Family business owners get more than $1.1 million for wrongful dismissal

Distribution and share-purchase agreement with supplier covered continued employment of sons but not founders
By Jeffrey R. Smith
|Canadian Employment Law Today|Last Updated: 10/10/2013

The risk of assuming retirement

The new reality is a world without mandatory retirement and an aging workforce is that one should never assume when someone wants to retire, regardless of their age. This doesn’t only apply to employers with older employees in a regular employment relationship, but also to companies who buy a smaller company from its owners, who may want to continue their employment with the company following the purchase. Even if the former owners are in their 80s.

A Quebec company must pay a couple in their 80s more than $1.1 million after dismissing them following the purchase of the couple’s business that distributed the company’s products in Ontario.

Paul Filiatrault, who is in his mid-80s, began working with Air Liquide Canada, a Montreal-based supplier of gases and related products, when he was 18. In 1967, Filiatrault left Air Liquide and moved with his family to Kitchener, Ont., where he founded Tri-County Welding Supplies as an authorized distributor for Air Liquide in the Kitchener area.

Filiatrault’s wife, Shirley, joined Tri-County and their three sons eventually took jobs with the company as well. When Tri-County was founded, Filiatrault entered into an agreement for distribution of Air Liquide’s products that gave Air Liquide a right of first refusal to purchase Tri-County’s shares and assets. This agreement lasted until a new one was drawn up in 1996.

Agreement allowed for sons to remain employed following company buyout

The two companies reached a new distributorship agreement in 1996, allowing Tri-County to have the capacity to fill their own gas cylinders rather than buying pre-filled cylinders from Air Liquide. The agreement included a provision where the Filiatraults would notify Air Liquide when they wanted to sell Tri-County and Air Liquide would be obliged to purchase Tri-County’s shares according to a share-purchase formula. In addition, the agreement included a provision that in the event of such a sale, Filiatrault’s three sons would be given employment with Air Liquide through a three-year management agreement with each of them. There was no mention in the agreement of either the continued employment or termination of Paul and Shirley Filiatrault.

Paul Filiatrault was president, CEO and chairman of the board for Tri-County until 2008, when his oldest son Robert took over. The other two sons were vic-presidents and Shirley Filiatrault was vice-president of human resources.

On Sept. 15, 2009, the companies completed a deal in which Air Liquide purchased Tri-County’s shares. The same day, Air Liquide issued letters of termination to Filiatrault and his wife, effective Sept. 19. The letters referred to the agreement that named their three sons but did not require Air Liquide to negotiate an employment agreement with them. Air Liquide stated this meant the intention of the parties when entering the agreement was “clear and unambiguous — the parties only intended that your three sons remain with Tri-County upon ALC’s acquisition of the shares…”

Paul and Shirley Filiatrault commenced a wrongful dismissal action against Air Liquide, arguing that they held key positions with Tri-County and their intention was not to end their employment with the company once Air Liquide purchased it. They said Tri-County business was the centre of the family’s life and, despite their ages, they were still active until their termination. They also claimed that at the time the 1996 agreement was drawn up, they were assured by their lawyer that their termination rights would be taken care of by “statutory protections and the reasonable notice requirements at common law,” making any provisions for them unnecessary in the agreement. In addition, the Filiatraults argued that if they had expected to be terminated upon Air Liquide’s acquisition of Tri-County, they would have started to wrap up their work earlier. As it was, they stayed on for about a week after their dismissal to help with the transition.

No consideration for couple’s continued employment: Company

Air Liquide argued it didn’t consider that Paul and Shirley Filiatrault would want to stay on after operating Tri-County for more than 30 years and not being able to anymore, particularly at their age. It was implied in the agreement that Paul and Shirley Filiatrault intended to resign or retire when they exercised the option to sell Tri-County’s shares to Air Liquide, and the absence of a specific agreement of continued employment while negotiated arrangements for their sons would make this a reasonable assumption, Air Liquide said.

The court found the distributorship relationship Tri-County had with Air Liquide put the Filiatraults in the category of “dependent contractors,” which were treated much like regular employees by the law. The court also noted that selling a company’s shares was “merely a change of shareholders which does not affect the company’s assets and as such the company continues to exist as it did prior to the share sale.” Selling a company’s shares did not mean any employment was terminated, which would require “a further step,” said the court.

The court found the 1996 agreement failed to address severance or termination for Paul and Shirley Filiatrault and, despite the fact they received “a lucrative sum” on the sales of Tri-County to Air Liquide, they weren’t any less entitled to reasonable notice.

“(Air Liquide) had the benefit of legal representation during the 1996 negotiations,” said the court. “It does not stretch expectation that when employment considerations were being discussed in relation to other employees, some thought might have been given to the senior Filiatraults’ employment futures given their long dedicated service with Air Liquide.”

The court found the Filiatraults were entitled to reasonable notice of termination. Though Air Liquide seemed to suggest they should have indicated during negotiations of the 1996 agreement they were interested in continuing their employment after the sale of Tri-County’s shares, but the court found it was “a longstanding principle of contract formation” that no such duty was required on party to a contract where there was no misrepresentation or fraud. In addition, the 1996 agreement was not strictly a commercial contract, but rather it fell within the definition of an employment contract and thus implied a term of reasonable notice on dismissal without cause, said the court.

As far as the reasonable notice calculation, Air Liquide argued the Filiatraults’ income with Tri-County should not be used as a basis because, as founders of a family business, their incomes weren’t commensurate with their actual functions and responsibilities with Tri-County by 2009. However, the court found this argument could lead to other claims where employers claimed employees were overpaid and employees could claim they were underpaid with no resolution on what should be used to calculate reasonable notice.

“The law requires the length of reasonable notice and the calculation of severance pay on a corporate share sale be based on the employee’s actual income and their history of employment with their previous employer,” said the court. “I have no reason to depart from the law as it stands.”

The court noted that both of the Filiatraults, though in their 80s, were “spirited, clear minded and enthusiastic individuals” who wanted to continue to work. They sent out resumes to a combined 44 companies following their terminations, but were unsuccessful. This amounted to reasonable mitigation of their damages, the court said.

Though both Paul and Shirley Filiatrault had terms of service with Tri-County that spanned four decades and were in their 80s, they decided to limit their claim during trial to 18 months’ notice with no claims to extra damages or benefits. Accordingly, the court used a five-year average of their salaries calculated over 18 months. For Paul Filiatrault, reasonable notice amounted to $898,950 and for Shirley Filiatrault, $262,500, for a total award of $1,161,450 to the couple.

“I do not think there is a place in this social reality for an automatic presumption that persons should or would naturally retire on reaching senior age,” said the court. “What this means is that employers should be disinclined to ask a court, where there is no express agreement, to imply such a term in an employment contract based simply on that now time-worn presumption.”

For more information see:

Filiatrault v. Tri-County Welding Supplies Ltd., 2013 CarswellOnt 7649 (Ont. S.C.J.).

Add Comment

  • *
  • *
  • *
  • *