April 16, 2009
Employee contract rights overridden by bankruptcy
A Canadian employee who was fired after his company sought bankruptcy protection found himself out of luck in his claim for wrongful termination. In West Bay SonShip Yachts Ltd. v. Esau, Gerald Esau had been an employee of West Bay for nearly 15 years, when his insolvent employer filed an application for protection under Canada's Companies' Creditor Arrangement Act, seeking to reorganize. A month later Esau was notified that he was terminated as VP of the company. Esau subsequently brought a wrongful termination action against the bankruptcy plan.
The British Columbia Court of Appeals held that because Esau's contract with West Bay was executory at the time the petition was filed, the terms of the agreement were overridden by the CCAA plan, which allowed West Bay to rationalize its business and thus change his contract rights. The court noted that "it has now become common [in CCAA proceedings] for courts to sanction the indefinite, or even permanent, affecting of contractual rights."
Lawyers David W. Mann and David LeGeyt of Calgary's Fraser Milner Casgrain LLP offer a synopsis of the case in this client memorandum. (Free registration required.)
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