Stuart Rudner here with another Rudner Law employment law update.
In my practice, and especially when I’m acting as a mediator, I often hear people say that they’d rather bankrupt the company than pay the plaintiff the severance that they’re seeking. I’ve learned over the years to take that with a very generous helping of salt because it almost never actually happens. However, one company apparently tried to do just that a couple of years ago. In Alberta the case went to court – the case name is Wisser v CEM International Management Consultants Ltd.
To make a long story short, Mr. Wisser was dismissed from his employment in 2015. In 2016, the directors of the company incorporated a new entity, sold all of the assets to the new company, and then began operating the same business, under the same business name, through the new corporation. So, not surprisingly Mr. Wisser decided to pursue his entitlement to severance and what he did was that he brought a claim for oppression under the Alberta Business Corporations Act in addition to his regular wrongful dismissal claim.
Here’s the interesting part. First of all, the court found that after his seven and a half years of employment he was entitled to 10 months of severance, so as a side note, another reminder that it’s not one month per year. Then, he made the argument that the actions of the directors were essentially oppressive, and that he should be entitled to have the new company pay his severance. As the court wrote and I will quote here, “one only need put oneself in Mr. Wisser’s shoes for a moment to consider how unfair it would feel to advance a well-grounded claim for severance only to watch the corporate directors transfer the remaining assets of the company to themselves, and then create a new company to carry on the same business, but without any obligation to pay you the severance you were entitled to from the outset”.
So was the behavior oppressive? That quote from the court certainly seems to suggest it was. So again, reminder, they were served with a wrongful dismissal claim, they then incorporated a new entity, they moved all the company’s assets to the new entity, they rehired many of the same employees, they operated in the same field, performed the exact same services. As the court said, if their intent was not to defeat a claim from the plaintiff, there was no plausible explanation for their decision to incorporate a new entity. So the court found that he was entitled to 10 months of pay from the new company.
Interestingly, although Mr. Wisser sought punitive damages, the court chose not to award them, and I suspect that many judges would have found that this behaviour warranted punitive damages, but to summarize what these directors did in order to simply avoid paying Mr. Wisser his fair severance, they spent time and money setting up an entirely new company to do the exact same work, they spent time and money fighting a lengthy court battle, they ended up paying severance anyway, and of course, because they were losing party in court they had to pay Mr. Wisser a portion of his legal fees. This was, to say the least, quite an expensive lesson.
So to anybody watching, if you’re an employer thinking that you can avoid your severance obligations by bankrupting the company and starting a new one, think twice. If you’re an employee who is being threatened that if you don’t accept a minimal severance amount the company is going to go bankrupt and you’ll get nothing, don’t assume that’s going to work. And get proper legal advice! We can help employers by drafting contracts and using other tools to minimize their severance costs, and we can help employees to ensure that they get whatever they’re entitled to.
Either way, we’d be happy to help so feel free to reach out to us. That’s all for today, thanks for tuning in.
