2004 BCSC 438 Major v. Philips Electronics Ltd.

Before: The Honourable Madam Justice Martinson

Reasons for Judgment

Counsel for the Plaintiff	K.J. Heller J.L. McPherson
Counsel for the Defendant	M. Hunter Q.C.
Dates and Place of Trial/Hearing	February 3, 4, & 5, 2004
	Vancouver, B.C.

A. INTRODUCTION

[1] This is a wrongful dismissal case that deals with whether, at common law, the vendor of the assets of a business can be sued by an employee when the employee began to work for the purchaser, was dismissed by the purchaser, and had the right to sue the purchaser for severance based on his entire employment history with the vendor, but did not do so. Instead the employee entered into a settlement agreement with the purchaser that did not compensate him for much of his employment history with the vendor.

[2] Philips Semiconductors, a division of the defendant Philips Electronics Ltd., (“Philips”) operated a plant to develop software for cell phones in Richmond B.C. The plaintiff, Thomas Major, an electrical engineer, began working for Philips in 1994 and was a senior employee in both California and India. He agreed at Philips’ request to transfer from its operation in Bangalore, India to the Richmond Plant in February 2001.

[3] In August 2001 Philips sold the assets of the Richmond Plant to Holley Communications Canada Inc. (“Holley”). Mr. Major and many other workers ended up working for Holley. He signed an agreement with Holley on September 14, 2001. In that contract Holley agreed to recognize his employment history with Philips for severance purposes.

[4] He was unfortunately dismissed by Holley without cause on October 9, 2001 as a result of differences in management styles. He obtained 17 weeks severance pay from Holley in November 2001 and signed a release, releasing Holley from further obligations. The original draft of the release purported to release Philips, but he would not sign that release. He now sues Philips for damages for breach of his employment contract with it.

[5] Philips claimed, among other things, the defence of novation. That defence was advanced at a summary trial before Fraser J. He concluded that Philips could not rely on novation. Fraser J. made certain factual findings. The parties agree that I am bound by them, but are not in complete agreement as to the import of those findings.

[6] Mr. Major was the only person who testified at this trial. Various letters, contracts and emails formed part of the evidence.

B. SUMMARY OF PHILIPS’ POSITION

[7] Philips now says that no damages flow from Philips’ breach of contract. Mr. Major took his full service and employment benefits with him to the purchaser Holley. Philips gave him two months notice of the sale, which was reasonable notice and sufficient time for him to make an informed decision. He received a severance package of 17 weeks — $58,000 — from Holley. Holley was not required to give him anything for the six weeks he was there. He could have sued Holley for more and did not.

[8] Philips says that he made an informed decision not to sue for more. It says he had the advice of a consultant that Holley could be held accountable for 8 to 12 months severance. He had advice from a lawyer before signing the release with Holley. Mr. Major settled for a low amount, but that is not Philips’ problem. He failed to reasonably mitigate his damages. He has sustained no loss as a result of the fact that Philips sold the business; rather, the loss was caused solely by Holley’s action. His other claims for medical and dental benefits, job search costs, immigration costs and lost vacation pay do not flow from any breach of contract by Philips.

[9] Philips notes that s. 97 of the Employment Standards Act, R.S.B.C. 1996, c. 113, (“the Act”) says that “if all or part of a business or a substantial part of the entire assets of a business is disposed of, the employment of an employee of the business is deemed, for the purposes of this Act, to be continuous and uninterrupted by the disposition.” While that section only applies for the purposes of that Act, Philips submits that the same principle should inform the principles relating to common law damages. It says this result is supported by Sorel v. Tomenson Saunders Whitehead Ltd. (1987), 15 B.C.L.R. (2d) 38, a decision of the British Columbia Court of Appeal, as well as two Ontario Court of Appeal decisions, Debenham v. CSI-Maximus, [2003] O.J. No. 1210 and Addison v. Loeb (1986), 25 D.L.R. (4th) 151. Philips says that cases relied upon by Mr. Major were either decided before s. 97 came into force or are distinguishable on their facts.

C. SUMMARY OF MR. MAJOR’S POSITION

[10] Mr. Major says that there was a new contract with Holley. He says that when the firm shut down, Philips repudiated the employment contract between him and Philips and at that point, an employee can look to the vendor for damages, even if the employee starts the next day with the new firm. He had no choice but to do what he did in the circumstances and did not consent or otherwise acquiesce in a way that would amount to a legal defence to his claim against Philips: McKeough v. H.B. Nickerson & Sons Ltd., [1985] N.S.J. No. 432 (S.C.T.D.). He can elect to sue Philips and did so. What happens after the breach goes to mitigation and the Court can deduct the money he obtained from Holley.

[11] Mr. Major submits that Philips is in effect rearguing the novation defence, which it lost at the summary trial. He specifically did not give up his right to claim against Philips. Therefore, Mr. Major argues, if novation applies, he has no claim against Philips. If it does not, the old employer can be held liable.

[12] He says that s. 97 specifically only applies to claims under the Act and does not inform the common law: Kennett v. Superior Millwork Ltd., [2003] A.J. No. 950.

D. DISCUSSION

[13] At common law the sale of the business as a going concern terminated the contract of employment between Philips and Mr. Major: White v. Stenson Holdings Ltd. (1983), 43 B.C.L.R. 340 (S.C.); Mercer v. Kits Cameras Ltd., [1989] B.C.J. No. 1104 (S.C.). Such a termination is without cause, and so he is entitled to notice or severance, unless the contact of employment was assigned or subject to novation. Both of these require his express consent: Nokes v. Doncaster Amalgamated Collieries Ltd., [1940] A.C. 1114 (H.L.). Assignation has not been pleaded and the novation defence was rejected by Fraser J. at the Rule 18A hearing.

[14] I am satisfied that Mr. Major did not voluntarily agree to give up his right to sue Philips when he accepted employment with Holley. He did assist with the negotiations with Holley. He was however placed in a position where he had no other choice. This conclusion is consistent with the evidence presented at this trial and not inconsistent with the findings of fact made by Fraser J.

[15] In this case there was an express term of the contract with Holley in which Holley agreed to recognize Mr. Major’s past employment. Even if there had been no such term, when a purchaser acquires a business as a going concern, there is an implied term in the contract of employment between it and those employees continuing in the service of the business, that the employees will be given credit for past years’ service with the vendor for purposes of notice of termination. The implied term may be negated by an express term to the contrary. Where the new employer does not advise the employees that it is unwilling to contract on the basis that the employees have credit for past years of service, the employer is deemed to have contracted with the employees on the basis that the employees will be given such credit: Sorel v. Tomenson Saunders Whitehead Ltd. (cited above).

[16] It does not follow that because Mr. Major has the right to sue Holley he loses the right to sue Philips for service with Philips. The British Columbia Court of Appeal in Sorel does not say the right to sue the vendor is lost. The Ontario Court of Appeal does not say so in either Debenham v. CSI-Maximus or Addison v. Loeb. Rather, the Courts focus on the duties of the purchaser.

[17] The duties owed to Mr. Major by Philips and by Holley, though similar in content because of the circumstances, are independent. Philips’ duty to Mr. Major arose through its contract of employment with him and his time spent in service with it. Holley’s duty to him, on the other hand, arose through its own separate contract of employment. One of the terms of this contract was that Holley agreed to assume an obligation to Mr. Major as if he had been working for Holley as long as he had been working for Philips.

[18] This term of the contract between Holley and Mr. Major cannot operate to remove the obligation owed by Philips to Mr. Major. Rather, it is a commitment by Holley to take on an obligation equal to that owed by Philips. Philips’ obligation arose, and the notice period is determined, at the time of the breach in August 2001 and what happened thereafter goes to mitigation: Dunlop v. British Columbia Hydro and Power Authority, [1988] B.C.J. No. 1963 (C.A.); Ostick v. Novacorp International Consulting Inc., [1989] B.C.J. No. 165 (S.C.). See also Howard A. Levitt, The Law of Dismissal in Canada, 2nd Edition, (Aurora, Ontario: Canada Law Book Inc., 1992), at 211.

[19] Upon the breach, Philips arranged for Mr. Major to have a reasonable opportunity for mitigation by securing employment for him with the purchaser, Holley. When Mr. Major was wrongfully dismissed by Holley, his right to notice or severance arose against Holley. This right included the notice which would have been due for his years of service at Philips because of Holley’s contractual agreement to do so.

[20] Therefore, Mr. Major was owed a duty of severance by both Philips and Holley after his termination by Holley. Those duties were substantially similar. The difference was that Mr. Major had accrued one month of extra service with Holley, and Philips had provided one month’s worth of mitigation by arranging the employment with Holley.

[21] It is not open to Philips to argue that Mr. Major failed to mitigate his damages by not making a claim against Holley for the full amount of his damages. Mr. Major suffered damage as a result of the wrongful actions of both Philips and Holley. He has a right of action against both and can enforce that claim against either. It is not a defence for Philips to claim that Mr. Major has not zealously pursued his claim against Holley; contribution, if it is an issue at all, is one which exists only between Holley and Philips.

[22] The common law rule against double recover ensures that Mr. Major can recover his damages only once, despite the fact that both Philips and Holley are liable for, by and large, the same damages.

[23] It was open to Philips and Holley to prevent this result by arranging an explicit novation, or at least an indemnity agreement between them. They did not do so.

[24] Section 97 of the Employment Standards Act does not assist Philips. The deeming of employment to be “continuous and uninterrupted” means that the employee cannot be considered to have been terminated on the sale of the business: Mitchell v. British Columbia (Director of Employment Standards), [1998] B.C.J. No. 3005 (S.C.). The Act therefore does not follow the common law principles. I cannot agree with Philips’ contention that this court should “take the next step” and find that at common law the employment is continuous.

[25] The Act does not abolish or replace the common law principles. The section specifically says it applies “for the purposes of this Act”. It is intended to govern only the internal operation of the Act. The section must be given a fair large and liberal construction that gives effect to the statute’s legislative purpose, including an interpretation that extends protection to more employees over an interpretation that does not. The section cannot be read so broadly as to create an employment relationship for the purposes of the common law and wrongful dismissal actions: Kennett v. Superior Millwork Ltd. (cited above).

[26] I agree with Mr. Major that Philips, at this trial, is attempting to reargue the novation issue. It is not entitled to do so.

E. AMOUNT OF DAMAGES (QUANTUM)

1. The Notice Period

a. General Principles

[27] The general principles relating to quantum of damages are well settled. Philips terminated the employment contract and it must give reasonable notice of the termination to Mr. Major. In determining what a reasonable notice period is, each case must be considered on its own facts. Key factors will be the responsibility of the employment function; Mr. Major’s age and length of service; and the availability of equivalent alternative employment: Ansari et al. v. British Columbia Hydro and Power Authority (1986), 2 B.C.L.R. (2d) 33 (S.C.); Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. H.C.). The impact of relocation on Mr. Major and his family can be considered: Lowndes v. John Crothall Hospital Services Ltd., [1993] B.C.J. No. 872 (S.C.).

[28] Notice periods ordered in other cases can provide some guidance, but are not determinative. I have considered and found helpful all of the cases relied upon by Mr. Major and by Philips.

b. Relevant Factors in this Case

[29] The following factors have been proven in this case and are relevant to the notice period.

[30] Mr. Major is 50 years old and has a master’s degree in electrical engineering. He was hired by Philips Semiconductors as an electrical engineer on September 12, 1994 and in 1998 was transferred to the Philips Software Centre in Bangalore, India, operated by the Dutch parent company, as director and general manager of all Philips Semiconductors design and developments activities.

[31] In the 1990’s there was a shortage of software engineers world wide. Philips decided to set up centres, including one for semi conductors, involving development of computer software for chips or reworking old software already there. He was the senior technical director on site. When he left he had 15 people directly under his control and 225 indirectly under his control.

[32] In early February 2001, Mr. Major was offered a position as Country Head, South Asia by CMOS Chips (Perfectus), in a similar position for $180,470 U.S. It differed, however, in that it involved hardware, not software, and he would be coming in at a much earlier stage and therefore would have much more control. He accepted February 4, 2001.

[33] When he advised Philips of his intention to accept this employment, Ivo Rutten contacted him about employment at the Richmond operation involving the development of software for cell phones in North America. Mr. Rutten is the general manager of the Cellular Units Business Line, North America. Mr. Major would be the software director for Business Line Cellular Americas (BL-CA), in charge of the technical development of software, and on–site manager of its plant.

[34] Philips would pay for relocation expenses from India to Canada. It would obtain the necessary work permits for him. He was told he would have jurisdiction over Philips’ BL-CA software engineering in Dallas and San Jose, as well as Richmond.

[35] At the time Mr. Major was contacted by Mr. Rutten there was still a shortage of software engineers and the market was still booming. He says that at this time Mr. Rutten was still speaking about growth opportunities of 30% in his own business line and others. They could try to get the European market.

[36] Mr. Major at first declined the offer. He then thought about it. While Richmond was not at the ground level like the Perfectus job, he could take advantage of the many contacts he had developed with Philips all over Europe. He felt that the “icing on the cake” was that his wife has relatives in the Lower Mainland.

[37] He then contacted Mr. Rutten and discussions began.

[38] He visited the Richmond plant and went to Dallas. There was a “handshake’ deal on or about February 26, 2001 in Dallas that was formalized in March. He told Perfectus he was withdrawing his acceptance on March 1, 2001. Mr. Major agreed, for Mr. Rutten’s benefit, to come as a local rather than an “ex pat”. That meant, among other things, that Philips did not guarantee his relocation if things did not work out.

[39] In April, while Mr. Major was still in California working in the office there and waiting for his work permit, senior Philips people were discussing either selling or closing the Richmond plant. Mr. Rutten knew this. No one told Mr. Major. The evidence called, however, was not sufficient to prove that a decision was actually made to sell before Mr. Major was transferred.

[40] Mr. Major’s salary at the time of his dismissal was $198,000. Philips argued that it was only $180,000 and the rest was in the form of a retention bonus. Mr. Major’s evidence was the only sworn evidence presented on this point and he said it was $198,000.

[41] His evidence is supported by other evidence: an e-mail dated July 19, 2001 from Denise Plumb, a Philips Human Resources Specialist, to Michelle Cross asking that his salary be adjusted to $198,000 retroactive to May 7, 2001; an explanatory email written by Mr. Rutten to Nancy Cryer, a Philips representative, sent March 18, 2002 in which Mr. Rutten says that Mr. Major’s income was set at a wrong level and then set at $198,000; and by the Asset Purchase and Technology Licensing Agreement dated August 23, 2001 which tentatively listed his salary at $198,000.

[42] This evidence, taken together, is significantly more compelling than the statement found in an unsworn email from Ms. Cryer to Ms. Plumb dated July 18, 2001. The e-mail characterizes the increase as “a form of retention bonus while he completes the Vancouver transition activities.”

[43] There were differences between the new position with Holley and the position Mr. Major held with Philips: the salary was different — $180,000, not $198,000; he was no longer in charge of software development at the Dallas site; he had to get head office authorization for every expense, no matter how minor; the title was different — he was no longer the software director and site manager, but first the general manager and then the director.

[44] Mr. Major’s work permit was specific to the Richmond plant and that hampered his efforts to obtain new employment after his termination by Holley. He had to retain legal counsel to regularize his immigration status. He could not go to the United States right away because his wife would not be able to come with him for approximately one year.

[45] He searched for employment, primarily over the internet, but was not successful until February 4, 2003 when he obtained employment with Carmanah Technology in Victoria, British Columbia, first on a contract basis and then, on April 1, 2003, full time. Philips has not alleged that, in this respect, he failed to mitigate his damages.

c. Conclusion – Notice Period

[46] I have taken into account that Mr. Major is 50, highly educated, and had significant managerial experience with Philips before taking the position at the Richmond Plant. He was in a senior management position over the seven years of his employment. His position at the Richmond Plant was very senior with considerable responsibility. He had every reason to believe when he accepted the Richmond position that it was a long term position in which his career would advance even further. He had to relocate to obtain the position, lost his “ex-pat” status, and was left in the position where he only had a work permit for that specific employment. In these circumstances an appropriate notice period is an additional twelve months at an income of $198,000 per annum. His earnings at Holley will be deducted.

2. Additional Expenses

[47] The case law relied upon by Mr. Major supports awards in damages for additional expenses. He is entitled to four weeks vacation pay because I am satisfied that he was unable to take a vacation during his job search period. He is entitled to expenses of $150, being a portion of his internet expenses that can be attributed to his job search. Significant expenses were incurred to obtain a further work permit and to obtain the appropriate immigration status. Those expenses would not have been necessary if Philips had not breached its contract with him. He is entitled to $6,124.36 for that purpose. Finally he is entitled to medical, including dental, expenses of $2,186.49.

F. COSTS

[48] Mr. Major is entitled to costs at Scale 3 unless counsel apply for a different order within 30 days of the date of this judgment.

“D.J. Martinson, J.”
The Honourable Madam Justice D.J. Martinson

Citation:	*Major v. Philips Electronics Ltd.,*
	2004 BCSC 438