When an employee brings a claim against their former employer for wrongful dismissal, the most common issues to be determined is whether the employee was wrongfully dismissed, and if so, the appropriate calculation for damages. However, the matter becomes complicated if the former employer no longer exists by the time the claim reaches the litigation stage. What rights does the wrongfully terminated employee have in that case, and against whom can they enforce them?
These are the questions at the heart of a recent Alberta decision which found an employer had in fact wrongfully terminated the plaintiff, however, the employer no longer existed by the time litigation commenced. Rather, the former directors of the corporation had incorporated a new business carrying on the same function, which the former employee alleged was done specifically to avoid liability for his claim. To circumvent this issue, the plaintiff brought a claim based in oppression against the new corporation, as well as the two directors in their personal capacity.
Employer and Terminated Employee Disagree on Length of Service
In Wisser v. CEM International Management Consultants Ltd., the plaintiff, James Wisser, had been employed off and on with the defendant company CEM since 2005, alternating between employee and independent contractor. The business provided management consulting services largely to companies in the oil and gas sector. In 2015, Mr. Wisser was terminated but not for cause. His termination was a result of CEM losing a large number of clients, which was attributed to depressed commodity costs at that time. When Mr. Wisser’s employment was terminated, CEM paid him termination pay amounting to $10,579.59, which was the equivalent of four weeks’ pay.
Mr. Wisser brought a claim for wrongful dismissal against CEM, stating that his termination pay should have been based on his full employment history with CEM, which spanned approximately 7.5 years.
Employer Company Ceases Operations Shortly After Wrongful Dismissal Claim Filed
Shortly after the wrongful dismissal claim was filed, in April 2015, CEM changed its name from CEM International Management Consultants Ltd. to Forefront Performance Inc. In the fall of 2016, the company ceased operations altogether. The two directors incorporated a new business called 1994992 Alberta Ltd. (“199 Alberta”) and transferred the assets and the trade name of the former business to 199 Alberta. 199 Alberta also largely rehired a number of former employees of CEM, as it was carrying out the same type of services.
The Court found that Mr. Wisser had successfully proven his claim for wrongful dismissal and was entitled to significant damages. However, the question then turned to which entities would be held liable, since the former employer no longer existed. Mr. Wisser claimed that the principals had purposefully ceased operating as CEM in reaction to his wrongful dismissal claim, and so he amended his original claim in order to make a claim for oppression against the new company, 199 Alberta, as well as the two principals in their personal capacity.
The Oppression Claim: Proving the Elements
Oppression is a ground set out in s. 242(2) of the Alberta Business Corporations Act and is defined as any act or omission of a corporation which is “oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer”. If oppression is found, the Court has the power to award a remedy to rectify the conduct.
In order to successfully establish a claim for oppression, Mr. Wisser had the onus to demonstrate each of the following:
- That he was a qualified “claimant” under s. 239 of the Alberta Business Corporations Act eligible to claim relief under the oppression sections of the Act;
- That he had reasonable expectations of the defendants which were not met; and
- The failure of the defendants to meet those expectations constituted conduct that was oppressive, unfairly prejudicial, or unfairly disregarded his interests.
With respect to the first element, the court found that Mr. Wisser was an eligible claimant under s. 239 of the Act. He was a long-term employee of a small business, and at the time of the claim, had the only outstanding claim against CEM when it ceased operations. With respect to the second element, the Court found that Mr. Wisser had a reasonable expectation that “the corporation’s business and assets would not be unfairly restructured to benefit management at his expense”.
The Court then turned to the third element, which was to determine whether the conduct of the defendants was oppressive or unfairly prejudicial to Mr. Wisser. In this case, it was not clear that the company had restructured specifically to avoid liability for Mr. Wisser’s dismissal claim as alleged, however, the restructuring did unfairly impact him. 199 Alberta retained the benefit of the original business, including intellectual property, management expertise, and goodwill, and left its obligations to Mr. Wisser behind. As a result, the court found that Mr. Wisser had demonstrated oppressive conduct and 199 Alberta was liable to him for the reasonable notice award stemming from the claim of wrongful dismissal, which totalled $92,620.01.
Personal Liability of the Directors
Mr. Wisser had also named each of the two directors of CEM, and of 199 Alberta as defendants in their personal capacity. In order to apply personal liability in an oppression claim, a court must determine that it would be “fit and fair” to do under the circumstances. In this case, there were only two directors of the original corporation, CEM, and those same two directors chose to transfer CEM’s assets to themselves before ceasing operations. They then incorporated a new company which performed the same type of work with largely the same employees, while retaining the benefit of the former company’s assets and trade name. The directors took these steps without consideration of their former employee Mr. Wisser’s interests, and as such, were found jointly and severally liable for the damages stemming from Mr. Wisser’s wrongful dismissal claim.
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