In Tonn v Sears Canada Inc.1 the British Columbia Supreme Court rejected a plaintiff’s attempt to certify a class action for wrongful dismissal under the Class Proceedings Act2 (“CPA”). However, this was not the end of the road for the plaintiff, as the court provided him with significant guidance towards trying again.

Background: the sale of business assets

In March 2013 Sears Canada Inc. (“Sears”) sold certain assets to another company, SHS Services Management Inc. (“SHS”) Pursuant to the agreement in question, SHS had the discretion to offer employment to any of Sears’s affected employees, but if it did so, such employment would be on substantially the same terms and conditions and SHS would assume all employment liabilities after closing. The majority of the affected Sears employees were offered and accepted employment with SHS (the “Employees”).

SHS went into receivership within a year of the transaction and the Employees were terminated. Leonard Kenneth Tonn, who was among those affected, commenced an action for wrongful dismissal against Sears, arguing, in part, that his employment had been terminated without cause and without notice by Sears effective the transaction. Mr. Tonn sought certification of the proceeding on behalf of all 81 Employees, described as:  “All persons employed by the defendant in its Home Services Business in the Province of British Columbia under contracts of indefinite duration which were terminated on or about March 2, 2013.”

Among other things, Sears defended the action on the basis that there was a novation of the Employees’ employment agreements with Sears. In other words, Sears has argued that pursuant to the transaction, the Employees and SHS consented to a transfer of the employment and associated liabilities to SHS and released Sears of its obligations. Sears otherwise opposed certification.

Judge dismisses class certification but provides guidance for amendments

The court addressed the five criteria set out in section 4(1) of the CPA:

4 (1) The court must certify a proceeding as a class proceeding on an application under section 2 or 3 if all of the following requirements are met:

  1. he pleadings disclose a cause of action;
  2. there is an identifiable class of 2 or more persons;
  3. the claims of the class members raise common issues, whether or not those common issues predominate over issues affecting only individual members;
  4. a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues;
  5. there is a representative plaintiff who
  1. would fairly and adequately represent the interests of the class,
  2. has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and
  3. does not have, on the common issues, an interest that is in conflict with the interests of other class members.

Identifying a number of concerns with the manner in which the putative class and common issues were framed, the court held that the class was overly broad (capturing 15 employees who did not commence employment with SHS) and that the issues, as outlined, were not necessarily common to all members of the proposed class. Importantly, however, the court indicated that regardless of these deficiencies under the CPA, the action might be certified in the future pending certain amendments: “the proceeding is not yet ready to be certified as a class action, but it has the potential to become one.”3

Although Madam Justice Griffin declined to make the necessary modifications to the application herself, she did grant leave to amend, and provided guidance to the plaintiff in her reasons as to how those amendments might look. Justice Griffin otherwise declined to decide whether the plaintiff was an appropriate representative plaintiff, or whether a class proceeding was the preferable procedure. 

A noteworthy case for employers and organizations seeking to sell or purchase a business

Tonn is noteworthy for two reasons. First, while the court declined to amend the application under the CPA on the basis that the changes required were too extensive, it nevertheless commented on the “potential” for certification and provided the applicant with significant guidance towards filing an amended application.

Second, Tonn involves a claim of wrongful dismissal where the proposed class were all employees who had not only been offered employment with the purchaser, but whom had been employed by the purchaser for some nine months following the transaction. As stated by the court: “[t]he significant issues affecting [Tonn] will be the meaning and legal effect of standard terms in the new employment contracts between the class members and SHS; and the meaning and legal effect of the Asset Transfer Agreement between Sears and SHS.”4 If and when decided, Tonn could provide guidance on the employment liabilities arising out of a business transaction.

In sum, Tonn makes evident that deficiencies in both the description of the putative class and the articulation of the common issues will not necessarily be fatal to certification; denial in the first instance does not always preclude an applicant from amending and trying again with the benefit of the court’s leave and insight. In any case, the prospect of an 81-employee class claiming damages for wrongful dismissal against the vendor of a business should be a caution to any organization seeking to dispose of all or part of its operations to pay particular attention to the associated employee issues and terms.