A recent decision of the Ontario Labour Relations Board (the “Board”) clarifies the statutory termination and severance pay framework in the Ontario Employment Standards Act, 2000 (the “ESA”) as it relates to a change in building services providers.

The decision of the Board amended an Order of the Director of Employment Standards (“DES”) directing Supreme General Services Inc. (“Supreme”), the old building services provider at River Park Towers (“River Park”), to pay termination pay to an employee – Ms. Beals – who lost employment as a result of a change of services providers. Consistent with the ESA, the Board held that the new building service provider, Klean U Services Inc. (“Klean U”) was responsible for Ms. Beals’ termination pay.

Pursuant to the ESA, “building services” includes services for a building with respect to food, security, cleaning and property management services, and services that are intended to relate only to the building and its occupants and visitors with respect to a parking garage or parking lot. A “building service provider” is a person or company which provides such services for the building and it includes the building service provider’s owner or manager of a building if providing such services. The ESA has unique provisions governing building service providers, which – given the periodic re-tendering and termination of business service contracts – are of particular importance to those engaged in bidding on contracts to provide building services.

Section 75 of the ESA provides that, where a provider of building services is replaced by a new provider, it is the new building services provider who is responsible for termination and severance pay obligations towards any employee of the former provider it does not continue to employ.

On June 17, 2014, the President of Supreme, Ms. Caiado, was given less than one weeks’ notice of the termination of Supreme’s building services contract at River Park.  Despite her inquiries, Ms. Caiado was unable to determine the identity of the new building services provider so as to attempt to arrange for some of Supreme’s employees to transition to employment with the new building services provider. In light of Ms. Caiado’s failed attempts to gain more information about the new provider and the short notice provided by River Park, Ms. Caiado could not arrange for such a transition.

Without Ms. Caiado’s knowledge, Klean U had engaged in discussions with the builder/owner of River Park as early as June 2, 2014 to replace Supreme as the building services provider on the premises. Klean U subsequently secured the services contract, which was to be effective on June 23rd, 2014.

While employees of Supreme were advised of the termination of the contract and their employment on June 20th, one employee – Ms. Beals – did not receive the termination notice, but was informed of her termination by a security guard at River Park. Ms. Beals’ last day of work for Supreme was June 21st, when she handed in her keys at the end of her shift. While she was scheduled to work on June 22nd, she chose not to attend that day’s scheduled shift.

Position of the Parties

Supreme did not dispute that Ms. Beals was entitled to termination pay, but relied on the Ministry of Labour’s interpretation of section 75 of the ESA which states: “[t]he new provider shall comply with Part XV (Termination and Severance of Employment) with respect to every employee of the replaced provider who is engaged in providing services at the premises and whom the new provider does not employ as if the new provider had terminated and severed the employee’s employment.”

The DES took the position that Ms. Beals’ last day of work was June 21st, therefore as of June 23rd, Ms. Beals could not have been considered an employee “who is engaged in providing services at the premises” within the meaning of ESA subsection 75(2). Instead, the DES argued, that Ms. Beals had been engaged by Supreme and her employment ended before the new contract with Klean U commenced, therefore Supreme was responsible for Ms. Beals’ termination pay.

Decision

Key to resolving which of the two building services providers was responsible for payment of termination pay was the timing of Ms. Beal’s termination of employment. If the Board determined that Supreme had not terminated Ms. Beals effective her last day of work, then Klean U would have been responsible for her termination pay because there would have been no break in Ms. Beals being “engaged in providing services at the premises” between the old contract with Supreme and the new one with Klean U.

After a detailed review of the building service providers sections in the ESA, the associated regulations, as well as the policy considerations of such sections, the Board found that despite Ms. Beals having been advised on June 20th that her services were no longer required, her decision to forgo her last shift and the handing in of her keys on June 21st, “…did not constitute termination of her employment by Supreme as of that date, nor was it a quit.” It was determined that, “at most her action would have caused Ms. Beals to fall within that class of employees not actively at work immediately before the changeover date, but who did perform their job duties primarily at the premises during the most recent 13 weeks of active employment, as stipulated at subsection 2(1).2 of the regulation.”

Therefore, Ms. Beals still fell within the ambit of the statute as an “employee of the replaced provider who is engaging in providing services at the premises.” Consequently, Klean U was responsible for Ms. Beals’ termination pay.

Our View:

At the most basic level, section 75 of the ESA has the effect of shifting liability for termination and severance pay owing to employees from the old building services provider to the new one. In effect, the new building service provider is incentivised to retain the old building service provider’s employees; the upshot of which is that a vulnerable group of workers is protected.

This decision is a reminder to new service providers to be aware of the potential liability which may result from not hiring employees of the old building service provider. The counter intuitive building service providers provisions of ESA as they relate to termination and severance can lead to unforeseen liabilities. Providers should engaged in a meaningful exercise of gathering employee information before securing a bid by identifying prospective employees and determining the potential amount of termination pay owing to make an informed and cost-effective decision.

Additionally, this decision indicates that a new building service provider may be liable for employees that appear to have left their job with the old building service provider. While the facts in this case suggest that the new building service provider had no intention of employing the claimant (which likely played a part in the Board’s decision), nonetheless it leaves open the possibility that a new building service provider can be on the hook for an employee’s termination payments even if he or she recently was not physically at work with the old building service provider immediately prior to the change of providers. To protect against such a finding, the new service provider should conduct appropriate diligence on all existing and relevant employees of the old service provider.