Separation or divorce is already emotionally and legally complex—but when spouses also co-own a family business, the issues multiply. One key question arises frequently in Alberta family and employment law:
Can a spouse who is “bought out” of the business also claim severance through a wrongful dismissal claim?
This post explores how courts have addressed wrongful dismissal and reasonable notice in the context of family-run businesses and marital breakdowns.
Employee, Owner, or Both? Understanding the Legal Distinction
It may seem counterintuitive that a co-owner of a business could also be an “employee” entitled to reasonable notice upon termination. However, Canadian courts have long held that shareholder status does not nullify employment rights.
However, regardless of their ownership interest, business owners are employee’s and have many of the same rights available to employees under statute and the common law. For example, when an owner has their employment terminated, they can still claim for wrongful dismissal, as there is still an employment contract that can be breached. In other words, employment law rights stand independently from ownership interests.
Alberta Application: Severance Claims Amid Divorce
In Alberta, this principle can apply in situations where:
- Spouses co-own a business and one spouse is effectively terminated.
- The departing spouse provided legitimate work as an employee (e.g., management, operations, finance).
- A buyout or business valuation is occurring as part of the divorce or separation settlement.
In such cases, the “terminated” spouse may be entitled to reasonable notice or severance as part of their employee status—separate from their entitlement as a shareholder or their spousal support rights.
Exceptions and Limits: When Claims May Be Rejected
Not all spouses can successfully claim for wrongful dismissal award.
In Guckert v. Koncrete Construction Ltd., 2009 SKQB 484, the Court rejected the wife’s wrongful dismissal claim during a divorce proceeding, primarily because she had not provided meaningful work in the company’s day-to-day operations. Her income came solely from her role as a shareholder. The Court explained that an employee must provide services to an employer in consideration for salary or wages, meaning a spouse who simply collects dividends cannot be treated as an employee because they hold a job title.
Other courts have also warned against double recovery. If a spouse is compensated for both the value of shares based on a matrimonial property award, any severance that is concurrently awarded be accounted for in the value of the shares; see Belman v. Belman, 1995 CanLII 7220 (ON SC).
Legal Strategy: Coordinating Family and Employment Law Advice
When marital separation overlaps with business ownership, it’s critical to separate employment law rights from family law claims, including:
- Wrongful dismissal vs. spousal support
- Valuation of the business vs. reasonable notice
- Active employment vs. passive shareholder status
Each stream may be independently claimable, but they can also interact. For instance, a severance package could affect how the business is valued during property division.
Conclusion: Key Takeaways for Alberta Family Business Owners
If you’re facing separation and were working in a family business:
- Don’t assume ownership bars you from severance.
- Employment contracts and work contributions matter.
- Coordinate your legal strategy across family and employment law.
If you’re the spouse continuing the business, be aware that termination of your ex-spouse’s employment may come with obligations under Alberta’s Employment Standards Code or the common law.
Contact Info
If you are dealing with a legal matter surrounding separation and divorce, please contact the lawyers at Kirk Montoute Dawson LLP today for family law advice.
Please note that we are not employment lawyers. If you’re looking for an employment lawyer, contact our friends at Cashion Legal, who can assist with employment law related matters.