Friday, July 5, 2013

Dismissed Employee Wins Summary Judgment, 7 months into 18 month notice period

There's an interesting new case just released yesterday from the Ontario Superior Court of Justice, involving a wrongful dismissal claim by a long-service manager, who brought a motion for summary judgment.  The case is Bernier v. Nygard International Partnership.

Diane Bernier was a manager for Nygard from August 1999 until her dismissal without notice on December 4, 2012.  In the last four years of her employment, her compensation package was worth approximately $190,000 per year, including salary, bonus, car allowance, benefits, etc.  She claimed (and was awarded) pay in lieu of 18 months' notice.

So it's a big claim.  And there were a few issues to be dealt with.  But what's most interesting about this case is the timeframe.  It's frankly impressive to have gotten into Court on a motion for summary judgment barely six months after the termination (the hearing was June 6, 2013), and it raises additional issues to deal with when you're looking at an 18 month notice period - namely, mitigation.

A dismissed employee generally has an obligation to mitigate, and to account for mitigation earnings during the notice period.  So if I'm dismissed and entitled to 18 months' notice, but I sit on my hands watching soap operas for the whole 18 months never looking for a job, I will likely have my entitlements significantly reduced for my failure to mitigate.  (Likewise if I receive a decent job offer but turn it down without reasonable justification.)  On the other hand, if I get a new job 12 months in, then my earnings in those last six months of the notice period will be discounted from the award of damages.

So when you get into Court before the end of the notional notice period looking for an award of damages in respect of income that you wouldn't even have earned yet and still have an obligation to try to mitigate, that creates an awkward result.

What I've seen argued occasionally is that there should be a 'discounting' for possible mitigation.  There's some authority for it, though I don't know of any employment cases where it has happened in Ontario.  Usually, you're not in Court so long before the end of the notice period that it's worth discounting - if there are only a couple of months left in the notice period, then the probability of mitigation having a significant impact on damages is pretty low.

But in this case, where they were in Court a year before the end of the notice period, with six digits worth of wages still subject to possible mitigation, that's an issue that simply can't be ignored.  The plaintiff's lawyer, however, had a very interesting solution, relying on a 30-year-old Ontario High Court precedent:  Impress an award of damages with a trust.  It's unusual language, but what it means is that it preserves a duty to account for any mitigation earnings, dollar for dollar.

It's an imperfect solution to a difficult problem.  Firstly, it still has the effect of absolving an employee of the duty to mitigate.  Suddenly, barring a successful appeal, there is no prospect of anyone being able to hold her feet to the fire in terms of her job search efforts.  If she ends up spending the next 11 months on the couch, or vacationing, or writing a novel, that's fine...and what's more, there is zero incentive for her to actually find a new job before the end of the notice period - she's getting her damage award anyways, so it's not like there's the usual hardship pending adjudication of the wrongful dismissal claim; she can't be threatened with reduced damages for failure to take reasonable steps; and every dollar she earns will be paid to her old employer.  (I also question whether or not there may be troubling tax implications of such a situation.)

Secondly, mitigation income isn't always straightforward, and there are always loopholes.  The wording of the endorsement deals only with employment income.  There are other types of income which are, or at least can be, properly characterized as mitigation earnings.  (Not to mention some employment income which may not be, but that's unlikely to be a concern here.)  The characteristic of mitigation earnings is that it is money that you would not have had the opportunity to earn if you had still been working your old job.  So, in general, you get fired from a full time job, you get a new full time job, that's mitigation.  (One can easily imagine a much more difficult scenario where you have a day job and an evening job, get fired from your day job, and manage to pick up some more late evening shifts to offset the lost income.)

People earning $190,000 per year often have skill sets to begin their own consulting businesses.  Would self-employment income be properly characterized as employment income?  While the answer may be yes in context, I would generally be inclined to answer that question in the negative.  So that could conceivably require further litigation.  Regardless, one could incorporate and pay the income by way of dividend instead, in which case it would be even harder to characterize as employment income, even though it still ought to be considered mitigation earnings.

But the point isn't that the terms of the trust are underinclusive - the point is that it's hard to capture potential mitigation earnings in a way which is both comprehensive and definitive, and with a trust it's important to have clarity.

Still, I think that, with increasing numbers of wrongful dismissal files being open to determination by summary judgment, this is an issue that will come up in the future, and while there may be arguments to be made against it in the right case, the Bernier approach to the problem is probably as good a solution as any.

It was probably a material fact, however, that she entered into evidence "a large mitigation brief demonstrating her very substantial job search".  Mitigation isn't a high threshold, and so that characterization suggests that she probably went above and beyond, looking for new work.  One might conclude (as was said in the 1983 precedent) that the person genuinely wants a new job and will keep looking anyways.  In a more borderline case, where an employee couldn't be said to have been unreasonable, but perhaps just scraped by the threshold, a Court might be more reluctant to use this solution.

The other issues in the case are interesting, as well, and bear some comment.

The Employment Contract

Before starting her employment in 1999, Bernier signed a contract which included a provision that she could be terminated at any time on 30 days' notice.  Put simply, that provision conflicts with the Employment Standards Act, which sets out a formula for notice which goes up to 8 weeks, and can't be contracted out of.  So the provision was void.  Pretty basic stuff.  The employer's lawyer agreed that this was void.

However, the employer took the position that this void provision created a "lack of clarity" which was remedied in February 2007 when they alleged that, at a meeting with the corporate president, Bernier agreed to amend the contract to accept the employment standards minimums on termination in exchange for an increase in salary and bonus.  The employer produced a letter to her dated February 12, 2007, which was not countersigned by her, but which the employer's General Counsel (who had not been present at the meeting) swore an affidavit on second-hand "information and belief" - without identifying the source, improperly - that the letter had been given to her.  No explanation was provided for why the corporate president didn't swear an affidavit to this effect.  (He is still alive and well, and involved with the company.)

On a motion for summary judgment, raising a significant factual issue can often be a defence - the argument goes that a trial is required to determine an issue.  Was there an agreement to amend the contract?  Bernier swore an affidavit that there wasn't, and that she never received the February 12 letter.  The employer argued that it was a factual issue calling for a trial.  The trouble for the employer is two-fold, however - firstly that, for no good reason, no firsthand evidence was led that Bernier was given the letter or agreed to the changes, leading to an adverse inference.  More importantly, the employer had not led any admissible affidavit evidence to rebut Bernier's evidence that she had never received the letter nor agreed to the changes.  As a result, Bernier's evidence stands uncontradicted, and there's no issue requiring a trial.

The Defendant's General Policy

The employer asserted that it has a policy of providing only the statutory minimum.  Written policies, done properly, may be effective in the right circumstances, but I consider it unwise to rely on such, and that doesn't appear to be what's going on here anyways.  The employer appears to be saying "We don't pay out common law notice.  We just don't.  And she knew it."

The reason Bernier might have known about such a policy is that she's a manager, and gave letters to her own subordinates restricting their notice entitlements.

This argument is beyond weak, as any employment lawyer could tell you at a glance.  Firstly, these documents are not her contract.  She didn't pay attention to the notice provisions - they came down from upstairs, she presented them to the employees for signatures, and sent them back upstairs.  Secondly, there is no reason to expect that the notice provisions governing her subordinates would also govern her.  In fact, the reasonable expectation would be the opposite - she's at a higher rung in the corporate ladder, she's receiving a much more generous compensation package...put simply, one expects her contract to be more attractive than theirs.

"But," the employer would argue, "she signed a contract saying she'd only get 30 days notice!  She knew she wouldn't get common law notice."

And there's the crux of the problem right there:  That is exactly the reasoning the Supreme Court of Canada has categorically rejected in finding such contractual provisions void.  They do not give rise to a presumption of an understanding that common law notice would not apply.


Bonuses can be tricky.  There are a number of issues involving bonuses.  Are you entitled to a bonus for the time leading up to your termination?  Bonuses payable during the notice period?  Pro-rated bonuses for the stub portion of the notice period?

The analysis is grey, taking into account the provisions of bonus policies and contract language, the calculation of the bonus, and other common law principles as to whether or not the bonus has formed an integral part of the compensation package.

In this case, the employment agreement provided that she was entitled to an annual bonus provided that she was actively employed on November 30 of each year.  Bernier's lawyer argued that the ESA deficiency in the notice period was fatal to the bonus provision as well.  The judge disagreed, but concluded that because, had she been given reasonable notice, she would have been actively employed on November 30, 2013, and therefore is entitled to her 2013 bonus.

That's actually a much more difficult question than the treatment it receives in the decision.  I think it's probably right, but there's some authority for the proposition that the 'active employment' language can modify the employer's requirements through the reasonable notice period.  (What it boils down to for me is, as the judge dealt with it, simple causation:  Had she been given reasonable notice, she would have been actively employed on November 30th, 2013, and therefore she's either entitled to the bonus, or entitled to be compensated for the loss of entitlement to the bonus by reason of the breach of contract.  Six of one, half a dozen of the other, when you're talking about common law notice.  One can contract to provide notice or pay in lieu on some other basis than the default common law analysis, but that's what termination clauses are about.)

Choice of Lawyers

The employer used a lawyer who doesn't appear to practice much employment law.  They've used this lawyer before for commercial disputes, and he's quite experienced, having successfully argued a case recently at the Supreme Court of Canada.  So a solid litigator.  But not an employment lawyer.  And both of those facts come out in the arguments he raised, because they're creative, and they're the kind of arguments that might be successful in a less-developed area of law, or if neither the other lawyer nor the judge was well-versed in employment law.

By contrast, Bernier's lawyer is primarily an employment lawyer, and so knows the law well, and was able to easily show how the employment law framework left no room for the arguments made by the employer.

Just goes to show the value of expertise.

That being said, even with a high dollar value claim like this, it's hard to imagine why they would fight if they didn't believe they had a chance of success (they ended up having to pay their own legal fees, plus an additional $25,000 to the plaintiff for costs), and the only issue that wasn't trite law was the question of the 2007 agreement...and there's no question that the lawyer would have recognized the deficiencies in their affidavit evidence, meaning that the failure to lead affidavit evidence directly from the president was either because it couldn't say what they needed it to say (which raises the question of how the General Counsel could have sworn information and belief to that effect), or because for some other reason they didn't want to expose him to cross-examination...which is, in any event, a pretty good reason to want to not have to go to trial, and talk settlement before legal fees pile up.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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