Arbitrator Denies Severance to Employees on Strike at the Time Their Employer Went Out of Business

In a recent decision out of Saskatchewan, an arbitrator denied severance pay to employees who were on strike at the time their employer went out of business.

The employer ran a specialized printing company that printed tickets for professional sports teams, airline tickets and boarding passes, transit tickets and passes for the Toronto Transit Authority, and more. Many of the staff had been employed by the company for more than 10 years and some employees had more than 30 years’ seniority.

Prior to collective bargaining in 2008, the union had heard rumors that the employer was experiencing financial difficulties. Each of the bargaining units normally negotiated their agreements separately, but in 2008, collective bargaining negotiations were grouped together at a common table. During the negotiations, the company made clear that it was in fact experiencing financial trouble and explained that without considerable compromises there would be a definite loss of business.

The employees went on strike. Days after the strike commenced, the employer presented to the union a letter indicating that effective September 18th, it would implement the terms of its final offer and stated that employees were welcome back to work. However, the employees did not return to work. As a result, the employer decided to close the plant, which took effect on December 18th.

The company acknowledged that provisions of the collective agreement which had vested prior to the termination of the agreement could be enforced after the termination of the agreement. For example, if the employer had not paid wages to an employee that had been earned prior to the termination of the collective agreement, the wages, as the right to them had been vested, could be recovered despite that the collective agreement had been terminated.

However, it was the position of the employer that unlike wages or pension benefits, severance pay is not a vested right but is a contingent right which may never arise. Further, if employees voluntarily resign, they are no longer entitled to severance pay.

Further, even if the employees had returned to work, they would have done so under the terms and conditions of employment imposed by the employer on September 18th and those terms and conditions contained no provision regarding severance pay.

The union argued that severance benefits provided by the termination of the collective agreement had vested prior to the termination and could therefore not be withdrawn unilaterally. In the alternative, common law principles regarding severance pay apply where there is no express provision in the collective agreement.

The arbitrator came to the conclusion that severance pay provisions are a contingent right. Therefore, in order for an employee to be entitled to severance pay, there must be a “triggering event”. In addition, the severance (or triggering event) must occur before the collective agreement is terminated.

The arbitrator explained that because the agreements were terminated prior to the severance of the employees, it was impossible to say that the “essential nature” of the dispute between the parties arose from the interpretation, application, administration or violation of the collective agreements.

The arbitrator found that even if it had been appropriate to rely on common law principles in order to interpret and apply a collective agreement, there was, in this case, no agreement into which the principles could be inserted. The arbitrator therefore found himself to be without jurisdiction.

The arbitrator’s decision, therefore, was that severance pay provisions could not be enforced and common law principles could not be inserted as the collective agreements had been terminated prior to the dispute. The union has appealed the ruling.

We will keep readers apprised of the outcome of the appeal.