Archive for August, 2011

Are you buying a business? Do you want to continue the business with the same employees? Success of the business may be due to the efforts of its excellent employees and you as a buyer may want to continue their employment in the hopes of attaining continued success in the business. Alternatively, you may be buying an unsuccessful business with a view to, among other things, reorganizing its workforce to make the business more financially viable or profitable. In either scenario, what obligations, if any, do you have to the employees of the seller under the Employment Standards Act (“ESA”), if you continue their employment but later terminate their employment without cause?

Section 97 of the ESA is instructive in such cases. It states:

Sale of business or assets

97 If all or part of a business or a substantial part of the entire assets of a business is disposed of, the employment of an employee of the business is deemed, for the purposes of this Act, to be continuous and uninterrupted by the disposition.

 

Under section 97, if a buyer continues the employment of the employees without any interruption, the buyer will assume the role of an employer and be required to assume all of the obligations and liabilities of the seller vis-à-vis the employees under the ESA including, but not limited to:

(i)                  any outstanding wages due to employees (including those that became due prior to the sale);

(ii)                statutory holiday based on the total number of days they worked for both the seller and buyer and the wages they earned with both;

(iii)               vacation and vacation pay based on the employees’ start dates with the seller;

(iv)              notice of termination or pay in lieu of notice under section 63 based on the employees’ past service with the seller;

 

It should be noted that one of the requirements for triggering section 97 of the ESA is a disposition of all or part of a business. While the ESA does not define the word “dispose” or any variation of it, the Interpretation Act defines it very broadly as follows:

“dispose” means to transfer by any method and includes assign, give, sell, grant, charge, convey, bequeath, devise, lease, divest, release and agree to do any of those things;

 

Another important requirement for triggering section 97 is that the employee must be an employee of the business on the date the business is being disposed of by the seller. If the seller has already terminated the employee’s employment in advance of the disposition of the business, even if only by a single day, then the buyer who subsequently offers employment to the employee will not be viewed as having continued the employee’s employment. Instead, the employer will be viewed as having offered the employee fresh or new employment with a new start date for the purpose of the ESA. In such case, the buyer will not be saddled with additional liability associated with the employee’s past service with the seller for calculation of, for example, termination notice, statutory holiday, vacation or vacation pay.[1]

Therefore, as a buyer of a business, if you have, for whatever reason, decided to retain employees of the seller but you do not wish to assume associated liabilities of such decision then you should make it a term of your contract of purchase that the seller will terminate the employment of all its employees at least one day before the disposition of the business to you. You should also make it a term of the contract that the seller will pay its employees all outstanding wages, termination pay and any other obligations under the ESA at the same time.

Alternatively, if you wish to continue the employment of all employees without any interruption or if the seller is requiring you to do so, you may consider negotiating with the seller some discount in the purchase price of the business to offset, some or all, liabilities you are assuming in continuing the employment of the sellers employees. In deciding what amount discount you should ask the seller, you may want to consider any outstanding wages due to the employees (earned before the date of disposition and not paid); your increased obligations to the employees for statutory holiday, vacation and vacation pay; and your increased obligation to the employees for notice of termination or pay in lieu of notice; and any other related liabilities or obligations.

It is also important to note that while the discussion here mainly focuses on the buyer’s obligation under the ESA for continuing the employment of the seller’s employees at the time of purchasing the latter’s business, there is also a potential common law obligation for severance you, as a buyer, may be assuming. For example, if you continued the employment of a long-term employee in her mid or late 50’s who had, at the time you purchased the business, been in the employ of the seller for 20 years, but subsequently (may be a few months later) you decided to terminate her employment without legal cause, you will be exposed to a significant financial liability. While under the ESA-section 63- the maximum termination pay or notice you will be required to give the employee is 2 months, the employee will likely not walk away happily with only 2 months notice or wages. She will surely consult legal counsel who will indubitably inform her that she could obtain significantly more (possibly closer to 10 times that amount depending on various factors including her age, position at work, number of years worked including the time she worked with the seller). As with the alternatives you, as a buyer, have to protect yourself from liabilities and obligations under the ESA when continuing the employment of a seller’s employees, you have the same alternatives to protect yourself from any common law severance obligations.

You may also consider negotiating with the seller, in advance, a term in your contract of purchase that holds the seller responsible for common law severance obligation for each employee you employ, if you dismiss him or her during the first year of employment after you take ownership of the business. You may also require the seller to deposit the full (or other negotiated) amount of the potential severance liability in escrow for you to draw on during the negotiated period and whatever balance is remaining at the end of the period to be returned to the seller. You may also employ the same option to protect yourself from any financial liability you assume under the ESA.

---

[1] See Tekmo Industrial Design Ltd. dba Budget Brake & Muffler, BC EST #D170/03

Tags: business, buying, Contracts, liability, selling, severance, vacation

The Employment Standards Act (“the Act”) delineates the minimum standards that apply in most workplaces in British Columbia. It governs the employment of all employees -casual, probationary or temporary- within provincial jurisdiction, whether employed in a full time or part time capacity.

The Act will not apply where the employee is a person excluded from the provisions of the Act under Employment Standards Regulation (“the Regulation”) such as doctors, lawyers, architects and others whose professions are specifically regulated by provincial legislation. Also other non-professionals, under specific circumstances, are excluded from the application of the Act. These include, but are not limited to, persons engaged in government sponsored work programs, sitters, and newspaper carriers.

The Act also does not apply to employees whose work falls within federal jurisdiction such as banking, defence, interprovincial or international transportation, interprovincial and international shipping, air transport as well as employment with the federal government and crown corporations.

If you are or have been a director or officer of a corporation within provincial jurisdiction, it is important that you understand your potential exposure under section 96 of the Act. Section 96(1) states:

 

Corporate officer’s liability for unpaid wages

96 (1) A person who was a director or officer of a corporation at the time wages of an employee of the corporation were earned or should have been paid is personally liable for up to 2 months’ unpaid wages for each employee.

 

Under section 96(1) each director or officer of the corporate employer is liable personally to pay up to a maximum of two months’ wages for each employee, even where more than two months’ wages is owed.

This section only comes into play where the employee successfully lodges a complaint under the Act against her corporate employer for the latter’s failure to pay her wages and the Director of Employment Standards issues a determination against the employer which determination is not satisfied by the employer. In such case, the Director of Employment Standards will employ section 96(1) to issue a determination against one or more directors or officers of the corporate employer to obtain payment of wages owed to the employee by the corporate employer.

The director or officer, to be liable under section 96(1), must have been a director or officer of the corporate employer, at the time the wages were earned or should have been paid by the corporate employer.

It is also important to note that where there is more than one director or officer, nothing in section 96(1) or in any other section of the Act requires the Director of Employment Standards to apportion, pro-rate or divide the liability for wages owed to the employee between the directors or officers[1].

Where the employee is owed more than two months’ wages, the Director of Employment Standards may issue a determination against each director and officer of the corporate employer for two months wages. Just because one of the Director’s or officer’s pays the employee two months’ wages under a section 96 determination does not extinguish or discharge the liability of other directors and officers under their section 96 determinations, since the employee is still owed wages. In such case, since the Director of Employment Standards is not required to collect equally from all directors and officers, he may collect from the other directors or officers only that which is necessary to pay the balance of wages outstanding and no more. For example, if the employee is owed 3 months’ wages, once the director has collected from the first director 2 months’ wages, he may only collect one additional month’s wages from the second director.

What constitutes wages for the purpose of section 96? Wages, under section 96, refers to normal wages including applicable vacation pay. It does not include length of service, termination pay or money payable in relation to individual or group terminations, if the corporation is in receivership.[2]

Directors and officers are also not personally liable for (i) wages of an employee if the corporate employer is subject to action under section 427 of the Bank Act (Canada) or to a proceeding under an insolvency Act[3], (ii) vacation pay that becomes payable to an employee after they cease to hold office[4], or (iii) money that remains in an employee’s time bank after they cease to hold office[5].

Pursuant to section 45 of the Regulation, directors and officers of charities are exempt from the liability created in section 96 of the Act, if they only receive reasonable out-of-pocket expenses and no other remuneration for services performed for the charity. If you are not such a director or officer and section 96 of the Act applies to you, you may want to ask the corporate employer whose Board you are serving on if they have a directors and officers “error and omissions” insurance that sufficiently protects you from such liability.  Such enquiry is advisable in advance of getting on the Board of any corporate employer.

 

 

---

[1] Rajinder Brad, a Director or Officer of Skynet Travel Inc., BC EST #D056/07

[2] Section 96(2)(a) of the Act

[3] Section 96(2)(b) of the Act. Section 1 of the Act defines “insolvency Act” to mean “Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) or the Winding-up and Restructuring Act (Canada)”

 

[4] Section 96(2)(c) of the Act

[5] Section 96(2)(d) of the Act

Tags: Bankruptcy and Insolvency Act, director liability, employee, employment stadards, employment stadards act, insolvency, officer liability, wages

The importance of careful and accurate drafting of business contracts cannot be stressed enough.  However, as careful as a party may be in drafting the contract and as clear as the contractual terms may appear to the parties at the time they are signing the contract, at some point during the operation of the contract, there may arise a dispute between the parties as to the meaning of an ambiguous term in the contract-a term that is open to more than one meaning.  What is the court to do in such case?

The British Columbia Court of Appeal, in a quartet of cases – Grace Residences Ltd. v. Whitewater Concrete Ltd.[1]; Group Eight Investments Ltd. v. Taddei[2], Chuddy v. Merchant Law Group[3], and Gilchrist v. Western Star Trucks Inc.[4]- has delineated instructive principles of contractual interpretation.  These principles may be summarized as follows:

1.     The words of the agreement are the starting point and the most significant tool for interpretation.[5]

2.     The Court must interpret the words objectively, referring to the plain and ordinary meaning, unless it would lead to an absurdity.[6]

3.     The proper “plain and ordinary” meaning must take into consideration the contract as a whole, the intention of the parties expressed within the contract, and the circumstances at the time the contract was entered into[7];

4.     The Court’s will assume that each particular word was selected for a purpose and may reject an interpretation that renders a provision ineffective[8].

5.     Only if the plain and ordinary meaning of the words still results in an ambiguity such that there remain two plausible interpretations, the Court may consider extrinsic evidence regarding the intention of the parties[9].

6.     If extrinsic evidence is relied upon, the Court should interpret the words in a manner consistent with sound commercial principles and good business sense and avoid any commercially absurd meaning[10].

Following these guidelines will assist in avoiding pitfalls when drafting and, if a dispute does arise, in understanding how a Court may decide.

---

[1] 2009 BCCA 144

[2] 2005 BCCA 489, 57 B.C.L.R. (4^th) 278

[3] 2008 BCCA 484, 300 D.L.R. (4^th) 56

[4] 2000 BCCA 70

[5] Gilchrist, supra, paragraph 17

[6] Grace Residences Ltd, supra, paragraph 23-25, Group of Eight Investments Ltd., supra, paragraph 20

[7] Chuddy, supra, paragraph 207, Grace Residences Ltd., supra, paragraph 23-25

[8] Grace Residences Ltd, supra, paragraph 23-25, Group of Eight Investments Ltd., supra, paragraph 20

[9] Chuddy, supra, paragraph 207

[10] Chuddy, supra, paragraph 207, Group of Eight Investments Ltd., supra, paragraph 21

Tags: contract, interpretation, Interpretation of Contracts, statutory interpretation

One of the significant departures between the current B.C. Supreme Rules introduced in 2010 and it predecessor can be found with the addition of Rule 1-3 (2) under the heading Object of Rules which addresses expressly what is meant by the need to secure a just speedy and inexpensive result on the merits:

“Proportionality-Securing the just, speedy and inexpensive determination of a proceeding on its merits includes so far as is practicable, conducting the proceeding in ways that at proportionate to:

(a) the amount involved in the proceeding
(b) the importance of the issues in the proceeding and
(c) the complexity of the proceeding.“

A recent Supreme Court of B.C. decision by Master Caldwell deals with the relative merits of items a and b and suggests that item b may be more significant than a. The decision, Isman v. City of New Westminster et al, 2011 SCBC 1066 involved an application by the Plaintiff for documents relating to a claim for malicious prosecution and wrongful arrest. The documents in question it was alleged may tend to prove the claim for malice and punitive damages insofar as they relate to prior litigation between the Plaintiff’s company and the City of New Westminster involving a contentious by-law regulating the conduct of the pawn broker business in New Westminster, which the Plaintiff’s company was successful in quashing. The Court held that, in effect, the importance of the issues between the parties insofar as it engaged the interaction between the government and a citizen and the role of the police in such an interaction trumped the allegation by Defence Counsel that the amount involved was relatively minor. The gravamen of that aspect of the Judgment can be found at paragraphs 12 to 14 of the Judgment reproduced as follows:

[12] Defence counsel also submitted that the concept of proportionality as contained in the new rules mitigated against the potentially extensive and expensive search for and production of such documents. He suggested that the arrest and incarceration of the plaintiff were of such a brief nature (a matter of hours) that damages were minimal or non-existent.

[13] I am unconvinced by any of the defendants’ arguments.

[14] In my view, the defendants’ argument regarding proportionality provides the spotlight under which all of their arguments should be examined. Proportionality does not only relate to monetary quantification; it also relates to the importance of the issue in question. This case involves potentially very serious questions involving the interaction between a government and one of its citizens and the role of the police authorities in that interaction. In a free and democratic society, it is hard to imagine an issue of greater import.

Tags: civil procedure, document discovery

Company websites are ubiquitous.  They are a necessary form of marketing in any industry.  One of the methods of exploiting the value of this medium is to use images and videos of employees as part of the advertisement: as a friendly face on display under the “Our Team” section; or as free models and actors for advertising photographs and videos.  Before doing so, employers should be aware of the potential liability arising from statutory protections of privacy.

Personal Information and Privacy Act (“PIPA”)

The Personal Information and Privacy Act, S.B.C. 2003, c.63, restricts the collection, use and disclosure of personal information by private companies.  Violating this act can bring the employer before the Information and Privacy Commissioner with potential liability for any harm caused.

Under PIPA, employers may be in a position to disclose information classified as “employee personal” but which is not otherwise “personal”:   These two terms are defined as follows:

“employee personal information” means personal information about an individual that is collected, used or disclosed solely for the purposes reasonably required to establish, manage or terminate an employment relationship between the organization and that individual, but does not include personal information that is not about an individual’s employment;

“personal information” means information about an identifiable individual and includes employee personal information but does not include

(a) contact information, or

(b) work product information;

Notably, contact information is not considered personal information, and therefore may be disclosed in company websites.

However, images are considered “personal information”.  In Shoal Point Strata Council (Re), 2009 CanLII 67292 (BC IPC), the Commissioner expressly included video surveillance images as a form of personal information:

[60] …Accordingly, while recorded images are not generally highly sensitive, they can and do constitute personal information of individuals and that information can, particularly viewed cumulatively or over time, convey a great deal of information about the filmed individuals, their personal lifestyle and habits…

Unlike ordinary “personal information”, employers are allowed to collect, use and disclose employee information if the employee consents, if the information reasonably collected for the purpose of establishing, managing or terminating an employment relationship (ss. 13, 16, 19).

The statute does provide some specific exemptions for when consent is not required (s.12, 15 and 18), which include:

(a) when it is clearly in the employee’s interests and consent cannot be obtained in a timely way,

(b) when it is necessary for medical treatment and the employee is unable to give consent, or there are compelling circumstances that affect the health or safety of any individual and then only if notice of the employer’s conduct is mailed to the last known address of the employee to whom the personal information relates,

(c) when obtaining consent would compromise an investigation or proceeding in which the information is reasonably required,

(d) when the information is collected by observation at a performance, a sports meet or a similar event that the employee voluntarily attends and is open to the public,

(e) when the information is available to the public from the sources prescribed by law,

(f) when it is necessary for determining entitlement to an honour, award or similar benefit, or being selected for an athletic or artistic purpose,

(g) when it is necessary in order to collect or repay a debt owed,

(h) when it is required by law, including complying with a subpoena, warrant or order to compel the production of personal information,

(i) when it is to a public body or a law enforcement agency in Canada, concerning an offence under the laws of Canada or a province, to assist in an investigation, or in the making of a decision to undertake an investigation,

(j) when it is for the purpose of contacting next of kin or a friend of an injured, ill or deceased individual,

(k) when it is to a lawyer who is representing the employer, or

(l) when it is to an archival institution if the collection is reasonable for research or archival purposes.

The statute also specifically sets out when consent is implied (s.8), though this is, again, only in specific circumstances:

(a)    where the employee has volunteered the information in circumstances where the use of the of information would have been reasonably understood;

(b)   where it is for enrolment or coverage under an insurance, pension, benefit or similar plan, policy or contract, whether the employee is benefitting directly or as a beneficiary; and

(c)    where the employer specifically advises the employee about the purpose for the collection, use and disclosure of the information, the employer also provides a reasonable time for the employee to decline, the employee does not decline, and the employer’s collection, use and disclosure is reasonable.

If the Privacy Commissioner concludes that there has been a breach of the statute, the employee may then take the Commissioner’s findings to Court and sue for any damages that have resulted.

Privacy Act

Like PIPA, the Privacy Act,  R.S.B.C. 1996, c. 373 creates a cause of action and liability, this time relating to the use of a person’s “portrait” without their consent:

Unauthorized use of name or portrait of another

3  (1) In this section, “portrait” means a likeness, still or moving, and includes

(a) a likeness of another deliberately disguised to resemble the plaintiff, and

(b) a caricature.

(2) It is a tort, actionable without proof of damage, for a person to use the name or portrait of another for the purpose of advertising or promoting the sale of, or other trading in, property or services, unless that other, or a person entitled to consent on his or her behalf, consents to the use for that purpose.

There are some exceptions to this liability, such as exempting group photographs where the person is not specifically defined or not portrayed in a manner intended to exploit their name or reputation.

In Poirier v. Wal-Mart Canada Corp., 2006 BCSC 1138, Wal-mart used a manager’s image in a welcoming advertisement in their store.  The manager had consented to the use of his portrait.  He was later terminated for just cause, but Wal-mart continued to use the same advertisement with his image.  The Court held that the termination also terminated the consent and the continued use of the portrait required re-obtaining the manager’s consent.

Unlike in PIPA, the Privacy Act does not require proof of any damages.  The Walmart decision surveyed various damages awards and noted that damages were weighed by the level of embarrassment caused and the commercial advantage gained by the use of the person’s portrait, and have included awards from $500 to $35,000.  In that decision, the Court awarded the manager $15,000 for the breach of privacy.

Summary

The above two statutes create a general requirement to obtain the consent of employees before being able to use their image on company websites.  If an employee is unwilling to cooperate, an employer should consult these statutes or obtain legal advice on whether their circumstances fall within the specific exceptions of the statutes.

Tags: employment relationship, Privacy