01 Sep 2010
September 1, 2010

Family Feud

Gulf Coast Materials Ltd. v. Helgesen, 2010 BCSC 1169

I once represented a client who had been dismissed by a company for alleged cause. The client had previously sold the company and stayed on as a manager. Two things made the case unusual. First, the day before the client was to give evidence, she died of a heart attack. Secondly, the client had sold the company to her children—the kids had fired mom!

I am increasingly consulted about employment matters that affect small and medium-sized family-owned businesses. As with the above case they are often unique. Matrimonial disputes are a good example – what if one spouse is the owner of the company and terminates the other spouse who works for the family business?

The B. C. Supreme Court recently addressed the issue of employment matters arising in the unique context of a family owned business. In Gulf Coast Materials Ltd v. Helgesen, two very successful brothers operated many businesses—some owned separately, some owned jointly. They had a falling out. Gulf Coast Materials Ltd. (“Gulf Coast”) was jointly owned 50/50 but was managed on daily basis by Mhinder Mayer (“Mhinder”). Bhern Mayer (“Bhern”) was the president. Mhinder hired Helgesen to work for Gulf Coast after Mhinder had laid him off from a company owned by Mhinder’s wife and over the strong objections of Bhern. Bhern told Helgesen in writing that he was not an employee of Gulf Coast, he would not be paid by Gulf Coast and if he continued to show up for work he would be charged with trespassing. Bhern even called the RCMP to come and remove him (they refused to get involved). Helgesen kept showing up for work and although he was never paid by Gulf Coast he received the equivalent of wages in the form of a loan from Mhinder and his wife.

Helgesen filed complaints with the Director of Employment Standards claiming $18,000 in wages. The Director’s delegate found that Helgesen had been employed by Gulf Coast and awarded him $93,000. The Court on judicial review upheld the findings of the Director with respect to liability but reduced the award to 6 months wages, citing a limitation under the Employment Standards Act.  The Court made observations that would resonate with many employers faced with the adjudication of employment standards complaints (see paras. 3,74-76). It described the judicial review analysis as “a descent through a rabbit hole to an alternate reality” that “is of no consequence, provided that the alternate reality is not a patently unreasonable one”. It noted that:

The dispute between Mr. Helgesen and Gulf Coast also took on monetary and legal significance beyond the scope of the Complaint because of inordinate delay in what is intended to be a fair and efficient remedial administrative process.

As seen in Gulf Coast, family-owned businesses must carefully consider how a fall out between family members might affect the business. The emotional aspects of a dispute within the family must be separated from the business needs of the enterprise. Here the deadlock was resolved by the company’s articles. A written employment contract might solve other challenges that arise in a marital breakdown or other dispute among family members.

Ultimately, the Court broke the tie in a separate application, finding that Gulf Coast’s articles gave Bhern a “second or casting vote” which gave him the final authority in acting on Gulf Coast’s behalf.

I encourage family-run business clients to address business issues including corporate governance, estate planning, successorship, tax and, yes, even employment issues, well in advance of any potential family fall-out. So avoid becoming the next contestant on the Family Feud, where only the lawyers win.