Rizzo & Rizzo Shoes Ltd. (Re)

On January 22, 1998, the Supreme Court of Canada held that employees whose employment is terminated as a result of bankruptcy are entitled to termination and severance pay under the Employment Standards Act (ESA).

The case began when the Ministry of Labour delivered a proof of claim of termination and severance pay to the trustee in bankruptcy of Rizzo & Rizzo Shoes. However, the trustee refused to pay the claim on the basis that the bankruptcy of an employer did not constitute dismissal from employment and accordingly created no entitlement to severance, termination or vacation pay under the ESA. The Ministry successfully appealed to the Ontario Court (General Division) but the Ontario Court of Appeal overturned the decision and restored the trustee's decision. The Ministry then abandoned the case, but five former employees of the company obtained leave to appeal to the Supreme Court of Canada.

The Supreme Court allowed the employees' appeal holding that they were entitled to the payments. The Supreme Court's decision is one of the leading cases on statutory interpretation. While the plain language of the ESA seemed to suggest that termination pay and severance pay were payable only when the employer terminates the employment, the Court held that the words of an Act must be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

The Court of Appeal had failed to read the language of the ESA in this broad manner, the Supreme Court held. It noted that the purpose of the termination and severance pay provisions were to protect employees, to recognize their service and investment in the employer's enterprise and to cushion them against the adverse effects of economic dislocation. To hold that (more junior) employees terminated prior to bankruptcy would be entitled to termination and severance pay while (more senior) employees terminated upon bankruptcy would not would be absurd, the Court held:

The trial judge properly noted that, if the ESA termination and severance pay provisions do not apply in circumstances of bankruptcy, those employees "fortunate" enough to have been dismissed the day before a bankruptcy would be entitled to such payments, but those terminated on the day the bankruptcy becomes final would not be so entitled. In my view, the absurdity of this consequence is particularly evident in a unionized workplace where seniority is a factor in determining the order of lay-off. The more senior the employee, the larger the investment he or she has made in the employer and the greater the entitlement to termination and severance pay. However, it is the more senior personnel who are likely to be employed up until the time of the bankruptcy and who would thereby lose their entitlements to these payments.

The Court also held that the legislative history of the termination and severance pay provisions and the other provisions in the ESA supported an interpretation that such benefits were payable to employees whose employment is terminated upon bankruptcy. The Court also ordered the Ministry of Labour to pay the employees' costs, since it had not provided the Court with any evidence as to the effort it made to notify or secure the consent of the Rizzo employees before it discontinued its application for leave to appeal to this Court on their behalf.

The employees were represented by Steven Barrett

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