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
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
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
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
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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