Northern Exposure

B.C. Court of Appeal addresses termination and severance issues

by Kevin O’Neill, Q.C.

In Canada, in Hall v. Quicksilver Resources Canada Inc., 2015 BCCA 291, the British Columbia Court of Appeal addressed two important termination and severance issues:

1. In the sale of a business, when and how do an employee’s years of service continue to bind the purchaser?
2. What is the proper severance for a “skilled services” employee (not senior management) with 8.5 months of service?

Background

The dispute in Quicksilver arose when Catalyst Paper Corp. closed the Elk Falls pulp mill and sold the site to Quicksilver Resources Canada Inc. At the time of the sale, the plaintiff (KH), 42 years old, was the facilities manager and had 24.5 years’ service with Catalyst. Catalyst and KH negotiated an agreement for 14 months’ pay.

While those parties initially characterized this as a “severance payment,” Catalyst ultimately replaced “severance” with “lump sum payment” after KH requested the change to allow him to consider his “best options for the taxable portion” of the payment. Catalyst also asked KH to sign its “standard form of release.” For unexplained reasons, KH did not sign the release at the time he signed the agreement, and it appears that Catalyst did not immediately follow up.

KH then accepted employment with Quicksilver. His employment agreement with Quicksilver did not refer to his past service with Catalyst, and it was silent as to his severance entitlement upon a without-cause termination. Shortly after starting work for Quicksilver, Catalyst sent KH another form of release. KH signed this second release without objection.

At the trial level, the British Columbia Supreme Court found that the 14-month payment was not severance, but rather a “retention bonus.” The court found that Quicksilver had hired KH recognizing his past service, applying the principles set out in Sorel v. Tomenson Saunders Whitehead Ltd. (1987), 15 B.C.L.R. (2d) 38 (C.A.).

This 1987 B.C. Court of Appeal decision established the principle of deeming service continuous when a purchaser acquires a business as a going concern and service with the vendor is not addressed in the purchaser’s agreement with the employee. As KH was now considered a long-service employee of Quicksilver, the court awarded him 18 months’ severance.

In the alternative, the court said that if it was wrong about KH’s employment being continuous, his appropriate severance would be seven months’ pay, even though he only had 8.5 months of service with Quicksilver. The court took special notice of KH’s “managerial responsibility” and the fact that he was “critical for the employer’s needs.”

Note that if the court had found that Catalyst had, in fact, paid severance to KH, it would have been inequitable to allow a “double dip” by also having Quicksilver pay severance for that same service.

Decision

The B.C. Court of Appeal allowed Quicksilver’s appeal on all disputed points. According to the court, the language of KH’s agreement with Catalyst and the “factual matrix” clearly demonstrated that KH had received a severance payment from Catalyst. Further, the court found that the second release, which clearly refers to receipt of severance, was binding as KH’s past service had been fully recognized in the payment he received and he signed the release in consideration of the “settlement.”

The court explained that the principles in Sorel depend on whether the business in which the employee is working is intended to be carried on as a going concern after the sale. As Quicksilver had not acquired any business as a going concern, the Sorel principles not did apply.

Additionally, the Court of Appeal confirmed that for a short-service, skilled employee in his or her 40s, the normal severance is two to three months. The court awarded KH three months’ severance.

Lessons for employers in Canada

For vendors: Make sure any termination agreement says exactly what you mean: Severance is severance and ensure that is clear. Make sure both the agreement and the release are signed at the same time, and if they are not pursue the matter.

For purchasers: Ensure that you specifically address whether past service is recognized or not in any agreements with employees who worked for the vendor. As well, just to be sure, put in a specific severance formula. If you don’t, the Sorel principles could cost you a lot of money.

For all employers: While two to three months’ severance for a short-term, senior employee is good news, it would be better yet to have a notice/severance amount in an employment agreement. Quicksilver had an employment agreement with KH that did not address either recognition of past service or amount of notice/severance. While Quicksilver was ultimately successful in limiting the amount of severance, prolonged and, no doubt, costly litigation resulted from not addressing these two issues initially.