Employee Wins Despite Corporate Shell Game
Wisser v CEM International Management Consultants Ltd, 2022 ABQB 414, (Hollins, J) is a new decision from the Alberta Court of Queen’s Bench where a dismissed employee was able to get a reasonable notice (severance) award of 10 months against not only the corporation he had actually worked for, but also against the directors personally and against another separate corporation.
This case has quite a few interesting little pieces to it, especially for an employment law practitioner.
Below are the pertinent facts found by the Alberta Court of Queen’s Bench:
- The plaintiff was employed as an employee of the employer for a few years, at which point the employer and employee signed an “independent contractor” agreement and he continued to work there as a Business Coach for 18 months under that particular agreement
- The parties switched back to calling it an employment relationship for the last 3.5 years, but the plaintiff’s job duties and title remained the same
- The employer terminated the employment relationship on March 19, 2015, bringing the total duration of the working relationship to about 7.5 years
- After termination of employment, the employer stopped operating the corporation and allowed its business to be struck from the corporate registry (lapsed, so, no longer in business). The directors of that employer started up a new corporate entity which was a similar business to the one that had been struck
- The employee sued the employer, the directors, and the new corporate entity the directors started, seeking 15 months reasonable notice (severance) from any and all of them
- Part of the defense was that the employee had been an “independent contractor” for several years in the middle of his employment, he was an “independent contractor”, so those years should not count in the severance calculation
Part of the defense was that the new corporate entity was not directly related to the original one (in a legal sense) and could not be liable, and that the directors had no personal liability.
Analysis / Conclusion
Justice Hollins considered the employer’s argument that the plaintiff was an “independent contractor” for a period of 18 months in the middle of the working relationship of 7.5 years. The court noted that although the parties signed a contract which showed a clear intention of independent contracting relationship and the plaintiff had been issuing invoices for time worked during that period, there was no change in his job description, reporting structure or level of supervision, and the relationship was exclusive.
The court found that the Plaintiff had been neither an “independent contractor” or a true “employee” during that 18 month period in the middle, but a “dependent contractor”. From there, the court found that the whole period of the relationship would count towards the plaintiff’s severance calculation, without any break due to the period he was allegedly an independent contractor.
In calculating the period of reasonable notice (severance) the employee was entitled to, the court noted that plaintiff was 63 years old, he was not senior management or a key employee, and he worked there for 7.5 years. In the result, the court awarded him 10 months’ reasonable notice (severance).
Justice Hollins then went in to the challenging issues of: (1) was the new corporation be liable for the severance? and (2) were the directors liable for the severance?
First, on the issue of whether the new corporation was liable, the court found that it was, reasoning as follows:
- The plaintiff qualified as a “complainant” with an oppression remedy claim within the meaning of the Alberta Business Corporation’s Act because he was a long service employee to a small company, and the only outstanding legal claim against the company when it stopped operating was that of the plaintiff’s
- The plaintiff had a reasonable expectation that the corporation’s business and assets would not be unfairly restructured to benefit management at his expense
- The new corporation took all the benefits of the previous corporation, such as its intellectual property, goodwill and management experience, but did not take over the obligation to this plaintiff employee
- Therefore, his claim using the oppression remedy was valid against the new corporation
Second, on the issue of whether the directors were liable to the plaintiff, the court found that they were, reasoning as follows:
- There is a higher threshold required to establish personal liability against directors under the oppression remedy than that required to hold the corporation liable
- These two directors were acting in their capacity as the only two directors and shareholders of the corporate employer when they transferred the assets to themselves, ceased the operations, started up similar operations under the same trade name but with a new corporate entity with themselves as directors and majority shareholders again
- Those directors continued to enjoy profitability of the new company but without regard to the interests of their former employee (the plaintiff) who brought his successful claim forward in a timely fashion
- The directors were personally liable for the severance award.
The reasonable notice assessment of 10 months is around the typical range for a case like this.
The fact that the plaintiff was given full credit (for severance analysis) for the period that he was under an independent contractor agreement is significant. It is not a new idea, but there is mixed caselaw on this point and this particular case favors plaintiffs quite strongly on that point.
The assigning of liability to the new corporation and the directors in this case should be gratifying for anyone who has ever had to play against this kind of corporate liability shell game. That game can be frustrating and can have what seem like very unfair results in some cases.
That said, this case will likely set off some alarm bells for directors. There are not very many employment cases in Alberta (or elsewhere) that have held directors personally liable for a substantial severance award, so this case is worth being aware of for employers and legal counsel.
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