Time as part owner also service time for notice period: Court

Fired president was never in full control of company and transfer agreement gave credit for time with predecessor

A former CEO of a Nova Scotia company is entitled to notice based on his full service with the original company after the new owner terminated him, the Nova Scotia Supreme Court has ruled.

Daniel Murphy, 50, began working for Halifax-based Atlantic Nova Print Company (ANP), a company co-owned by his father, in 1980. He was involved in the company’s printing operations and later served as the production manager. In 1990 he was appointed CEO.

In January 1998, Murphy’s father died and he inherited his father’s shares. In October 1999, Murphy and two other shareholders sold their shares in ANP to Newcap Inc. As part of the transaction, Murphy resigned as a director of ANP and became the president of Newcap’s printing operations.

On June 30, 2002, Newcap transferred its assets to Optipress Inc. On Jan. 30, 2004, Optipress terminated Murphy and paid him a severance of 25 weeks’ salary. Optipress said Murphy received $1.5 million for the sale of his ANP shares in 1999, which was adequate compensation for his service to the company. Its position was that Murphy was entitled to notice based only on the 4.5 years since the transfer to Newcap because, before then, he was an owner of the company.

Murphy sued for damages, arguing he had worked for Optipress and its predecessors continuously for 24 years and deserved 24 months’ notice. He said though he had sold his ANP shares, he was never the sole owner with full control and rather was an employee before the sale. At best, Murphy said, he had 50 per cent interest and always had to consult with the company’s board of directors and other owners.

The court found Murphy was in a senior management position specializing in printing from the 1980s with ANP until Optipress terminated him. When Newcap took over in 1999, Murphy had a different title but his role as president of Newcap’s printing operations was essentially the same. The only difference was the reporting structure.

“After Newcap took over ANP as a going concern, (Murphy) was in the same office, doing the same job,” the court said.

The court looked at the purchase agreement with which Optipress took control of the business. The agreement named Murphy as the president and CEO with 22 years of service and stipulated accumulated service time with its predecessors would be recognized when considering severance pay and notice.

Based on the wording of the purchase agreement, Optipress had to factor in Murphy’s total unbroken service time from when he started with ANP in 1980, the court said. Murphy’s compensation from the sale of his shares was irrelevant as he was never the sole controlling owner of ANP and could be considered an employee.

However, the court felt 24 months was excessive for the notice period and awarded 16 months plus pension contributions. When Murphy’s severance payment was subtracted, the total damages amounted to $158,276.93. See Murphy v. Optipress Inc., 2008 CarswellNS235 (N.S. S.C.).

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