Court of Appeal clarifies employees’ successor
rights
October 2014
Thinking of picking up a business from a bankrupt company? While the purchase price
may be irresis ble, some hidden obliga ons towards employees may surface. Be er
pay extra a en on during the due diligence.
Successor rights typically define the
obliga ons that one employer company,
“the successor”, may have in respect of
employees of a former employer, in the
event of the sale, merger or other
“aliena on” of an enterprise. In most
Canadian provinces, successor/
employer obliga ons are defined in labour rela ons statutes and are limited
to unionized en es. In some provinces,
successor rights may also apply to certain obliga ons set out in labour standards legisla on. Alone among Canadian provinces, Quebec has legislated
successor rights both for the unionized
and non-unionized sectors, in respect of
everything that is covered by an employee’s employment contract.
In par cular, art. 2097 of the Civil Code
of Quebec [“C.C.Q.”] provides:
2097. A contract of employment is
not terminated by aliena on of the
enterprise or any change in its legal
structure by way of amalgama on or
otherwise.
The contract is binding on the successor of the employer.
Theodore Goloff
514 393-4007
tgoloff@rsslex.com
In Aéro Photo (1961) inc. c. Raymond,
2014 QCCA 1734, the Quebec Court of
Appeal decided that while an earlier
version of the successor rights provisions of the Labour Code (s. 45 et seq.
L.C.), provided an exclusion for “judicial
sale” – defined by case law as including
sale by a trustee in bankruptcy — and
notwithstanding that s. 45 L.C. served as
the model for art. 2097 — no such excep on was contemplated by that provision.
As long as the trustee in bankruptcy
con nues opera ons of the bankrupt
enterprise without significant interrupon, whatever sale is made by the trus-
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tee to third par es will a ract successor/employer obliga ons. In short, the
acquiror will be caught by the preexis ng employment contracts including
being obliged to con nue the employment of employees whose employment
was not already severed, and by whatever those contracts might provide. Seniority, for those employees, would connue unaffected.
The Court of Appeal, as well, said that
although case law required that some
legal rela onship between the former
employer and the new employer (“lien
de droit”) was essen al to effect successor rights, such legal rela onship need
not be direct. In the case of bankruptcy,
when there is no significant interrup on
of opera ons, the enterprise is transferred from the bankrupt company to
the trustee and via the trustee to the
acquirer and new employer. The chain
between the par es is respected.
For these reasons, there was legal transference of a business as a “going concern” from one employer to another.
The new employer was required to honour all the severance obliga ons
amongst others that were provided in
Appellant’s employment contract
signed with the former employer, to the
tune of close to $690,000.
Lessons are that purchasing an enterprise from a bankruptcy does not always wash away previous obliga ons. It
depends on whether or not, inter alia,
there was an interrup on long enough
to be able to claim that there was no
con nuity of opera ons, or that the
previous enterprise had been previously
dismembered or dismantled.
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