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  • Ten things you should know about the amendments to Quebec’s Charter of the French language

    Quebec recently enacted Bill 96, entitled An Act respecting French, the official and common language of Québec, which aims to overhaul the Charter of the French language. Here are 10 key changes in this law that will impose significant obligations on businesses: As of June 1, 2025, businesses employing more than 25 people (currently the threshold is 50 people) for at least six months will be required to comply with various “francization”1 obligations. Businesses with between 25 and 99 employees may also be ordered by the Office québécois de la langue française (the OQLF)2 to form a francization committee. In addition, at the request of the OQLF, businesses may have to provide a francization program for review within three months. As of June 1, 2025, only trademarks registered in a language other than French (and for which no French version has been filed or registered) will be accepted as an exception to the general principle that trademarks must be translated into French. Unregistered trademarks that are not in French must be accompanied by their French equivalent. The rule is the same for products as well as their labelling and packaging; any writing must be in French. The French text may be accompanied by a translation or translations, but no text in another language may be given greater prominence than the text in French or be made available on more favourable terms. However, as of June 1, 2025, generic or descriptive terms included in a trademark registered in a language other than French (for which no French version has been registered) must be translated into French. In addition, as of June 1, 2025, on public signs and posters visible from outside the premises, (i) French must be markedly predominant (rather than being sufficiently present) and (ii) the display of trademarks that are not in French (for which no French version has been registered) will be limited to registered trademarks. As of June 1, 2022, businesses that offer goods or services to consumers must respect their right to be informed and served in French. In the event of breaches of this obligation, consumers have the right to file a complaint with the OQLF or to request an injunction unless the business has fewer than five employees. In addition, any legal person or company that provides services to the civil administration3 will be required to provide these services in French, including when the services are intended for the public. As of June 1, 2022, subject to certain criteria provided for in the bill, employers are required to draw up the following written documents in French: individual employment contracts4 and communications addressed to a worker or to an association of workers, including communications following the end of the employment relationship with an employee. In addition, other documents such as job application forms, documents relating to working conditions and training documents must be made available in French.5 As of June 1, 2022, employers who wish to require employees to have a certain level of proficiency in a language other than French in order to obtain a position must demonstrate that this requirement is necessary for the performance of the duties related to the position, that it is impossible to proceed using internal resources and that they have made efforts to limit the number of positions in their company requiring knowledge of a language other than French as much as possible. As of June 1, 2023, parties wishing to enter into a consumer contract in a language other than French, or, subject to various exceptions,6 a contract of adhesion that is not a consumer contract, must have received a French version of the contract before agreeing to it. Otherwise, a party can demand that the contract be cancelled without it being necessary to prove harm. As of June 1, 2023, the civil administration will be prohibited from entering into a contract with or granting a subsidy to a business that employs 25 or more people and that does not comply with the following obligations on the use of the French language: obtaining a certificate of registration, sending the OQLF an analysis of the language situation in the business within the time prescribed, or obtaining an attestation of implementation of a francization program or a francization certificate, depending on the case. As of June 1, 2023, all contracts and agreements entered into by the civil administration, as well as all written documents sent to an agency of the civil administration by a legal person or by a business to obtain a permit, an authorization or a subsidy or other form of financial assistance must be drawn up exclusively in French. As of September 1, 2022, a certified French translation must be attached to motions and other pleadings drawn up in English that emanate from a business or legal person that is a party to a pleading in Quebec. The legal person will bear the translation costs. The application of the provisions imposing this obligation has, however, been suspended for the time being by the Superior Court.7 As of September 1, 2022, registrations in the Register of Personal and Movable Real Rights and in the Land Registry Office, in particular registrations of securities, deeds of sale, leases and various other rights, must be made in French. Note that declarations of co-ownership must be filed at the Land Registry Office in French as of June 1, 2022. The lawyers at Lavery know Quebec’s language laws and can help you understand the impact of Bill 96 on your business, as well as inform you of the steps to take to meet these new obligations. Please do not hesitate to contact one of the Lavery team members named in this article for assistance. We invite you to consult the other articles concerning the modifications made to Quebec’s Charter of the French language: Trademarks and Charter of the French language: What can you expect from Bill 96? Amendments to the Charter of the French Language: Impacts on the Insurance Sector “Francization” refers to a process established by the Charter of the French language to ensure the generalized use of French in businesses. The OQLF is the regulatory body responsible for enforcing the Charter of the French language. The civil administration in this law includes any public body in the broad sense of the term. An employee who signed an individual employment contract before June 1, 2022, will have until June 1, 2023, to ask their employer to provide them with a French translation if the employee so wishes. If the individual employment contract is a fixed-term employment contract that ends before June 1, 2024, the employer is not obliged to have it translated into French at the request of the employee. Employers have until June 1, 2023, to have job application forms, documents related to work conditions and training documents translated into French if these are not already available to employees in French. Among these exceptions are employment contracts, loan contracts and contracts used in “relations with persons outside Quebec.” There seems to be a contradiction in the law with regard to individual employment contracts which are contracts of adhesion and for which the obligation to provide a French translation nevertheless seems to apply. Mitchell c. Procureur général du Québec, 2022 QCCS 2983.

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  • 3 things employers need to know about the modernization of the Canada Labour Code

    As an employer, you may occasionally be required to impose disciplinary measures on problem employees. Handling such difficult situations requires an objective, planned approach so as to put an end to the misconduct and minimize the risk of litigation. To assist you in implementing your intervention and imposing disciplinary measures, here is a brief review of the three essential steps: (1) conducting an investigation, (2) selecting an appropriate disciplinary measure, and (3) imposing the disciplinary measure. It is important to note that a disciplinary measure should be both a penalty and corrective action. Non-disciplinary (administrative) action is used when an employee commits an unintentional violation that cannot be rectified because of the person’s inability to perform the required work (e.g., due to lack of knowledge or skills). On the contrary, disciplinary action is warranted when an employee deliberately engages in misconduct. In this case, the measure is aimed at penalizing the employee and correcting the behaviour. Step one: conducting a thorough, objective disciplinary investigation Steps required for a disciplinary investigation When you find out that an employee may have committed a violation that warrants a disciplinary investigation, it is essential that you promptly gather the facts, rather than acting impulsively. Steps to follow: Determine whether it is necessary to suspend the employee with or without pay during the investigation; Determine who may have witnessed the violation; Set up meetings with the witnesses: Prepare a list of open-ended questions that do not suggest a version of the facts or a judgment of the situation (this list may be improved during investigation meetings by adding sub-questions aimed at obtaining more detail, while ensuring that the same questions are asked and the same aspects confirmed with all those interviewed); Meet with witnesses individually in a private area to ensure the confidentiality of the process; Set aside sufficient time to cover all aspects of the situation being investigated; Plan for replacements for employees called to meetings, if necessary; and Ensure that a second person is present to act as a witness (to take notes during meetings and to attest to what was discussed). Meet with potential witnesses: Take notes that are as complete as possible during meetings; Ensure that you fully understand the answers and information provided by the witnesses; Ask questions to obtain clarification when in doubt to avoid misunderstanding the version of the facts being reported; Do not be afraid of moments of silence, since they sometimes have the effect of making witnesses speak more, giving them the opportunity to elaborate on their answers; and Ideally, obtain a written statement, dated and signed by the witness, that summarizes the information provided during the meeting, or confirm the contents of the oral statement with the witness by having the witness read the notes taken during the meeting. Meet with the employee suspected of having committed the violation last, to obtain his or her version of the facts. Apply the same rules to that meeting as those listed above for setting up meetings and meeting with other witnesses. Act quickly and carefully It is important to act diligently when initiating and conducting the investigation, as doing so will allow you to: Collect evidence while it is still fresh in the minds of those concerned; Rectify the problematic situation quickly; and Avoid creating unnecessary stress for employees, particularly if the investigation reveals that no violation can be proven. Notwithstanding the above, take the time to gather all necessary information or carry out further investigation before deciding whether to impose a disciplinary measure. Respect the collective agreement or the organization’s working conditions If a collective agreement applies to your employees, you must ensure that you comply with the disciplinary investigation requirements set out in the agreement, including the obligation to inform the union or allow a union representative to be present at meetings, time limits for imposing a disciplinary measure, conditions for disclosing the reasons why a measure is being imposed, etc. If there is no collective agreement, it is prudent to follow the rules the employer has set for itself in internal policies or other working condition documents. Step two: selecting the disciplinary measure  If the investigation reveals that the employee has indeed committed a violation that warrants disciplinary action, you must now select a disciplinary measure. Penalty proportional to the misconduct When selecting a measure, the first principle is to ensure the penalty is proportional to the misconduct. The more serious the misconduct, the more severe the penalty should be. Penalty scale (subject to exceptions) Barring exceptional circumstances and subject to your organization’s collective agreement and policies, you should use a penalty scale, which normally includes the following: Verbal notice; Note: Although this is a verbal notice, a detailed description of the notice must be kept in the employee’s file to ensure that the situation is monitored. Written notice; Suspension; Depending on the circumstances, it is generally preferable to impose a short suspension, followed by a longer one, before dismissing an employee. Dismissal. There are exceptions to implementing such a penalty scale, including, in particular, the following: Serious misconduct having the effect of permanently breaking the relationship of trust which must exist between employee and employer; and Management employees (although such a scale is difficult to apply to management employees who have committed violations, nevertheless, with few exceptions, they should have been previously notified of the allegation and been given the opportunity to make amends). Things to consider when selecting a penalty In addition to using a penalty scale, you must ensure that you comply with the collective agreement and your business’s policies, which may include provisions for disciplinary action in the event of violations of the requirements specified in such policies. You must also verify whether the proposed measure is consistent with disciplinary measures applied in previous similar cases, so as to demonstrate that discipline is carried out consistently and fairly throughout the business, while respecting the specific facts of each case. Finally, you must consider the aggravating and mitigating factors that are relevant to your employee’s situation. Here is a non-exhaustive list of examples: Aggravating factors Mitigating factors Seniority (depending on violation) Seniority (depending on violation) Disciplinary record riddled with violations Clean disciplinary record Significant consequences of the violation for the business, customers, colleagues, etc. Violation with no significant consequences for the business, customers, colleagues, etc. Status or importance of the employee’s duties to the business Employee’s tasks are generally supervised or not critical to corporate affairs Premeditated violation Violation that was not premeditated Absence of remorse or apology Admission of guilt, show of remorse and apology Lack of collaboration or transparency during the investigation Collaboration and transparency during the investigation Employee autonomous when carrying out duties, generally without supervision Lax supervision or requirements on the part of the employer in the past in relation to the violation Step three: imposing the disciplinary measure  Once you have determined the disciplinary measure that best fits the circumstances, you must call a meeting to inform the employee of the measure. As with investigation-related meetings, you must meet with the employee in private and ensure that a witness is present with you to take notes during the meeting. Notes and disciplinary measures must be entered in the employee’s file. During the meeting, a disciplinary letter must be given to the employee, and the contents of the letter must be repeated to confirm the measure being imposed and to clearly and succinctly explain the violation(s) the employee is accused of. If the measure is not dismissal, you should take the opportunity to remind the employee of your expectations, which should also be explicitly stated in the disciplinary measure letter. In addition, the letter should state that any subsequent misconduct may result in a more severe disciplinary measure, which could even include dismissal. We remind you that you must document and carry out the measure in accordance with the requirements of the collective agreement and business policies, if applicable. Conclusion This quick reference guide should help you plan the imposition of a disciplinary measure to ensure that you: Carry out a proper investigation; Carefully select the measure to be imposed; and Impose a disciplinary measure in an appropriate manner, ensuring that you monitor your employee’s disciplinary file. However, measures must be imposed on a case-by-case basis. Our Labour and Employment Law team is available to advise and assist you for each of the three steps.

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  • Clothes make the man

    When an individual chooses to enter into an agreement via a management company, he  has to accept all of the consequences of that decision, the good and the bad. This principle applies in particular to working relationships. In the Kucer case,1 the Superior Court recently confirmed that, barring extraordinary circumstances, an employee hired and paid through their own management company is not entitled to termination notice or pay in lieu thereof. For tax purposes, the employee in question decided to proceed this way. Consequently, he was unable to demonstrate that the agreements entered into had been imposed by the employer. An individual seeking to avail himself of the tax benefits connected to a contract for services  may as a consequence lose the protections applicable to employment contracts. The context In 2007, Stephen Kucer started a company, which went bankrupt in 2012; its assets were acquired by 8237514 Canada inc. ("Canada Inc."), a wholly-owned subsidiary of 9265-0597 Québec inc. ("Québec Inc."), with Stephen Kucer as one of the shareholders. The shareholders of Québec Inc. wanted Stephen Kucer to become the chairman of Canada Inc., but Kucer insisted that he render his services via his own management company, Harland Tech Group inc. ("Harland").  Canada Inc. therefore entered into a contract for services with Harland, according to which Harland would provide Canada Inc. with Stephen Kucer's services as chairman, with Harland assuming responsibility for Kucer’s remuneration. Stephen Kucer lost his position as chairman of Canada Inc. when the latter terminated Harland's contract for services. Kucer then initiated proceedings seeking pay in lieu of notice of termination. The parties' positions Stephen Kucer argued he was dismissed without cause, and that as an employee of Canada Inc., he was entitled to pay in lieu of notice. In contrast, Canada Inc. argued that Stephen Kucer was not an employee, but rather an independent worker whose services were retained by Harland, and therefore, the agreement with Harland could be terminated for any reason  and without providing Stephen Kucer with any notice. The outcome of the dispute The Superior Court reviewed several rulings by the Court of Appeal and endorsed, among others, remark made by Justice Chamberland2 who stated that workers who seek to avail themselves of the benefits associated with a management company when rendering  services cannot avoid the disadvantages associated with such an approach, unless the arrangement is the result of a subterfuge or smokescreen imposed by the employer. In this matter, Stephen Kucer made the well-informed decision to sign a contract through his own management company. In the absence of any evidence that the employer imposed this way of operating, one cannot conclude that there were  any extraordinary circumstances which would allow the Court to pierce the corporate veil and to provide Mr. Kucer with the status of an employee. In the absence of a direct contractual relationship between Canada Inc. and Stephen Kucer, the Court refused to recognize he had any entitlement to pay in lieu of notice. This dispute is also demonstrative of the principle, underlined by the Court, , whereby economic dependence does not amount to an employer-employee relationship of subordination which would make it possible to conclude an employment contract, rather than a contract for services, existed between the parties. Conclusion A person rendering services to an employer via his management company cannot be considered to be an employee, unless he has demonstrated the existence of extraordinary circumstances. Given that such an individual is not a party to the agreement entered into with the company to whom services are being rendered, he cannot claim that the company is his employer, nor can he claim the legal protections afforded to employees.   8237514 Canada inc. v. Kucer, 2018 QCCS 12 Conseillers en informatique d'affaires CIA inc. v. 4108647 Canada inc., 2012 QCCA 535  

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  • Dismissal without cause under federal law: The Supreme Court of Canada closes the door

    The case of Wilson v. Atomic Energy of Canada Limited1 came to a close on July 14, 2016, when the Supreme Court of Canada (the “Supreme Court”) reversed a controversial Federal Court of Appeal decision in which it had been held that a dismissal without cause was not necessarily an “unjust dismissal” under the Canada Labour Code (“the Code”).2 The facts Wilson, a procurement supervisor, was terminated without cause after working for Atomic Energy of Canada Limited (AECL), Canada’s largest nuclear science and technology laboratory, for four and a half years. He had an unblemished disciplinary record at the time. AECL offered him close to the equivalent of six months of severance pay, but he declined, and then filed an unjust dismissal complaint under section 240(1) of the Code. AECL continued to pay him his salary for six months, so he received the severance pay he had initially been offered — an offer AECL considered generous. History of the proceedings The adjudicator, who was the first decision-maker to hear the case, had two questions before him: Could AECL lawfully terminate Wilson’s employment without cause? If so, was the severance pay sufficient so as to render the dismissal “just”? The adjudicator held that the payment of severance by the employer does not render moot the issue of whether a dismissal was just. Thus, an employer is not allowed to dismiss an employee without cause simply because he offered severance. AECL applied to the Federal Court for judicial review of this decision. It succeeded: The Federal Court reversed the earlier decision on the basis that it was unreasonable. The Federal Court held that an employer can dismiss an employee without cause, provided it provides pay in lieu of reasonable notice, as permitted by the common law. The Federal Court of Appeal upheld this decision. It held that the Code does not limit an employer’s right to dismiss an employee without cause at common law. It is worth noting that the Federal Court of Appeal reviewed the Federal Court’s decision based on the “correctness” standard of review. The parties’ positions Before the Supreme Court, AECL argued that an employer governed by federal law can dismiss an employee without cause, provided it pays the employee pay in lieu of reasonable notice as required by the common law. Wilson disagreed, arguing that such an employer cannot dismiss an employee without cause, and that severance pay does not make a dismissal “just.” Nonetheless, both parties agreed that the reasonableness standard was the applicable standard of review. The applicable standard of review Despite the parties’ agreement on the applicable standard of review, Justice Abella wrote a lengthy obiter on the issue. Expressing the view that the reforms brought by the Dunsmuir decision3 had not simplified the judicial review of administrative decisions, she argued that another administrative law reform is needed. She proposed to abolish the correctness standard, leaving only a reasonableness standard. However, her colleagues were not prepared to reform the standards of review applicable in administrative law matters. The Supreme Court’s decision The issue to be decided was whether the adjudicator’s interpretation of sections 240 to 246 of the Code was reasonable. A majority of the Justices held that it was. Analysing the drafting of the Code, the context in which the provisions were enacted, and the opinions of a majority of adjudicators and federal labour law scholars, the Court noted that the main objective of the provisions is to provide non-unionized employees with protection against dismissal without cause similar to the protection enjoyed by employees governed by a collective agreement. Furthermore, at common law, or, where applicable, the Civil Code of Québec, an employer may, unless a statutory provision prohibits it, dismiss an employee without cause as long as it provides the employee with pay in lieu of reasonable notice. For example, in Quebec and Nova Scotia, the law expressly provides that an employer cannot dismiss an employee without cause. In Quebec, section 124 of the Act Respecting Labour Standards4 states that an employee with more than two years of continuous service can only be dismissed for good and sufficient cause. Unlike the Federal Court of Appeal, the Supreme Court held that, in federal employment law matters, sections 240 to 246 of the Code completely replace the common law principles. To hold otherwise would lead to incoherent results: the remedies set out in sections 240 to 245 would be of no benefit if an employer could dismiss an employee without cause and simply pay the employee severance. Furthermore, it would be incongruous to allow the protections the Code makes available to employees to be superseded by an employer’s right to dismiss an employee without cause under common law principles. Accordingly, the only sensible conclusion is that the scheme set out in the Code completely ousts the common law, and that, under federal law, an employer cannot dismiss an employee without cause simply by paying the employee pay in lieu of reasonable notice. In its decision, the Federal Court of Appeal justified its use of the correctness standard based on the existence of conflicting case law on the question to be decided. Justice Abella addressed this subject with the following remarks: [60] O ut of the over 1,740 adjudications and decisions since the Unjust Dismissal scheme was enacted, my colleagues have identified only 28 decisions that are said to have followed the Wakeling approach … [References omitted.] Of these 28 decisions, 10 were rendered after this case was decided at the Federal Court and are therefore not relevant to determining the degree of “discord” amongst adjudicators before this case was heard … [References omitted.] [61] That leaves 18 cases that have applied the Wakeling approach. Three of them were decided by Adjudicator Wakeling himself. In other words, the “disagreement [that] has persisted for at least two decades” referred to by my colleagues consists of, at most, 18 cases out of over 1,700. What we have here is a drop in the bucket which is being elevated to a jurisprudential parting of the waters. [Emphasis added] Ultimately, the approach taken by the Federal Court of Appeal was completely set aside by the Supreme Court, given that the controversy in the case law was not as significant as it seemed. It is also worth noting that the Supreme Court underscored some important similarities between the federal principles and Quebec’s scheme prohibiting dismissal without just and sufficient cause: [65] It is worth noting that the Code’s scheme, which was enacted in 1978, was preceded by similar Unjust Dismissal protection in Nova Scotia in 1975, and followed by a similar scheme in Quebec in 1979. [References omitted.] Unlike other provinces, the Nova Scotia and Quebec schemes display significant structural similarities to the federal statute. They apply only after an employee has completed a certain period of service and do not apply in cases of termination for economic reasons or layoffs. Like the federal scheme, the two provincial ones have been consistently applied as prohibiting dismissals without cause, and grant a wide range of remedies such as reinstatement and compensation. [66] I t seems to me to be significant that in Syndicat de la fonction publique du Québec v. Quebec (Attorney General), [...] [2010] 2 S.C.R. 61, interpreting the Unjust Dismissal provision in the Quebec Act, this Court concluded that “[a]lthough procedural in form”, the provision creates “a substantive labour standard” (para. 10). It would be untenable not to apply the same approach to the Unjust Dismissal provision in the federal Code, and instead to characterize the provision as a mere procedural mechanism. [Emphasis added] Finally, the dissent of Justices Moldaver, Côté and Brown is worth mentioning. Citing the rule of law, they conclude that the correctness standard applies, given the existence of conflicting lines of case law. In their view, the scheme created by sections 240 to 246 of the Code is simply another procedural mechanism available to employees who dispute the legality of their dismissal, and those provisions do not oust the common law. Such reasoning does not, in their view, deprive the Code’s remedies of their utility. Our view This Supreme Court decision puts a definitive end to the debate about dismissal without cause in federal law. In the future, employers can no longer seek to justify a dismissal without cause by paying severance, however generous it might be. This decision also marks an important convergence between the rules governing dismissal under Federal and Quebec law. 2016 SCC 29. R.S.C. 1985, c. L-2. Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190. R.S.Q., c. N-1.1.

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  • No indemnity for federal employees on preventive withdrawal

    In December 2015, the Court of Appeal of Quebec in Éthier v. Compagnie de chemins de fer nationaux du Canada1 confirmed that section 36 of the Act Respecting Occupational Health and Safety (“AROHS”)2 does not apply to federal undertakings and that, accordingly, a worker who is pregnant or breastfeeding and who is on preventive withdrawal in accordance with the Canada Labour Code (“CLC”)3 is not entitled to receive an income replacement indemnity. The Court of Appeal also clarifies the scope of the evolution of the case law since the Supreme Court of Canada’s decision in Bell Canada v. Quebec  (Commission de la Santé et de la Sécurité du Travail)4 (“Bell Canada”) regarding the application of some provisions of the AROHS to federal undertakings. This decision is of interest not only with respect to the specific issue of the compensation of federal employees who are pregnant or breastfeeding, but also due to its analysis of the recent case law regarding the interaction between the federal and provincial occupational health and safety legislation. Factual background In August 2011, Ms. Éthier (“the employee”), a pregnant employee of the Canadian National Railway Company (“CN”), a federal undertaking, filed an application with the Commission de la santé et de la sécurité du travail (“CSST”)5 under the program “For a Safe Maternity Experience“. During that same period, in a report intended for CN, the employee’s physician recommended that her tasks be changed, failing which she should be put on preventive withdrawal. In September 2011, a CN representative informed the employee that he was unable to reassign her to another position, as recommended by her physician. The employee therefore chose to leave on preventive withdrawal, as provided under the CLC.6  The employee simultaneously applied to the CSST in hopes of receiving the income replacement indemnity to which pregnant workers are entitled under the AROHS and more specifically sections 36, 40 and 42 of this statute which deal with preventive withdrawal. Section 36, which is at the heart of the argument raised by the employee, essentially provides that the income replacement indemnity in question is the same as the one which is to be paid to an employee unable to perform his professional duties due to an employment injury, as set out under the Act respecting industrial accidents and occupational diseases7 (“ARIAOD”). It must be noted that the sections of the CLC applicable to the preventive withdrawal of a federal employee who is pregnant or breastfeeding do not provide for the payment of an income replacement indemnity. The proceedings The CSST declared that the employee was not eligible to participate in the provincial compensation regime regarding preventive withdrawal since the AROHS does not apply to pregnant workers employed by federal undertakings. Accordingly, the employee is not entitled to the income replacement indemnities provided for under section 36 AROHS. The Commission des lésions professionnelles8 and the Superior Court9 both denied the employee’s request, essentially for the same reasons. The conclusions of the Court of Appeal The employee raised the following arguments before the Court of Appeal: (1) Section 131 CLC constitutes an interjurisdictional reference in accordance with which the Canadian Parliament intended to make section 36 AROH applicable to federal undertakings; (2) In the absence of such a reference, section 36 nonetheless applies to federal undertakings as a result of the legislative amendments made to the CLC and the evolution of the case law since the decision in Bell Canada. As did the lower jurisdictions, the Court of Appeal dismissed these arguments for the reasons summarized below. a) Section 131 CLC is not an interjurisdictional reference Section 131 CLC essentially provides that a proceeding brought under a provision of Part II of the CLC does not affect the right of an employee to compensation under any statute relating to compensation for industrial accidents or occupational diseases. According to the Court of Appeal, this section does not constitute an interjurisdictional reference which would allow section 36 AROHS to apply to federal undertakings but rather it constitutes [TRANSLATION] “a reservation of rights the purpose of which is to protect the right of an employee to be compensated under a statute which addresses the compensation of industrial accidents and occupational diseases where the employee or his employer failed to comply with their occupational health and safety obligations.”10 This provision does not have the scope that the employee alleges. b) Despite the evolution of the case law since the Bell Canada decision, section 36 AROHS is inapplicable to federal undertakings. The employee further alleged that section 36 AROHS also applies to federal undertakings as a result of the legislative amendments made to the CLC since the Bell Canada decision and the subsequent evolution of the relevant case law. More specifically, she maintained that the Bell Canada decision is no longer authoritative. The Court of Appeal conceded that the state of the law has evolved quite a bit since the Bell Canada decision.11 This being said, the principles set out in that case remain relevant. It must be noted that in Bell Canada, the Supreme Court concluded that the sections of the AROHS which deal particularly with both the right of a pregnant employee to refuse to work and with preventive withdrawal were inapplicable to federal undertakings given that they pertain directly to labour relations, working conditions and the management and operations of federal undertakings.12 However, even in light of the recent evolution of the case law on this issue, a provincial law which “impairs” a federal undertaking on such subjects which are considered to be “vital” or “essential” to its operations or which cause it specific harm is inapplicable to it.13 In the present case, although the prevention scheme of the AROHS can be distinguished from the compensation scheme under the ARIAOD which is applicable to industrial accidents and which applies to federal undertakings, the income replacement indemnity for pregnant workers who are on preventive withdrawal pursuant to the AROHS cannot be likened to the one which is payable to an employee who is unable to work due to an occupational injury under the ARIAOD. Indeed, the Court of Appeal is of the view that the income replacement indemnity for pregnant workers must be classified as a “working condition” and therefore constitutes a vital and essential element of any undertaking. Accordingly, section 36 AROHS, which provides for the payment of such an indemnity is inapplicable to federal undertakings given that to decide to the contrary would have the impact of “impairing” one of its essential components.14 Conclusion This decision marks an interesting development in the case law dealing with the issue of the application of provincial occupational health and safety statutes to federal undertakings. In particular, we are of the view that there is a parallel to be made with the case of Purolator Courrier ltée v. Hamelin,15 in which the Court of Appeal concluded that section 32 ARIAOD does not apply to federal undertakings. In that case, the Court of Appeal held that the general jurisdiction of the provincial legislator over the subject-matter of a specific statute does not necessarily mean that each and every provision of such a statute will be directly and fully applicable to federal undertakings. It is important to analyze each provision of the provincial statute in order to determine what its effects are on the relationship of the employer with its employees. To the extent that such a review allows one to conclude that the provision in question affects the labour relations of the federal undertaking, it will be inapplicable to said undertaking. Given that the employee has filed an application for leave to appeal before the Supreme Court of Canada, we will monitor the evolution of the Éthier case with great interest.   2015 QCCA 1996 (the “Éthier case”). CQLR, c. S-2.1. R.S.C. 1985, c. L-2. [1988] 1 SCR 749. Since the Act to group the Commission de l’équité salariale, the Commission des normes du travail and the Commission de la santé et de la sécurité du travail and to establish the Administrative Labour Tribunal, S.Q. 2015, c. 15 came into force on January 1, 2016, the CSST has been replaced with the Commission des normes, de l’équité, de la santé et de la sécurité du travail and the CLP is henceforth replaced with the Tribunal administratif du travail. For more details regarding this reorganization of Quebec’s labour and employment institutions, please consult the following bulletin: Need to know, July 2015, “Bill 42 and the reorganization of the Quebec labour-related institutions”. Sections 132, 205 (6) and 205.1. RLRQ, c. A-3.001. Éthier and Compagnie de chemins de fer nationaux du Canada, 2013 QCCLP 4672. Éthier v. Commission des lésions professionnelles, 2014 QCCS 1092. It is to be noted that the Court of Appeal makes a clear distinction between the wording of section 131 CLC and that of section 4 of the Government Employees Compensation Act, RSC 1985, ch. G-5, which is the subject of a decision rendered by the Supreme Court in Martin v. Alberta (Worker’s Compensation Board), 2014 SCC 25, and which was relied upon by the worker in support of her claim. More specifically, sections 204 to 205.2 of the CLC, which deal with the preventive withdrawal of workers who are pregnant or breastfeeding, did not exist when this judgment was rendered. Moreover, recent Supreme Court cases have changed the analytical framework applicable to situations where the issue is the application of a provincial statute to a federal undertaking. The Court refers to the decision in Canadian Western Bank v. Alberta, [2007] 2 S.C.R. 3, amongst others. Éthier case, paragraph 26. Id., paragraph 29. Also see Canadian Western Bank v. Alberta, cited above. Éthier case, paragraphs 36 and 37. D.T.E. 2002T-197 (C.A.). On the same subject : Commission de la santé et de la sécurité du travail c. Compagnie de chemin de fer Canadien Pacifique, D.T.E. 2002T-189 (C.A.).

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  • Pension plans, the charter and disparity in treatment clauses the Court of Appeal issues its judgment in the Groupe Pages Jaunes case

    The financial burden and the risks inherent in defined benefit supplemental pension plans sometimes weigh heavily on employers. In the last few years, many employers have taken measures and made changes in order to lower the costs related to these plans. Some employers have also decided to make certain changes to other pension benefits offered to their employees. In this respect, some employers have decided, among other things: to implement a defined contribution plan for their new employees1 (with current employees, for their part, continuing to accumulate rights in a defined benefit plan); and/or not to offer other benefits to their new employees upon retirement or to provide them with less generous benefits. In the Groupe Pages Jaunes Cie case, the Syndicat des employées et employés professionnels et de bureau, section locale 574, SEPB, CTC-FTQ (the “Union”) argued that these changes violated: section 87.1 of the Act Respecting Labour Standards (the “ARLS”), which prohibits disparities in treatment based solely on one’s date of hire; sections 10, 16 and 19 of the Charter of Human Rights and Freedoms ( the “Charter”), which among other things, provide that no one may practise discrimination in the determination of a person’s conditions of employment or in the establishment of categories or classes of employment (section 16) and that an employer must, without discrimination, provide equal salary or wages for equivalent work (section 19). In April 2011, Arbitrator Harvey Frumkin, faced with two grievances filed by the Union, concluded that such changes did not violate these legislative provisions. In December 2012, the Superior Court of Quebec dismissed the Union’s motion for judicial review. On May 27, 2015, the Court of Appeal of Quebec dismissed the Union’s appeal.2. THE FACTS In November 2002, Groupe Pages Jaunes Cie (the “Employer”), which until then was a subsidiary of Bell Canada, became an independent public corporation. At the time the transaction took place, the 200 employees represented by the Union were participating in a defined benefit pension plan as well as a benefit program in which the employees of Bell Canada also participated. It was then agreed that the employees of the Employer would continue to receive these benefits until July 1, 2005, at the latest, at which time the Employer would be required to have implemented its own benefit plans. The Employer and the Union signed a first collective agreement on May 28, 2004, which was in effect from January 1, 2003 to June 30, 2005. One of the letters of agreement included in this first collective agreement provided for an undertaking that the Employer maintain the benefits set out in some specifically listed plans, including the pension plan and the health insurance plan, for the duration of the collective agreement. This letter of agreement also stipulated that the Employer would not modify the benefits provided under these plans without the consent of the Union, who could not refuse to provide such consent without a valid reason (the “Letter of Agreement”). In March 2005, the Employer met with the Union to present both the benefit programs and the pension plan it intended to implement beginning on July 1, 2005. Among the main modifications proposed by the Employer to the Union were the following: Employees hired on or after July 1, 2005 will no longer receive benefits upon retirement; Employees hired on or after January 1, 2006 will be enrolled in a defined contribution pension plan rather than a defined benefit plan (hereinafter referred to as the “Modifications”). Following the Union’s refusal to accept the Modifications, the Employer decided nevertheless to move forward with its plans. The Union subsequently filed two grievances, which were dealt with by Arbitrator Frumkin. THE DECISION OF ARBITRATOR FRUMKIN Arbitrator Frumkin concluded that the Union had no “valid reason” to oppose the Modifications. According to him, the new employees covered by the Modifications did not benefit from the protection of the Letter of Agreement. For the arbitrator, the meaning and scope of the Letter of Agreement were clear: the purpose was to ensure that the benefits that the employees had, up until that point, been entitled to under the plans specifically listed would not be modified to their detriment. He added that in light of the context in which the Letter of Agreement was signed, the Employer’s undertaking to preserve the status quo had to be interpreted restrictively. Given the Employer’s situation and the circumstances that preceded that situation, the Union could not reasonably expect that the Employer’s undertaking could be interpreted as also protecting future employees, that is, those hired after the expiry of the first collective agreement. Accordingly, Arbitrator Frumkin was of the view that Employer’s undertaking only applied to employees already employed at the time the collective agreement was signed in May of 2004 and those hired during the term of the collective agreement, that is, prior to July 1, 2005. The arbitrator also dismissed the Union’s argument that, contrary to section 87.1 of the ARLS, this amounted to a disparity of treatment solely based on hiring date. According to the Union, an employee’s pension plan and benefits are included in the concept of “salary”. Section 87.1 ARLS prohibits any disparity of treatment in respect of an employee’s salary which is based solely on one’s hiring date. The first paragraph of section 87.1 ARLS reads as follows: 87.1. No agreement or decree may, with respect to a matter covered by a labour standard that is prescribed by Divisions I to V.1, VI and VII of this chapter and is applicable to an employee, operate to apply to the employee, solely on the basis of the employee’s hiring date, a condition of employment less advantageous than that which is applicable to other employees performing the same tasks in the same establishment. (Emphasis added) Arbitrator Frumkin concluded that the notion of “salary” set out at section 87.1 ARLS only includes the “salary paid in cash” and not all benefits with a monetary value, such as benefits and pension plans. These benefits and pension plans form part of one’s “remuneration”, but are not encompassed by the definition set out at Section I of Chapter IV (which is entitled “Wages”). Finally, the arbitrator summarily dismissed the Union’s argument based on sections 10, 16 and 19 of the Charter as he was of the view that granting more benefits in an insurance plan to employees with more years of service on the basis of that service did not constitute illegal discrimination under the Charter. THE DECISION OF THE SUPERIOR COURT ON JUDICIAL REVIEW Before the Superior Court sitting in judicial review, the parties raised the same arguments they had made before the arbitrator. Moreover, the Union also argued that the arbitrator had violated the rules of natural justice in holding that the protection granted by the Letter of Agreement was limited to employees hired prior to July 1, 2005 despite the fact that neither of the parties had proposed such an interpretation in their arguments. The Superior Court dismissed this additional argument raised by the Union and concluded that the arbitrator had not violated the rules of natural justice. The Court also expressed the view that the arbitrator’s decision was reasoned, transparent, intelligible and rational and therefore did not justify judicial review. THE DECISION OF THE COURT OF APPEAL Madam Justice Savard, writing for the Court, dismissed all of the Union’s arguments on appeal. Regarding the Union’s argument based on the application of section 87.1 ARLS, the Court of Appeal held that the Superior Court Justice was justified in not interfering with the arbitrator’s conclusion that section 87.1 did not apply to working conditions such as benefit and pension plan entitlements. According to the Court, this conclusion of the arbitrator was reasonable. The Court of Appeal noted that, given the fact that in different contexts, the ARLS distinguishes between wages and benefits, Arbitrator Frumkin could reasonably conclude that the same principle applies for the purposes of section 87.1, which refers even more restrictively to Section I of Chapter IV. The Court also made reference to the parliamentary debates, which demonstrate a desire not to extend the protection granted in section 87.1 to pension plans and other benefits. With respect to the Union’s argument that the Modifications violated sections 10, 16 and 19 of the Charter, the Court of Appeal also held that the arbitrator’s decision to dismiss that argument was reasonable both in fact and in law. In particular, the Court held as follows: [TRANSLATION] [77] In the present case, the Union alleges that there is disparity of treatment based on age. In support of this argument, it refers to the report prepared by the Employer’s expert, in which we find the following passage: 096. Finally, with r espect to the evolution of the employer’s contributions, by introducing the plan only in respect of the new employees who are generally younger, the Corporation does create no harm to current employees who are older. Moreover, as mentioned by the Union, the employees who leave the Corporation prior to retirement will generally benefit from the DC plan. A significant advantage when one considers the fact that a very small percentage of current employees will spend their entire career with the same employer. […] [78] The Union’s evidence regarding the existence of discrimination ends there. In my opinion, such evidence is insufficient. The Employer’s report, prepared in March 2006, does not contain any data regarding the age of the employees, whether they were hired prior to or after either July 1, 2005 or even January 1, 2006. The expert expresses himself in general terms, without it being possible to identify the basis of his remarks. The file on appeal does not contain the transcript of the testimonies given before the arbitrator; as a result, I do not know whether he elaborated further on this subject. The fact that new employees may be younger does not conclusively establish the existence of discrimination based on age. [79] Therefore, since the evidence does not allow us to conclude that the differential treatment is the result of a form of discrimination set out in section 10, the arbitrator could reasonably conclude that there was no violation of the Charter. COMMENTS In light of these decisions, it would appear that pension plans and other benefits do not constitute “wages” for the purposes of section 87.1 ARLS and that an employer may therefore offer different programs/plans (including a defined contribution plan) to its new employees hired after a given date. With respect to the Union’s Charter argument, the arbitrator indicated that he was of the view that the distinction made between current and new employees was based on years of service and not on age and that there was no illegal discrimination. For its part, the Court of Appeal’s decision was largely based on the fact that the Union failed to prove the alleged discrimination. It remains to be seen whether, in the future, such evidence could be provided. 1 Some employers decided instead to add a defined contribution section to their defined benefit pension plans. 2 Syndicat des employées et employés professionnels et de bureau, section locale 574, SEPB, CTC-FTQ c. Groupe Pages Jaunes Cie, 2015 QCCA 918.

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  • Dismissal without cause makes its way to the Canada Labour Code: The Federal Court of Appeal decides

    On January 22, 2015, the Federal Court of Appeal rendered an extremely important decision,1 unanimously holding that dismissal on a without cause basis does not necessarily constitute “unjust dismissal” under the Canada Labour Code (the “Code”).2 With its decision in Wilson v. Atomic Energy of Canada Limited, the Federal Court of Appeal has seemingly ended a debate which has persisted since the adoption of unjust dismissal legislation in the late 1970's. Indeed, this decision overturns a line of case law to the effect that federal employees could only be dismissed for just cause, lack of work or the elimination of the employee’s position. THE FACTS Atomic Energy of Canada Limited (“AECL”) is Canada’s largest nuclear science and technology laboratory. Wilson had been employed by AECL for 4 ½ years and in his most recently held position, he was the Procurement Supervisor and was not considered to hold a management position. In November 2009, Wilson was terminated without cause. AECL offered Wilson a severance package roughly equal to six months’ pay. Wilson refused the package and filed a complaint for unjust dismissal under section 240 of the Code which reads as follows: 240. (1) Subject to subsections (2) and 242(3.1), any person (a) who has completed twelve consecutive months of continuous employment by an employer, and (b) who is not a member of a group of employees subject to a collective agreement, may make a complaint in writing to an inspector if the employee has been dismissed and considers the dismissal to be unjust. (2) Subject to subsection (3), a complaint under subsection (1) shall be made within ninety days from the date on which the person making the complaint was dismissed. (3) The Minister may extend the period of time referred to in subsection (2) where the Minister is satisfied that a complaint was made in that period to a government official who had no authority to deal with the complaint but that the person making the complaint believed the official had that authority. [Emphasis ours] Wilson nonetheless remained on AECL’s payroll for a further six months, ultimately receiving the full amount of the severance package initially offered to him. An adjudicator was appointed to hear the complaint under the Code. The parties raised two issues before the adjudicator: 1. Was AECL entitled to lawfully terminate Wilson’s employment on a “without cause” basis; and, 2. If the answer to the first question is yes, did the severance package paid amount to a “just” dismissal? Wilson argued that the Code prohibits employers from dismissing an employee unless there is just cause. AECL submitted that dismissals without cause are not automatically unjust dismissals under the Code. The adjudicator agreed with Wilson, throwing his support behind the view that employees could only be dismissed for just cause, lack of work or the elimination of the employee’s position. AECL applied to the Federal Court for a review of the decision. The Court disagreed with the adjudicator and quashed the initial decision. Wilson then appealed to the Federal Court of Appeal. THE DECISION The Court’s ability to intervene to settle disputes in the case law of an administrative tribunal One point of interest in this case is the basis of the Court’s decision for intervening in hopes of addressing once and for all two conflicting streams of case law being followed by an administrative tribunal. Since the Supreme Court of Canada’s decision in Domtar Inc. v. Quebec (Commission d’appel en matière de lésions professionnelles),3 it has been relatively trite law that the fact that a tribunal is rendering inconsistent decisions on a specific issue is not an independent justification for judicial review. In this context, the Court’s decision to intervene in this matter is rather surprising. Justice Stratas addressed this issue as follows: [53] In the case of some tribunals that sit in panels, one panel may legitimately disagree with another on an issue of statutory interpretation. Over time, it may be expected that differing panels will sort out the disagreement through the development of tribunal jurisprudence or through the type of institutional discussions approved in IWA v. Consolidated-Bathurst Packaging Ltd., 1990 CanLII 132 (SCC), [1990] 1 S.C.R. 282, 68 D.L.R. (4th) 524. It may be that at least in the initial stages of discord, without other considerations bearing upon the matter, the rule of law concerns do not predominate and so reviewing courts should lay off and give the tribunal the opportunity to work out its jurisprudence, as Parliament has authorized it to do. [54] However, here, we are not dealing with initial discord on a point of statutory interpretation at the administrative level. Instead, we are dealing with persistent discord that has existed for many years. Further, because no one adjudicator binds another and because adjudicators operate independently and not within an institutional umbrella such as a tribunal, there is no prospect that the discord will be eliminated. There is every expectation that adjudicators, acting individually, will continue to disagree on this point, perhaps forever. [55] As a result, at a conceptual level, the rule of law concern predominates in this case and warrants this Court intervening to end the discord and determine the legal point once and for all. We have to act as a tie-breaker. [Emphasis ours] Given the persistent and seemingly irresolvable dispute among adjudicators on this issue of statutory interpretation, Justice Stratas concluded that the Court was entitled to intervene and the standard of review would be one of correctness.4 The Federal Court of Appeal therefore seems to be taking the approach that where disagreement on a point of law endures over an extended period of time with no end in sight, reviewing courts can and should intervene in the interests of maintaining the rule of law. Indeed, this seems to mark an important departure from earlier case law on the jurisdiction of higher courts to intervene in hopes of addressing conflicting administrative case law. Dismissal without cause under the Code After disposing of a preliminary objection based on the alleged prematurity of the initial motion for judicial review before the Federal Court, Justice Stratas, delivering the majority opinion of the Court of Appeal, ultimately dismisses the appeal. Agreeing with the Federal Court, the Federal Court of Appeal found that the Code permits dismissals without cause. The Court concluded that a dismissal without cause is not automatically “unjust” and that an adjudicator should examine the circumstances of each particular case in order to determine whether a dismissal is unjust.5 In reaching its decision, the Court analysed the relationship between the common law of employment and the Code. At common law, an employer can dismiss a non-unionized employee without cause, but is liable to provide reasonable notice or compensation for doing so. The Code, on the other hand, provides a complaint mechanism and remedies for unjust dismissal, without defining the meaning of “unjust”. The Court concluded that the relevant provisions of the Code do not oust the common law doctrine of reasonable notice. Rather, the Code supplements the common law and builds upon it. Simply put, the wording of the Code does not imply that an employee has a “right to a job” in the sense that any dismissal without cause is automatically unjust. On this point, Justice Stratas stated as follows: [70] But there is nothing in the Code or in its purpose that suggests that Parliament was granting non-unionized employees a “right to the job” or was trying to place unionized and non-unionized employees in the same position: protected from being dismissed without cause. To the contrary, subsections 230(1) and 235(1) expressly allow an employer to terminate an employment relationship even without cause and require that notice or compensation be given. [71] If Parliament intended to limit the right of an employer to terminate an employment relationship to cases where just cause existed, it could have said so quite explicitly. After all, before Parliament passed the provisions in issue before us, the Nova Scotia Legislature did just that. It amended its labour legislation to provide that an “employer shall not discharge … [an] employee without just cause”: Labour Standards Act, S.N.S. 1975, c. 50, section 4. […] [Emphasis ours] The Court reasoned that since the Code does not explicitly limit the right of an employer to terminate an employment relationship to cases where just cause existed, the common law doctrine of reasonable notice applied. Had Parliament intended to implement a legal order in which common law principles played no role, it would have said so in plain language. The Labour Code simply creates another forum besides the courts for hearing complaints of unjust dismissal and grants adjudicators remedial powers that common law judges do not have.6 The Court also addressed Wilson’s claim that if the court followed AECL’s reasoning, employers would be able to dismiss employees without cause, pay them an amount of money the employers think is adequate and leave the employees with no meaningful right of recourse under the Labour Code. The Court noted that this was simply not the case, stating instead that “[i]t will always be for the adjudicator to assess the circumstances and determine whether the dismissal, whether or not for cause, was unjust”.7 Justice Stratas and the Court relied on the adjudicator’s decision in Klein v. Royal Canadian Mint.8 While the adjudicator in Klein rejected the submission that the dismissal of an employee without cause was automatically unjust, he did not assume that the dismissal of an employee who had been paid a severance package was automatically just. The Court made it clear that “the fact that an employer has paid an employee severance pay does not preclude an adjudicator from granting further relief where the adjudicator concludes that the dismissal was unjust.”9 However, the Court was careful to note that an adjudicator under the Code does not have free reign to conclude that a dismissal is unjust on “any basis.”10 In determining whether a dismissal is just or unjust, adjudicators will need to look to well-established common law principles and arbitral cases concerning dismissal. CONCLUSION With this decision, the Federal Court of Appeal seems to have put an end to the decades-long debate over whether dismissal without cause necessarily constitutes unjust dismissal under the Code. Like employers in many provinces, federal employers can now terminate their employees on a “without-case basis”, provided they offer sufficient notice, pay in lieu thereof and severance pay, where applicable. Employers should nonetheless ensure that dismissed employees are treated fairly. Although not automatically unjust, a dismissal without cause can still be held to be unjust where reasonable notice, or a reasonable severance package, is not provided. If the dismissed employee files a complaint under the Code, it will be up to the adjudicator to determine whether a termination package is reasonable based on the circumstances of each case. Only time will tell what the real-world impact of this decision will be. However, at first glance, the Federal Court of Appeal has seemingly delivered an important victory for federally-regulated employers. As of the publication of this article, the appellant, Mr. Wilson, has not sought leave to appeal this decision to the Supreme Court of Canada. _________________________________________ 1 2015 FCA 17 (CanLII), [Wilson]. 2 R.S.C., 1985, c. L-2. 3 [1993] 2 SCR 756. 4 Ibid at para 57. 5 Ibid at para 62. 6 Ibid at para 74. 7 Ibid at para 94. 8 Klein v. Royal Canadian Mint, [2012] C.L.A.D. No. 358. 9 Wilson, supra note 1 at para 99. 10 Ibid at para 100.

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  • Does the federal pension deemed trust outrank a perfected security interest in the context of CCAA proceedings? The Superior Court of Québec weighs in

    In the last few years, pension deemed trust issues have been a subject of debate before the courts. The Supreme Court of Canada itself addressed some of these issues in the Indalex case.1 On November 20, 2013, the Honourable Justice Mark Schrager of the Superior Court of Québec rendered an important judgment in Aveos addressing whether the federal pension deemed trust outranks a perfected security interest in the context of proceedings under the Companies’ Creditors Arrangement Act (the “CCAA”)2.THE FACTSIn 2007, the debtor company, Aveos Fleet Performance Inc. (“Aveos”), established a defined benefit pension plan in favour of its non-unionized employees (the “Plan”) which was registered with the Office of the Superintendent of Financial Institutions (“OSFI”) and governed by the federal Pension Benefits Standards Act (the “PBSA”). On March 18, 2012, Aveos ceased the operations of its Airframe Division and informed all of its employees not to report to work the following day. On March 19, 2012, Aveos made an application under the CCAA and an Initial Order was issued granting a stay of all proceedings against Aveos. In addition, the Initial Order suspended the making of special payments to the Plan (to amortize the Plan’s deficits) but permitted Aveos to make normal cost contributions. The next day, Aveos ceased the operations of its two other divisions and terminated the employment of all but a select few employees.In April 2012, a divestiture process was approved by the Court. In accordance with this process, virtually all of Aveos’ assets were subsequently sold.In May of 2012, OSFI was informed that accruals would cease with respect to the Plan effective May 19, 2013.The Superintendent of Financial Institutions (the “Superintendent”) filed a motion before the Superior Court of Québec for declaratory judgment under which it mainly claimed that the deemed trust created by Section 8 of the PBSA required Aveos to pay to the Plan, in priority to Aveos’ secured lenders, an amount of $2,804,450 which represented the special payments due the Plan for the period of February to December 2012 (Aveos’ last special payment having been made for the month of January 2012).3 According to the Superintendent, once the Plan was terminated, the balance of the prescribed special payments for 2012 became due pursuant to Section 29(6) of the PBSA and these payments were protected by the PBSA deemed trust and, as such, ranked in priority to Aveos’ secured lenders. The Superintendent added that since almost all Aveos’s assets had been sold pursuant to the divestiture process, there had been a “liquidation” within the meaning of Section 8(2) of the PBSA which provides for the following:8(2) In the event of any liquidation, assignment or bankruptcy of an employer, an amount equal to the amount that by subsection (1) is deemed to be held in trust shall be deemed to be separate from and form no part of the estate in liquidation, assignment or bankruptcy, whether or not that amount has in fact been kept separate and apart from the employer’s own moneys or from the assets of the estate.The Superintendent argued that the CCAA is silent on the issue of the PBSA deemed trust and as such, Section 8(2) of the PBSA continues to apply in CCAA proceedings. The Superintendent also argued that the PBSA deemed trust priority exists notwithstanding the date on which it was created or the date of perfection of the security lenders’ charges.Independent of any considerations of rank, the Superintendent also requested that paragraph 19 of the Initial Order, which suspended the making of special payments, be retroactively amended and that Aveos be ordered to make such payments. More specifically, the Superintendent argued that insofar as the underlying rationale of such suspension is to provide an employer with the “breathing room” necessary for it to move forward with its restructuring plans, this underlying rationale was no longer present once Aveos decided to cease its business activities.Aveos’ secured lenders contested the Superintendent’s motion. Significant sums of money were owed to them by Aveos and fixed charges on all present and future moveable and personal property had been granted in six provinces and one territory, each one having been perfected in accordance with applicable legislation. Registration dates confirmed that, with the exception of the security interest registered in the Northwest Territories in August 2011, all of the charges were perfected in March 2010.The secured lenders took the position that the PBSA deemed trust was subordinated to their charges insofar as all of Aveos’ property was subject to their security at the time the PBSA deemed trust came into existence and therefore, either the assets were not subject to the PBSA deemed trust or there was a prior charge in their favour. The secured lenders relied, by analogy, on the Supreme Court of Canada’s decision in Royal Bank of Canada v. Sparrow Electric Corp.4 in which it was held that property subject to a fixed charge cannot be subsequently impressed with the deemed trust under Sections 227(4) and 227(5) of the Income Tax Act. Furthermore, the secured lenders in Aveos argued that the Supreme Court in Sparrow had also made it clear that a deemed trust will only be given effect in the context of insolvency proceedings to the extent that the applicable insolvency legislation explicitly provides as such.As for the Superintendent’s argument that the suspension of special payments should be reversed and Aveos should be ordered to retroactively pay the special payments claimed, the secured lenders indicated that it was not open to the Court, at this point, to grant such an order.The secured lenders argued that the Superintendent had ample opportunity to request an amendment to the Initial Order and that it failed to do so. Consequently, it would be unfair, at this stage, to retroactively amend the Initial Order in this way. More specifically, the stay of proceedings contained in the Initial Order was extended six (6) times and there have been twelve (12) asset sales and four (4) distributions of funds produced by these asset sales. Despite all of these proceedings, the Superintendent failed to make any application to the Court seeking the amendment of the Initial Order. According to the secured lenders, faced with a timely application to amend the Initial Order, they might have strategized differently and may simply have provoked a bankruptcy.THE DECISIONTHE PRIORITY ISSUEJustice Mark Schrager begins his analysis by addressing the issue of the priority afforded to the PBSA deemed trust in insolvency proceedings and with a review of the Supreme Court’s decision in Sparrow. In this judgment, the Supreme Court held that property validly encumbered by a security interest was not subject to the deemed trust under Sections 227(4) and 227(5) of the Income Tax Act.Following the Sparrow judgment, these provisions of the Income Tax Act were replaced so as to grant priority to the deemed trust in respect of property that is subject to a security interest regardless of whether the security interest was perfected before the deemed trust came into effect. Justice Schrager notes that while similar amendments were made to other statutes, no such amendment was made to Section 8(2) PBSA following the decision in Sparrow.Justice Schrager noted that the fixed charges in this case were created and perfected in 2010 and 2011 while the PBSA deemed trust arose later on. As a result, the Court held that since Aveos’ assets were already charged with the secured lenders’ security interests, the PBSA deemed trust was, at best, subordinate to such charges.Justice Schrager also agreed with the secured lenders’ position that the PBSA deemed trust is not effective in CCAA proceedings where secured creditors hold prior perfected security interests or charges which are not paid in full. The Court cited the Supreme Court of Canada’s decision in Century Services Inc. v. Canada (Attorney General)5 in which Justice Deschamps stated that where the intention is to protect the rank of deemed trust claims in insolvency matters, Parliament clearly expresses such intent. In the absence of such explicit statutory basis, no such protection exists in an insolvency context.Justice Schrager adds that, while Century Services dealt specifically with source deductions in favour of the Crown, the Supreme Court’s reasoning in that case was not limited to such deemed trusts and Justice Deschamps was clear that there exists a “general rule that deemed trusts are ineffective in insolvency.”6In response to the Superintendent’s question of what exactly would be the use of the deemed trust provided under Section 8(2) of the PBSA, Justice Schrager states that such deemed trust “is useful for the protection of special payments but only vis-à-vis creditors who do not hold security over the assets of the debtor company which was perfected prior to the deemed trust attaching to the assets”.7Finally, citing the Supreme Court’s judgment in Indalex, Justice Schrager notes that in Ontario, section 30(7) of the Personal Property Security Act subordinates security interests to the deemed trust created by the Ontario Pension Benefits Act. There is no similar or equivalent provision in the PBSA or in Quebec provincial law that would give priority to the PBSA deemed trust.THE SUSPENSION OF SPECIAL PAYMENTS ISSUEJustice Schrager stated that judges should be very hesitant to retroactively amend the Initial Order after such a long period of time and after various sales, vesting orders and distributions already occurred. The Court found that given the circumstances, the Superintendent’s delay in seeking to retroactively amend the Initial Order was unreasonable and the Superintendent was estopped from seeking such an amendment. The other parties, including the secured lenders, relied in good faith on the Initial Order.No appeal of Justice Schrager’s decision was filed.CONCLUSIONThis decision shows that the question of whether, in a CCAA context, a specific pension deemed trust has priority over a security interest perfected prior in time to the deemed trust’s creation must be answered by analysing the language used in the legislative provisions which create the pension deemed trust or which are related thereto. Ultimately, Justice Schrager concluded that neither Section 8(2) nor any other provision of the PBSA or Quebec provincial law contains the language required to grant such priority to the federal pension deemed trust._________________________________________1 Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6 (Indalex).2 Aveos Fleet Performance Inc./Avéos Performance aéronautique inc. (Arrangement relatif à), 2013 QCCS 5762.3 As for the Plan wind-up deficit of $29,748,200, the Superintendent took the position that it is an unsecured claim which is not protected by the PBSA deemed trust.4 [1997] 1 SCR 411.5 [2010] 3 SCR 379 (Century Services).6 Ibid at para 45.7 Aveos, supra note 2 at para 83.

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  • Fieldturf Tarkett inc. v. Gilman(1): The Court of Appeal upholds the payment of « phantom share » bonuses where employment has been terminated without a serious reason

    THE FACTSOn January 22, 2014, the Court of Appeal of Québec confirmed the 2012 decision of the Superior Court of Québec in Gilman v. Fieldturf Tarkett inc.2 At issue in this case was whether the payment of so-called “phantom share” bonuses were to be paid to employees whose employment was terminated by the company.The incentive program at issue was established for certain non- shareholder key employees of the company. It provided that specific amounts would be contributed to a special bonus fund upon the sale of some of the shares of the company in accordance with the provisions of a Joint Venture Agreement and, later on, of a Share Purchase Agreement. More specifically, the program provided for the conversion of additional capital contribution into a number of notional shares of the company (the “phantom shares”). When actual shares of the company were purchased, an amount was contributed to the bonus fund, that amount being equal to the value of the phantom shares at that time. The incentive program also stipulated that it was the company’s CEO, John Gilman, who had the discretion to decide which key employees would receive phantom share bonus payments and how much each would be paid.The five plaintiffs in the present action were the largest beneficiaries of this incentive program, together receiving almost 60% of the total phantom share bonus amount paid out in September 2005 and about 66% of the one paid out in March 2007. Sadly, in July of 2007, John Gilman died unexpectedly while the last payment was still to be paid.In September 2008, following a subsequent internal restructuring of the company, four of the five plaintiffs were dismissed without cause, none of them receiving a final phantom share bonus payment prior to their departure. This final payment was made in February 2009 to all employees of the company despite the fact that, in accordance with the incentive program, only key employees who were employed on December 31, 2008 qualified for the final payment.While the company accepted that these four individuals were entitled to several months’ notice of termination ending in 2009, the new CEO refused to provide them with the final phantom share bonus payment.As for the fifth plaintiff, he refused the new terms of employment proposed by the company and resigned in January 2009. He also did not receive the final phantom share bonus payment.The five plaintiffs filed an action against the company claiming that they were entitled to receive the final phantom share bonus payment.THE DECISION OF THE SUPERIOR COURT OF QUÉBECThe Superior Court granted the plaintiffs’ claim. It dismissed the company’s argument that, insofar as the bonus was payable entirely at the discretion of the CEO, the company had no obligation to make the final phantom share bonus payment to the plaintiffs. The Court held that “an employee who is terminated without cause is entitled to receive all of the benefits that accrue during the notice period, including bonuses.”3 While the Court agrees that where its payment is entirely dependent on the employer’s discretion, an employee will generally not be entitled to claim a bonus as part of his pay during the notice period, evidence that the employee regularly received a bonus in the past may rebut the argument that its attribution was discretionary.The Court goes on to conclude that an assessment of the company’s past practice demonstrates that the phantom share bonus payments had become an integral part of the plaintiffs' wages by the end of 2008. More specifically, the Court states that the plaintiffs received the 2005 and 2007 bonuses and moreover, they had a reasonable expectation that they would receive a final bonus payment at the end of 2008.Finally, the Court notes that the bonus payments were not entirely discretionary. Rather, in accordance with the Joint Venture Agreement/Share Purchase Agreement and subject to the company’s financial performance, they had to be paid whenever shares of the company were purchased. Moreover, the amount of the bonuses was based on a specific formula and the bonuses were reserved for the company’s “key employees.” The plaintiffs were, according to the trial judge, “key employees” and were undoubtedly viewed as such by John Gilman prior to his death. As such, the Court comes to the conclusion that “Gilman's past practice defined what the reasonable exercise of the CEO's discretion had become by the end of 2008.”4 As a result, insofar as the plaintiffs’ entitlement to receive the final phantom share bonus payment vested during their respective notice periods, they were eligible to receive this payment.THE DECISION OF THE COURT OF APPEAL OF QUÉBECThe Court of Appeal of Québec upheld the trial judge’s decision and held that due to John Gilman’s death, the provision of the incentive program which specifically granted him the discretionary power to decide, among other things, which key employees would receive phantom share bonus payments became ambiguous and had to be interpreted in light of the parties’ intent, the nature of 4 Ibid at para 61. power was exercised. The Court agreed that the evidence was the incentive program, and the way in which this discretionary clear that John Gilman always considered the plaintiffs to be “key employees” and that no evidence was brought forth to demonstrate that this situation changed during the period between his death and the date on which the plaintiffs’ employment was terminated. The Court added that in the circumstances, the new CEO could not “[TRANSLATION] in the good faith exercise of the discretionary power with which he was invested in Mr. Gilman’s stead” conclude that the plaintiffs ceased to be key employees after July 2007 and before they were terminated.With respect to the eligibility condition (i.e. that only “key employees” who were employed on December 31, 2008 qualified for the final payment), the Court stated that, under Quebec law, bonuses and share purchase options form part of an employee’s total compensation and, as such, they are generally taken into account as forming part of an employee’s pay during the notice period. Therefore, the plaintiffs’ termination, in the absence of a serious reason, prior to the date on which the final phantom share bonus payment became payable does not prevent them from being able to recover the amounts claimed.To read the Court of Appeal judgment, click here._________________________________________1 2014 QCCA 147.2 2012 QCCS 1429.3 Ibid at para 36.4 Ibid at para 61.

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