Canada: CCAA: Is The Termination Of Employment Contracts Subject To Section 32 CCAA?

Last Updated: October 26 2012
Article by Jean-Yves Simard


On August 30, 2011, Hart Stores Inc./Magasins Hart inc. (hereinafter "Hart"), filed for protection under the Companies' Creditors Arrangement Act (hereinafter the "CCAA"). As part of the restructuring, Hart closed down 32 out of 92 points of sale and laid off 640 out of 1,600 employees. Included in the lay off are five executives, who are the subject of this bulletin.

The executives were all laid off by means of a simple notice of termination. On February 20, 2012, the five executives filed a motion contesting the termination of their employment contracts. Their application was based primarily on section 32 CCAA, which permits a debtor to resiliate certain agreements. This resiliation can be contested, and the court will then issue a ruling. Section 32(4) of the CCAA states as follows:

Disclaimer or resiliation of agreements

32. (...)

Factors to be considered

(4) In deciding whether to make the order, the court is to consider, among other things,

(a) whether the monitor approved the proposed disclaimer or resiliation;

(b) whether the disclaimer or resiliation would enhance the prospects of a viable compromise or arrangement being made in respect of the company; and

(c) whether the disclaimer or resiliation would likely cause significant financial hardship to a party to the agreement.

In this case, the monitor and the debtor contested the executives' application, arguing that their employment contracts were subject to the general rules of contract law and, therefore, could be terminated without giving any cause or notice. More specifically, the monitor and debtor submitted that section 32 CCAA only applies to agreements for services which could not otherwise be terminated unilaterally. They also argued that the initial order issued in the case expressly authorized Hart to lay off its personnel, according to its needs and the circumstances.

Before considering the issue raised in this case, Justice Mongeon referred to articles 2085 et seq. C.C.Q. and, more specifically, article 2091 C.C.Q., which reads as follows:

2091. Either party to a contract with an indeterminate term may terminate it by giving notice of termination to the other party.

The notice of termination shall be given in reasonable time, taking into account, in particular, the nature of the employment, the special circumstances in which it is carried on and the duration of the period of work.


Justice Mongeon worded the contentious issue in the following terms:

[Translation] Do the terms of section 32 CCAA apply on the termination of an employment contract where the contract can be terminated upon simple notice pursuant to article 2091 C.C.Q.?


At the outset, Justice Mongeon indicated that section 32 CCAA is "[translation] an exceptional and exorbitant provision of contract law" which must, therefore, be interpreted narrowly. Thus, this section only exists to allow a debtor having filed for protection under the CCAA to resiliate service agreements which it is otherwise unable to terminate.

Requiring the debtor to follow the procedure under section 32 CCAA for the termination of an open-ended employment contract would seem unreasonable given the unwieldiness of this mechanism. Indeed, this provision requires the approval of the monitor or the court, followed by an elaborate process for contesting the application before the court, with the termination taking effect only 30 days after this process is complete. In the specific context of Hart's restructuring, to conduct the layoffs of nearly 600 employees using the procedure required by section 32 CCAA would have been completely unmanageable.

According to Justice Mongeon, this seems even more inconceivable when one considers that the ordinary rules of the general law permit the resiliation of a contract upon simple notice, without having to give any reasons or good and sufficient cause, subject to damages.

Moreover, Justice Mongeon noted that the great majority of initial orders rendered in Quebec under the CCAA authorize debtors to terminate employment contracts without establishing any specific procedure for doing so. At the same time, for the resiliation of service agreements, such initial orders generally contain directives similar to those set out in section 32 CCAA.

Justice Mongeon acknowledged that section 32(9) CCAA expressly refers to specific agreements which are not subject to the terms of section 32 CCAA, and does not mention individual employment contracts. However, he was of the opinion that this in no way changes the fact that Quebec civil law allows the termination of certain agreements without the need for any intervention by the courts, and that such agreements in no way require the mechanism provided for in section 32 CCAA.

The expression "any agreement" contained in section 32 CCAA only extends to agreements which cannot be resiliated otherwise than through the mechanism contained in this section. Indeed, the legislator did not use the expression "all agreements", which would have meant that no agreement could escape the procedure under section 32 CCAA. This provision simply reflects the will of the legislator to offer debtors an exceptional means outside the general law for terminating obligations of which they would otherwise be unable to divest themselves. To interpret this provision in the manner submitted by the applicants would significantly encumber, if not paralyze, the process for laying off employees of debtors already struggling with financial difficulties.


Thus, contrary to what one might otherwise understand after a first reading of section 32 CCAA, this provision does not apply to "all agreements". Indeed, even outside the exceptions specifically referred to therein, this section does not apply to individual open-ended employment contracts. The judge properly understood the scope of section 32 CCAA and the legislator's intention to offer debtors in financial difficulty an effective means for resiliating agreements in order to promote their restructuring. The purpose of section 32 CCAA is certainly not to encumber the process for reducing the debtor's workforce, which is frequently a difficult, but essential, component of corporate restructuring.

Written with the collaboration of Leïla Yacoubi, student-at-law

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.