Business Disintegration

Introduction

In our fast-paced globalized economy, constant change in the employment and labour sectors is what never changes. Business go bankrupt, they are sold, merged, or dissolved, they find their product or employees’ positions technologically surpassed, and they are left with numerous employees they cannot remunerate.  Over the past decade, change has been particularly noticeable as individual, specialized jobs are created out of industries that used to be integrated. The process of all-in-one businesses becoming a range of separate services is part of what is meant when “business disintegration” is discussed.

Sometimes, in order for companies to adapt to an increasingly dis-integrated economic landscape, the process results in lay-offs or the so-called ‘discontinuance of a function’.

Against this backdrop, arbitrators, mediators, and workplace investigators are encountering situations that require a determination as to the appropriate process for companies seeking to adapt by altering or eliminating positions.

Aspects of the Law Considered by Arbitrators, Mediators and Workplace Investigators in Situations Involving Elimination of Positions

A. The Concept of “Constructive Dismissal”

Constructive dismissal is a concept in employment law that describes a range of situations where an employee resigns or quits in response to an employer’s actions. The term includes situations where a hostile work environment has been created but it can sometimes include situations where there have been significant changes to the employee’s job location, duties, or remuneration.

Constructive dismissal is a form of wrongful termination and, as such, it is relevant to recall that the general law regarding termination is different for unionized versus non-unionized employees. For unionized workers, arbitrators apply the test set out in William Scott & Co. v. C.F.A.W., Local P-162, 1976 CarswellBC 518, [1977] 1 Can. L.R.B.R. in order to determine whether dismissal is justified or whether a different outcome should occur (including reinstatement of the worker to their job with or without a lesser sanction, or other compensation). For non-unionized employees, the Supreme Court decision in  McKinley v. BC Tel, [2001] 2 SCR 161, 2001 SCC 38 (CanLII) sets out the guiding principles in determining whether employee conduct/misconduct justifies dismissal.

***For a detailed review of the respective test and principles, please refer to the “Discipline and Termination” section under the “Areas of Focus” tab of this website.***

B. Lay-Offs and the Law

Lay-offs are sometimes considered to be a form of constructive dismissal and laid-off workers may be entitled to notice (or pay in lieu of notice). This is true even for temporary lay-offs unless there is term (either express or implied) in an employment contract that contemplates and allows the employer to temporarily lay-off employees. In Besse v. Dr. A.S. Machner Inc., 2009 BCSC 1316 (CanLII), the court found that the temporary lay-off of a receptionist at a dental clinic constituted wrongful dismissal and payment for wages lost during the period of lay-off were awarded as damages.

C. Relevant Sections of the Canada Labour Code, RSC 1985, c L-2

The Canada Labour Code, RSC 1985, c L-2 (the “Code”) is federal legislation applying to employers and employees engaged in federal works, businesses, or undertakings. Section 242(3.1)(a) of the Code provides that:

“No complaint shall be considered by an adjudicator under subsection (3) in respect of a person where

(a)  that person has been laid off because of lack of work or because of the discontinuance of a function.”

In other words, the Code allows for terminations where the work performed no longer exists or is no longer needed. However, as summarized by Neumann & Sack in their text on employment law (2012 CanLIIDocs 1):

“To justify termination on the basis of a lack of work or discontinuance of a function within the  meaning of s.242(3.1)(a) of the Code, there must be a sufficient evidentiary basis, by way of financial statements or minutes of meetings, for example, to satisfy the adjudicator that the restructuring was bona fide and genuine or “not artificial. … While the question will always turn on the particular facts of the individual case, there will  usually be a temporal and direct link between the event which gives rise to the need to restructure – such as a lost contract, a downturn in the economy or reduced funding – and the particular employee’s job function and resulting termination…”+

Understanding how arbitrators apply this evidence-based approach to justify a lay-off is facilitated by observing examples from actual arbitrations.

Arbitration Example

In Ironstar v Carry the Kettle First Nation, 2018 CanLII 138289 (CA LA), a fired ex-employee brought a complaint of unjust dismissal. The employer maintained that the worker had been terminated because of restructuring of the Finance Department of the First Nation. In reviewing the circumstances involved in the matter, the arbitrator described:

“The evidence before me, which comes from [the employer’s] own witness, is that while at the start the new Director of Finance thought things would work out and he could work with [the employee], as time went on, he had difficulties with [the worker]. It is simply too convenient that right at the point where the new Director started having difficulties, chief and council purportedly made a decision to terminate [the worker’s] employment for restructuring. [The employer] has not established that the termination of [the worker’s] employment was because of a legitimate restructuring of the Finance Department. On the face of it, the inference to be drawn is that [the employer] was looking for a way to get rid of [the worker] because [a supervisory employee] had issues with [the worker]. Furthermore, there is no evidence to rebut that inference.”

As such, the arbitrator held that the worker had been unjustly dismissed, and – having found that reinstatement was not an option given the circumstances of the case – ordered payment by the employer representing 18 months’ salary, pension contributions, and costs.

Executive Summary

It is possible in some circumstances for lay-offs to be considered constructive dismissal requiring reasonable notice or pay in lieu of notice. In federal workplace environments, where the Code applies, discontinuances of functions are allowed as long as they are for legitimate reasons (such as restructuring).

Conclusion:

Changes in business models, company structures, and previously-cohesive markets are occurring, and can result in the need for arbitration, mediation, or workplace investigation. If you would like help navigating lay-off or discontinuance issues at your workplace, please contact Neil Hain.