Canada: Collective Agreement Severance Not Payable — Only Accrued Rights Survive Termination Of The Agreement

Employees terminated after the expiry of their collective agreement are not entitled to severance pay.  That is the bottom line, and the end of the line, for the former employees of Mercury Graphics since November 8, 2012 when the Supreme Court of Canada refused to hear their appeal.  The Saskatchewan Court of Appeal decision stands and provides some useful guidance for employers throughout Canada.

It is important to note that the result could be different under different collective agreement language.  Some things to consider are highlighted below.

In the case of Mercury Graphics, the collective agreement term ended and the parties could not negotiate a renewal.  The employer locked out the employees and invited them to return on new terms and conditions.  The lockout served to terminate the collective agreement in accordance with its terms.  No employees returned to work and the employer eventually shut down and terminated all employees.  The union claimed severance pay under the terms of the old collective agreement.  The arbitrator denied the grievance and the courts agreed.

The union argued that the severance rights under the old agreement had accrued and vested before termination of the collective agreement.  They lost that argument based on the language of the agreement.  Some rights clearly accrued and vested, but the severance pay had no such language.  Severance was only payable once employment was terminated.  And since employment was terminated after the collective agreement had terminated, there were no severance rights.

The union then argued that individual employment contracts arose upon termination of the collective agreement and the employees were entitled to common law severance.  They lost that argument for a couple of reasons.  First, the arbitrator's jurisdiction is based on the collective agreement, and this claim was for something that did not arise under the collective agreement.  Second, and in any event, individual contracts of employment only arise at the end of the collective bargaining relationship, not at the end of the collective agreement.  Even though the employees were terminated and the plant was shut down, the union still held collective bargaining rights.

Things to Consider:

Look at your collective agreement language.  How and when is the collective agreement terminated?  How is the severance provision worded?  Might it be construed as creating an accruing right, or something that vests at the end of the agreement?

Think about future collective bargaining.  Do you need to negotiate some changes to avoid an argument that severance rights  (or other rights) are accruing and may be vested even if the collective agreement has ended?  Is the union seeking language changes to achieve that result?

Watch out for bargaining demands that tie severance back to Employment Standards.  In BC, so called "severance" is actually "compensation for length of service".  It is an accruing right that would survive the end of the collective agreement.

Also in BC, remember that the Employment Standards Act group termination provisions apply even when there is or was a collective agreement in place.

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