunity to build their sales before terminating them.
13The offer of employment signed by Mr. Lichti shows that he was paid $30,000 per year yet the Officer used a figure of $40,000 per year in making his calculation of monies owing. No explanation was provided for that discrepancy in the Officer's Narrative Report.
Submissions of the Parties
14The Ministry of Labour does not abandon the claim that BES and Cassidy's are related employers pursuant to section 12 of the Act. However, it submits that the evidence more clearly supports a finding that the applicant is a successor employer to Cassidy's pursuant to section 13 of the Act. It argues that the applicant cannot rely upon the notice of termination provided by Cassidy's in March 1999 and relies upon Equitable Management Ltd. (1990) 1990 CanLII 6973 (ON CTGD), 75 O.R. (2d) 506 for that proposition. The Ministry acknowledges however, that the Officer does not appear to have taken into account the actual notice that Mr. Lichti was given by BES. The Ministry also refers the Board to Charterways Transportation Limited, [2000] OLRB Rep. March/April 413.
15The applicant submits that there is no basis for a determination that BES and Cassidy's are related pursuant to section 12. Furthermore, there was no arrangement, the intent or effect of which, was to defeat the purposes of the Act.
16The applicant also denies that there was a sale of a business pursuant to section 13 of the Act. It notes that section 13 refers to a seller and a purchaser. In this case there is neither. No money, product or personal or real property changed hands. The applicant did acquire the customer lists, however, it claims that it already knew the customers because it had distributed to them in the months preceding the hiring of the sales representatives. It asserts that this situation is distinguishable from Charterways, supra, as in that case the Town of Ajax occupied the very business it had formerly contracted to Charterways. BES, on the other hand, did not take over any business. Charterways was prepared to continue to operate the business. In this case nobody was prepared to do so.
17The applicant also argues that if the Board were to find that it was liable pursuant to section 12 or 13 it should vary the Order to Pay. It claims that the evidence does not support Mr. Nevin's claim that he worked for Cassidy's/ SMS for five years. It maintains further that the Board should take into account the notice it provided to Mr. Lichti on August 23, 1999 and the period of notice given to Mr. Nevin and Mr. Lichti by Cassidy's in March 1999 before they commenced employment with the applicant. It also asks the Board to take into account the car given to Mr. Lichti. It says that the Board should consider the contracts signed by Mr. Lichti and Mr. Nevin acknowledging that they were new employees of the applicant. It argues further that if money is found to be owing to Mr. Lichti it should be based on the amount he was being paid at termination as set out in the contract he signed i.e. $30,000.00 per annum not $40,000.00.
18The applicant denies that the principles in Equitable Management, supra, apply because the precondition of a sale of the business has not been met.
Decision
19Section 12 and 13(1), (2) and (3) of the Employment Standards Act provide as follows:
- (1) Where, before or after this Act comes into force, associated or related activities, businesses, works, trades, occupations, professions, projects or undertakings are or were carried on by or through more than one corporation, individual, firm, syndicate or association, or any combination thereof, and a person is or was an employee of any of such corporations, individuals, firms, syndicates or associations, or any combination thereof, such corporations, individuals, firms, syndicates or associations, or any combination thereof, shall be treated as one employer for the purposes of this Act, if the intent or effect of the arrangement is to defeat, either directly or indirectly, the true intent and purpose of this Act.
(2) The corporations, individuals, firms, syndicates or associations treated as one employer shall be jointly and severally liable for any contravention of this Act and the regulations.
- (1) Definitions – In this section,
"business" includes an activity, trade or undertaking or a part or parts thereof; ("enterprise")
"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.
20The evidence does not support a determination that Cassidy's and the applicant should be treated as one employer for the purposes of the Act. The two companies decided to cooperate rather than compete for the SMS part of Cassidy's business in the Stratford area but they were not carrying on an associated or related activity. At no time were Cassidy's and the applicant's businesses associated or related. They have no common ownership. They were not involved in a joint venture. Cassidy's continued to operate completely separately from BES throughout the rest of the country during and after the alliance.
21However, the Board does find that a sale of part of a business has occurred between Cassidy's and the applicant pursuant to section 13 of the Act. Cassidy's transferred the SMS part of its business to BES. Although it is a rare situation in which a "sale" occurs with such a paucity of documentation, the language of the section is expansive and the facts of this case fall squarely within it. BES clearly perceived itself to be taking over the SMS part of Cassidy's business and it said so in the offers to the sales representatives. It acquired the SMS accounts and the sales representatives who were familiar with those accounts. BES also acquired the SMS inventory, if only temporarily, and the location to warehouse it and to set up a retail sales outlet. The SMS accounts, sales representatives, inventory and warehouse were a definable part of the Cassidy's business. That was most of what it had itself acquired two years before.
22What is significant in this case, is that the acquisition of the ability to access Cassidy's SMS customers was the core of the agreement between it and BES. That meant acquiring the customer account lists and the sales representatives who knew them and the product. This is a case in which the employees were clearly treated as a part of a business and were themselves transferred as part of a transaction. This arrangement was created by Cassidy's and BES. Representatives of both companies met with Mr. Nevin and Mr. Lichti together to advise them of the termination by one company and the hiring by the other. Yet neither company has taken responsibility for severance pay. Cassidy's purported to terminate Mr. Lichti and Mr. Nevin and to provide some notice of termination but it did not pay any severance. However it did make the statutory payments to the other employees it terminated who were not hired by the applicant. That suggests that it was anticipated that section 13 would apply to the sales representatives. BES referred to Mr. Lichti and Mr. Nevin as new employees in the offer of employment yet it did recognize their experience for the purposes of vacation entitlement which suggests some recognition of continuity.
23For all of the above reasons the Board finds that a sale of a business for the purposes of section 13 has occurred. However, as noted above there are also outstanding issues with respect to the amount of termination and severance pay owing to Mr. Lichti and Mr. Nevin.
Mr. Nevin
24The applicant suggests that the evidence casts some doubt on the date upon which Mr. Nevin was hired. It claims he is therefore not entitled to severance pay. The Board finds that the evidence was insufficient to prove on the balance of probabilities that Mr. Nevin did not work for five years for SMS/Cassidy's and BES. The Board therefore finds that he was entitled to severance pay.
25The applicant also argues that the Board should subtract the one month's notice provided by Cassidy's from the termination pay in lieu of notice assessed by the Officer. The Divisional Court rejected this interpretation of section 13 in Equitable Management, supra. It stated as follows:
Section 13(2), when broken into its constituent elements, sets up two preconditions to the operation of the section and then provides two results which flow from those preconditions being met. The preconditions are: (1) that an employer sells his business to a purchaser; and (2) that the purchaser employs an employee of the employer. The two results which flow when these preconditions are met are that: (1) the employment of the employee is not terminated by the sale; and (2) the period of employment of the employee with the employer is deemed to have been employment with the purchaser for the purposes of Parts VII (public holidays), VIII (vacations), XI (pregnancy leave), and XII (notice of termination) of the Act. As long as the two preconditions are met, the deeming provision is operative and the employee's total period of employment is deemed to have been employment with the purchaser for the purposes set out. In this case, the two preconditions have, on the facts, been met. Talsma's employer sold its business to a purchaser and the purchaser employed Talsma who was an employee of the employer up to the time when the business changed hands on December 31, 1987. Accordingly, on a straightforward reading of s. 13(2) and giving it its plain meaning, the employment of Talsma throughout his period with the business is deemed to have been employment with the purchaser in calculating the length of his notice of termination entitlement. Therefore, the notice of termination given by Lehndorff is completely irrelevant to a determination as to the applicability of s. 13(2) and the referee erred in law in basing his decision on this irrelevant factor.
It is further my view that this interpretation is consistent with the overall purpose and intent of the Act as well as the purpose and intent of s. 13(2) itself. The purpose of Part XII of the Act is to ensure that employees are given appropriate notice of termination prior to dismissal, the length of notice being dependent upon the seniority of the employee. The purpose of s. 13(2) is to preserve that protection in situations where a business is sold but the employment of an employee is continued with the new purchaser. Thus, the purchaser obtains the benefit of having an employee with some seniority in the business and the employee obtains the benefit of keeping that seniority and having it taken into account when determining how much notice of termination the purchaser must give. If the protection of s. 13(2) could be avoided merely by the vendor giving a written notice of termination at the time of the sale, the purpose of s. 13(2) would be completely thwarted.
26The facts before the Board are on all fours with Equitable Management, supra, and the decision by the Court is equally applicable here. The Board will not reduce the amount assessed by the Employment Standards Officer by the amount of "notice" provided by Cassidy's prior to Mr. Nevin and Mr. Lichti being employed by BES.
Mr. Lichti
27There are a number of other issues raised with respect to the amount assessed in favour of Mr. Lichti. BES claims that the amount assessed should be set off against the value of the truck he was given. Section 8 of the Act does not permit such a set off. In any case, it was Mr. Lichti's evidence that the truck was intended to be some compensation for the loss of his investment in the business.
28The applicant makes the same argument with respect to reducing the assessment for Mr. Lichti by the "notice" provided by Cassidy's. That argument is rejected for the same reasons as noted above in paragraph 25 and 26 above.
29There are however, two matters which do result in an adjustment of the monies owing to Mr. Lichti. Mr. Lichti did receive five weeks and two days notice from the applicant (August 23, 2000 to September 30, 2000). However, the Officer's assessment of termination pay in lieu of notice was based on an entitlement to eight weeks notice and the assumption that none was given. The assessment for pay in lieu of notice will therefore be reduced by five weeks and two days.
30The Officer also used an annual salary of $40,000.00 instead of the $30,000.00 reflected in Mr. Lichti's offer of employment to make his calculation. The assessment should be adjusted to reflect Mr. Lichti's real salary.
31The Board therefore finds that Mr. Lichti is entitled to be paid two weeks and three days termination pay in lieu of notice plus vacation ($1,559.99) and 13 weeks severance pay ($7,499.96) for a total of $9,059.95. The Officer's award for Mr. Lichti had been reduced to $10,000.00, the statutory maximum, so the reduction in the assessment is $940.15 plus the 10% administrative fee.
DISPOSITION
32The Board hereby varies the Order to Pay and directs that the wages paid to the "Director in Trust" in relation to this matter be disbursed as follows:
to the applicant $1,034.16 plus applicable interest;
to Mark Lichti $9,059.95 plus applicable interest; and
to Barry Nevin $3,997.39 plus applicable interest.
"Laura Trachuk"
for the Board