Canadian forest products companies have been grappling with capacity idling decisions over the past several years. To date, such decisions have been largely based on a particular mill’s cost structure or linked to commodity pricing swings. Plants generally have been idled on a "temporary" basis. However, increasing numbers of facilities have been "indefinitely" idled. Companies are furthermore creeping towards the "permanent" shutdown of certain of their facilities.
The transition from an indefinite shutdown to a permanent shutdown triggers the application of various rules in the areas of environmental remediation, employee obligations and public domain cutting rights. These rules vary from province to province. The differences in such rules may in fact be determinative as to whether a company’s plant in Quebec, Ontario, Alberta or British Columbia is ultimately permanently shut down.
a) Environmental Remediation Obligations
Forest product facility sites which are in operation generally contain some "ordinary course" environmental contamination. Leachate may be generated from chip, bark and other wood waste disposal areas. Other issues may include underground storage tanks, mercury found in lighting fixtures, PCBs used in electrical transformers or spilled diesel fuel or other hydrocarbons. Current operators of long-standing sites may not have full knowledge of prior contamination.
Pursuant to Québec and British Columbia legislation, the permanent cessation of operation of sawmills, pulp mills and certain types of wood mills triggers the obligation to provide the respective provincial ministries of the environment with a report of the environmental condition of the site, namely a characterization study in Québec and a site profile in British Columbia. The report must be provided to the ministry within six months of the permanent shutdown in Québec and not less than 10 days before the shutdown in British Columbia. In Alberta, pursuant to the Alberta Code of Practice for Sawmill Plants, the registration holder for the sawmill must provide the Alberta Environment Ministry with a reclamation plan within six months after a sawmill permanently ceases operation.
The various legislations prescribe different content for such reports, but generally they include an overall description of the site, records of spills, records of the presence of certain waste and other hazardous substances on the site and identification of areas of concern of contamination. In the event the report reveals contamination of the site, the provincial ministry of the environment may issue an order to decontaminate and remediate the site.
Only a permanent shutdown triggers the obligation to deliver a report. Several factors are taken into consideration to determine whether a mill has been permanently shut down. A collective layoff or the dismantling or removal of necessary equipment from the mill are considered as indicators of a permanent shutdown. Moreover, in Québec, if a mill has not been in operation for 18 months, it is presumed to be permanently shut down and, absent an extension granted by the authorities, the obligation to provide a report is triggered. No such time prescriptions exist in Alberta or British Columbia. Therefore, in these provinces, a mill may theoretically remain "temporarily" shut down for an indefinite period without triggering the obligation to provide a report.
No such obligation to provide a report is triggered in Ontario by the closure of a mill. Remediation obligations associated with a shutdown site are identical to the relatively standard remediation obligations applicable to an operational site: where known contamination is caused by a spill or is causing an adverse effect, the owner must report the spill and there is a duty on the owner or the person having charge of the spilled pollutant to restore the environment. The Ontario Ministry of the Environment may, at any time, issue a remediation order for the site to any person who owns or has control of a site if there is reason to believe that the order is necessary to prevent the risk of a discharge of a contaminant into the natural environment from the site or to prevent an adverse effect that may result from the presence of a contaminant on the site.
b) Employee Obligations
The termination of employees in the context of a mill shutdown may trigger certain obligations in addition to those applicable to termination of employees within the ordinary course of business. Where a shutdown constitutes a "collective dismissal", in Québec, Ontario, Alberta and British Columbia, the employer must submit a notice of collective dismissal to the respective provincial minister of employment and to any concerned employees. The length of the advance notice required varies according to the province and the number of employees affected.
As demonstrated in the table below, each province has set its own standards as to when a group termination constitutes a "collective dismissal". A "collective dismissal" is defined as a function of the minimum number of employees affected, the minimum duration of the layoff and the timeframe within which the layoffs occur for a given establishment.
In each of the aforementioned provinces, if the mandatory notice is not given, the employer must pay employees termination pay of an amount at least equal to the wages the employee would have earned if the employee had worked the regular work hours for the applicable notice period.
The collective agreement for a mill may provide for more onerous employee termination provisions.
c) Loss of Cutting Rights
The closure of a sawmill or reduction in production does not have a direct impact on sustainable forest licenses in Ontario, timber quotas in Alberta or forest licenses in British Columbia. However, in Québec, the Minister of Natural Resources and Wildlife (the "MNRW") may terminate a timber supply and forest management agreement (known as a "CAAF") if the wood processing plant operated by the agreement holder has not been in operation for six months. In this case, the MNRW must give prior notice before terminating the CAAF and the CAAF holder may submit a business plan for resuming operations within the 60 day period after notice. The MNRW may not terminate the CAAF before the expiry of 30 days after the business plan is submitted. Where a mill ceases its operations permanently, the MNRW may terminate the CAAF without prior notice.