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  • Daniel Ebady

Restructuring and Resignations: Theberge-Lindsay v. 3395022 Canada Inc.

When restructuring your business for favourable tax treatment and limiting liability exposure, must be taken when employees are a part of the business through the restructuring. This case is an example of the court effectively voiding all the employments agreements that were signed each time the business was restructured.


Background


The respondent began working at the appellant’s dental office 1993. As a way to minimize taxes and other liabilities, the appellant restructured his dental office various ways. As a condition of employment, the appellant required the respondent to sign a series of employment contracts which limited the respondent’s entitlement for wrongful dismissal.

The appellant through a recently-built corporate vehicle terminated the respondent without cause. The respondent was given one week’s salary pursuant to the ESA.


The respondent at one point also expressed that she would be resigning but ended up not leaving. She was again required to sign a new employment contract through another new corporate vehicle the appellant created.


Analysis


At the trial level the judge viewed that there was consistent uninterrupted from when the respondent started in 1993 till she finally left in December 2012. The court reasoned that the appellant consistently signed the respondent’s cheques all though they were coming from different corporations at different times. The court found that none of the employment contracts signed by the respondents were enforceable by virtue of the lack of corresponding consideration supporting the agreement.


On the resignation issue, the trial judge found that the evidence shows that respondent’s retraction was accepted by the appellant; the resignation had no impact on the respondent’ continuity of service with the appellant; and that the appellant was prepared to recognize the continuity of the respondent’s employment since 1993.


Accordingly, the respondent was given damages in lieu of reasonable notice at common law at 15 months.


Court of Appeal


The Court of Appeal did not disturb the trial judge’ finding the subsequent employment contracts after 1993 were not binding. But on the resignation issue, the Court of Appeal decided in favour of the appellant. The court held that the there was an unequivocal resignation by the respondent and there was a re-hiring, of which a new contract was concluded. The consideration for new contract was the respondent’ offer to again be

employed by the appellant and the appellant’s acceptance.


The court accordingly, reduced the common law notice damages to 7.5 months.

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