We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
23 January 2013
In a recent British Columbia case, employees who transferred employment as part of a corporate transaction were awarded monetary damages on account of lost pension benefits (Kerfoot v Weyerhaeuser Company 2012 BCSC 640).
Weyerhaeuser Company sold its interest in a pulp mill in Kamloops, British Columbia, to Domtar Corporation. Six and a half months before the sale, Weyerhaeuser provided notice to its employees of the pending deal. As part of the sale, Weyerhaeuser's employees would be provided with offers of employment by Domtar. The employees' salaries were to remain unchanged; however, the pension benefits provided by Domtar were not as generous as those provided by Weyerhaeuser.
The plaintiffs were two employees of Weyerhaeuser. Their employment was terminated by Weyerhaeuser as part of the sale of the business. They claimed damages for wrongful dismissal. The only issue was the amount of damages in respect of the loss of pension benefits. Both plaintiffs accepted offers of employment from Domtar, with the less generous pension benefits.
The court awarded damages to both employees based on the difference in value between the pension benefits that the employees would have earned at Weyerhaeuser during a reasonable notice period and what they actually earned at Domtar. The amount of damages for the two employees totalled over C$90,000.
This decision sets a dangerous precedent. Typically, the employment terms of an asset purchase agreement stipulate that employees who transfer employment to the purchaser will be hired on terms that, in the aggregate, are substantially similar to those of the seller. The 'substantially similar' proviso is intended to account for the fact that two employers rarely have identical compensation and benefit plans.
Where the employment offers are not on substantially similar terms, indemnities between the seller and purchaser may be written into the purchase and sale agreement in respect of the potential wrongful dismissal damages. Unfortunately, the court's decision did not discuss the commercial terms of the transaction.
It could be argued that the terms of a purchase and sale agreement between a buyer and seller of a business are not relevant to employment law cases or to the determination of wrongful dismissal damages. However, the strict application of employment law principles to commercial transactions can have the effect of imposing commercially unreasonable requirements on the parties in order to avoid the prospect of liability.
In this case, in order for Weyerhaeuser to avoid an assessment of damages, it would have to have done one or more of the following:
While the court's reasoning and its analysis in order to quantify the difference between the pension values as between Weyerhaeuser and Domtar during a reasonable notice period are understandable, the impact of this decision will be to impair the efficiency of commercial transactions. In any purchase and sale transaction, there will be winners and losers among an employee group, depending on an employee's specific circumstances.
In cases in which employees' aggregate compensation with the purchaser is substantially similar to that with the seller, each employee has a choice to accept or reject the offer by the purchaser. If an employee accepts the offer, the court should not interfere with the deal and should not award damages simply on the basis that one benefit is less generous than another for a particular employee.
The implications of this decision should be considered in the negotiation of purchase and sale agreements in which employees will be transferring employment from the seller to the purchaser.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.