Small Claims Court Decision Shows Challenges of Low-Value Wrongful Dismissal Claims

CanLII has recently started maintaining a database of Ontario Small Claims Court decisions.  There aren't too many judgments going in - most of the decisions being reported are by Deputy Judge Richard Campbell so far - but I think it's a positive step in making Small Claims Court more accessible, to give people a better sense of what to expect.

At the same time, while a great many wrongful dismissal cases will realistically fall within the Small Claims Court's $25,000 monetary jurisdiction, I've long been of the view that the Small Claims Court is not well-equipped to deal with these claims.

In Small Claims Court, the 'judge' is usually a senior lawyer, who sits in the Small Claims Court a couple days per month or so.  So they don't hear cases of all shapes and sizes, like many Superior Court judges do, and they often have their own specific area of practice.

Employment law is a pretty niche area of law.  Those of us who regularly practice in it, know it well.  Yet other senior litigators may not even know the first thing about wrongful dismissal claims.  I have known senior litigators and deputy judges who were unfamiliar with the term "Bardal factors" - literally, employment law 101.  This doesn't reflect on the skill, experience, or knowledge of deputy judges; rather, it reflects the specialized reality of senior litigators.

Worse, in Small Claims Court, you very often get self-represented litigants on one or both sides.  So you get a niche employment dispute with specialized legal considerations, argued by two non-lawyers, and presided over by a lawyer who may not know anything about the area of law.  Not exactly ideal.

But even when lawyers enter the picture, that doesn't necessarily solve the problem.

Consider the recent case of Nelson v. 977372 Ontario Inc., involving a general labourer with five years of service, making $17/hour, 40 hours per week.  His wife had been employed with the same company, but after she quit, there was a dispute, and the employer claims that the employee quit, but the employee alleges that the employer kicked him out, effectively firing him.  (There was also an allegation of just cause:  The wife was paid on a piecework basis, and the husband, being paid hourly, often helped her with her work.  This was alleged to be 'double-dipping'.)

Allow me to say firstly that I've met both the lawyers on this file, and they're both experienced and skilled.

On the findings of fact, the deputy judge is perfectly well-equipped to make such findings.  He found that the employee had been fired.  For all intents and purposes, that's pretty well written in stone now - it's very hard to appeal a finding of fact.

Just Cause

The findings on the law are a little more varied, however.  Let's start with one that the Deputy Judge definitely got right:  Just cause.  He concluded that, while there may have been double-dipping going on, the employer was always aware of it, and condoned it.  Accordingly, the employer can't rely on it as just cause.  That's correct, and straightforwardly so.

Reasonable Notice

Next, there's the question of reasonable notice, which is kind of iffy.  The defence was arguing for 10 weeks; the plaintiff was arguing for 5 months.  Without knowing the employee's age, I can't say where I think it should be, but for the length of service and character of employment, I'd say that both pitches seem a bit ambitious.  You very seldom see notice periods less than 3 months, even with short-service employees (and five years isn't really a short-service employee anymore).  However, the Deputy Judge accepted the defence submissions on the point, and awarded damages based on a notional notice period of 10 weeks.  So, a pretty skinny award, on its face, but what concerns me more is the way they got there:

"Mr. Embree argued that Mr. Nelson should be awarded one month notice for every year of employment – five months notice....

 Mr. Tousenard suggested that an appropriate notice calculation would be 2 weeks per year, for a total of 10 weeks.

...I agree with Mr. Tousenard that two weeks per year is an appropriate award of pay in lieu of notice, and I assess Mr. Nelson’s damages, notionally, at ten weeks...."

Calculating notice periods by looking at x per year of service isn't an uncommon way of regarding them informally, but it is not correct at law.  This is very similar to the 'rule of thumb' approach which the Court of Appeal expressly rejected in Minott v. O'Shanter in 1999.  It puts too much importance on one factor, to the detriment of the others.  (NB:  Employment contracts still often base a formula wholly on length of service, and certain administrative tribunals have adopted 'rule of thumb' type practices nonetheless for income replacement in certain contexts, but when looking at common law reasonable notice, it's settled law that it is wrong.)

This is why short-service cases are so difficult:  Length of service is important for mid-to-long service employees, and the 'rule of thumb' approach actually presents some guidance at those levels, in a nuanced way, but it is less significant for short-service employees.  (If you put it in those terms, there have been cases where employees have gotten over twelve months per year of service...which just seems absurd when cast in that light.)

Mitigation

Then the judge concluded that there should be a discount for failure to mitigate:  "The evidence of efforts to find work is skimpy at best, and Mr. Nelson was vague about what exactly he did."

Here's the problem:  The onus is not on the employee to prove mitigation.  Proving failure to mitigate is an obligation of the defendant.  In the absence of clear evidence one way or another, unless the employee was so unresponsive on cross-examination as to warrant an adverse inference, the default presumption is against the defendant.  This is why employers so seldom succeed when arguing failure to mitigate - and this should be even more true at Small Claims Court, with limited disclosure obligations.

I read the Deputy Judge as possibly having improperly reversed the onus, putting it on the employee to prove satisfactory mitigation efforts.

And here's the other quirk:  He cut the damages in half, to five weeks - for an employee with just under five years of service, four weeks would have been the statutory minimum, which isn't subject to mitigation anyways, which means that the reduction is almost as severe as it possibly could have been.

So the employee received $3400 in pay in lieu of notice, plus $1504 in outstanding wages and vacation pay, plus...

Punitive Damages

The appellate-level Courts have been extremely reluctant to award punitive damages.  There's been something of a move away from this in the lower Courts, as judges have looked to another mechanism to express displeasure with employer conduct now that Wallace damages are generally unavailable...but it's still hard to make out a claim for such.  In this case, based on the employer's failure to pay out the outstanding wages (and issue an ROE), the Deputy Judge awarded $3000 in punitive damages.

Costs

The judge tentatively fixed costs at $1500, all in, subject to an opportunity for counsel to make submissions.  That sounds about right, because, by default, legal fees are capped at 15% of the claim.  So where the plaintiff obtained a judgment for $7904, he's limited to $1185.60, plus certain disbursements.

However, there's a prospect of the defence asking for costs:  The defence was aiming for 10 weeks.  They couldn't have known that they would win on mitigation, and so if they anticipated a serious risk of losing on the factual disputes, they may well have made an offer equal to or greater than their '10 week' scenario.  Include the outstanding wages that they didn't seriously dispute were owing, and the offer may well have exceeded their ultimate liabilities, even including punitive damages.

Overall

The plaintiff's ultimate award, assuming costs don't change, is $9089.60.  I'd be surprised if he didn't incur more costs than that to bring it to trial...meaning that the win is actually a loss.

Yes, that's right, with his employer refusing to pay outstanding wages and vacation pay, and anything in respect of pay in lieu of notice, he would likely have been better off to do nothing than to sue in Small Claims Court.  This is the real tragedy of low-value claims.  He could have made an employment standards claim for outstanding wages and statutory minimum notice, instead, but in doing so he would have forfeit any entitlement to common law damages.  (In hindsight, that may have been best...but, well, hindsight is 20/20.)

Though that brings me back to the punitive damages:  It seems like a slap on the wrist to me.  If conduct meets the high threshold for punitive damages, then it should be a sufficiently significant sum to make employers think twice before doing it.  The message that this award sends, overall, is that it's not worth suing the employer in this kind of scenario.  And the corresponding message to employers is that they should continue to employ these kinds of tactics, because, even with the prospect of a modest punitive damage award, rational employees won't pursue such claims - or may pursue only ESA claims, protecting the employer from common law liabilities.

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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. 

Amodeo v. Craiglee Update

On October 5, 2012, I made yet another entry about Bill 168 reprisal cases at the OLRB, and noted a then-recent decision by Vice-Chair Kelly which dismissed an application based on a finding that the definition of harassment could not include the conduct complained of by Ms. Amodeo.

I expressed some doubts about this analysis:

However, this decision is...concerning.  The specifics of her email to management aren't clear (i.e. whether or not she was specifically alleging harassment or raising concerns simply about the instructions themselves), nor whether or not the employer has the required policy and program, nor whether or not this email complied with such a policy.  So it's hard to extrapolate much from the decision, but...

...let me say firstly that, if the email couldn't fairly be characterized as a complaint of harassment, that would be fatal to the Application.  I've made this distinction before in my earlier posts:  The OLRB's power under s.50 of the Act gives it power to hear complaints of reprisals to, among other things, exercises of rights under the Act.  Even under my interpretation of the Act that an employer has a substantive obligation to provide an environment free from harassment, simply saying to the Board "I was harassed" isn't enough to generate a remedy.  What generates the remedy - under my argument - is mistreatment by the employer after and because of a prior complaint of harassment.  So if there was no prior complaint, there's no reprisal protection, and no case - at least, not under s.50 of the Act. 

However, if one assumes that the email was a complaint of harassment, then to my mind this decision is simply wrong.  Under any anti-reprisal regime where you are protected for standing on your rights, including the Occupational Health and Safety Act, you need not prove that you were objectively correct in the first place.  If I genuinely and in good faith believe that a working condition is unsafe, then I can refuse the unsafe work.  Whether or not this refusal is protected by s.50 does not turn on whether or not the Ministry agrees with me that the conditions are unsafe.  It is not the case that, if the Ministry determines that the working conditions are acceptable, the employer is able to turn around and fire me for refusing what I had perceived as unsafe work.  The very point of these anti-reprisal provisions is that an employee can stand on his or her rights without being afraid that the employer will turn around and dismiss him or her. 

Similarly, whether or not a reprisal complaint for harassment can succeed can not turn on whether or not there was harassment in the first place; simply on whether or not there was a good faith complaint of harassment.

Ms. Amodeo then hired counsel, who sought reconsideration on a series of grounds.  (Hiring a lawyer is prudent, but hiring it after the decision has been made...kind of ties the lawyer's hands.)

The reconsideration request appears to have raised a similar concern to the one I raised, arguing that Vice-Chair Kelly improperly focused on whether or not harassment occurred, rather than whether or not there was reprisal to a complaint of harassment.  In fact, there's a reason that the decision was vague on the specifics of the email to management:  Neither party had provided it to the Board.  So the Vice-Chair, after receiving the reconsideration request, asked the parties for a copy.

In February 2013, Vice-Chair Kelly released a reconsideration decision, acknowledging the error I highlighted earlier, but, upon review of the correspondence argued to be a complaint, found that there was nothing in it to engage the anti-reprisal mechanism, nothing to put the employer on notice that rights under the Act might be engaged, nothing that could "reasonably be interpreted as having raised a complaint of harassment or any other health and safety concern."  Accordingly, the reconsideration request was dismissed.

It's a good analysis, and it could be very important if the OLRB eventually does decide that a complaint of harassment triggers the anti-reprisal provisions of the Act.  The statutory definition of harassment is incredibly broad, and so the subjectivity of traditional anti-reprisal analyses (i.e. that they're engaged if you stand on good faith, albeit incorrect, beliefs as to your rights) leaves a significant concern, that just about any complaint could retroactively be cast as being a complaint of 'unwelcome conduct or comment', and therefore trigger reprisal protection, even though nobody was really thinking 'harassment' at the time.  And that just can't be right.

No, the Vice-Chair has it right this time:  There needs to be something in the complaint itself that references the Act, or references harassment, or engages a reasonable understanding of harassment.

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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. 

Journalist Ordered to Repay Settlement Money

The vast majority of wrongful dismissals settle at some point, which means that the employee and employer agree on terms as to what the employer will pay.

As part of this, an employee is always required to execute a full and final release, promising among other things not to sue for anything else.  Another very common term is that an employee would be required not to disclose the terms of the settlement (with certain exceptions).  The importance of these clauses is to prevent employees from telling other employees what they received, because this hurts the employer's negotiating position dealing with these other employees.

And some settlements go a step further, saying that breach of the confidentiality clause will negate the employer's payment obligations, and require the employee to reimburse the employer.

However, employees will talk, and such clauses are difficult to enforce, mainly because of the difficulty of proof.  Most people know better than to talk openly about the terms of settlement, and proving what was said in a private conversation can be challenging.  (Besides, does a wink and a nudge and a lawyer's business card violate any confidence?  Probably not.)  Accordingly, I have never seen such a clause enforced.  Until now.

The Toronto Star reported last week that Arbitrator Louise Davie ordered journalist Jan Wong to repay the Globe & Mail the money she received under a settlement from a discharge grievance, because of a breach of confidentiality.  The issue of proof was less significant here:  Ms. Wong wrote a book which alluded in some fairly direct ways to the terms of settlement.

It's a big deal.  The Arbitrator thinks it seems fair that she be required to repay the money, because the money was the benefit for which the employer bargained in the settlement.  The rest of us, however, might look at it as being pretty heavy-handed, because the money was the whole benefit for which Wong bargained, whereas confidentiality was just a portion of the benefit the employer was supposed to receive, in a settlement that doubtless also included a dismissal of her discharge grievance, and a full and final release of her other claims.

One might reasonably question the enforceability of such a clause, on a couple of bases, and I look forward to seeing how the appellate courts look at the question, if they do, but here's the far more troubling aspect:  Jan Wong was not permitted to participate in the hearing.

This goes back to the whole 'you can't sue your employer' issue for unionized employees.  The employment relationship is one between the union and the employer, and the employee isn't a party.  Almost all issues in the employment relationship are to be determined as between the union and the employer.  And this settlement was part of the employment relationship, so came into the same framework.  The employer can grieve to the union, and the union has to represent the bargaining unit member.  Even though she's no longer a bargaining unit member.

Wong sought standing to participate in the hearing, was denied, and unsuccessfully applied for judicial review.

End result:  The employer is seeking financial recovery from Wong, but Wong relies on the union for representation (which is only obligated to defend her up to the limits of the duty of fair representation), notwithstanding that she's been out of the bargaining unit for five years.  In short, she isn't a party to the settlement, she isn't a party to the arbitration, but at the end of the day, it ultimately falls to her to pay the award.

That's pretty hard to accept.

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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.

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.

Bonus

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.

Court of Appeal Interprets Employment Contract as ESA-Compliant

There's a short decision recently out of the Ontario Court of Appeal, Dimson v. KTI Kanatak Technologies Inc., dealing with poorly drafted language and questionable ESA compliance.

Dimson occupied a Vice President position with KTI, for just under six years, with an annual salary of $165,000, various benefits, and significant variable compensation components, until his employment was terminated without just cause.  If he was entitled to common law pay in lieu of notice, then he was likely looking at damages measured in six digits.

However, his employment agreement provided as follows:

18(c)   In addition, KANATEK may terminate this Agreement at its sole discretion for any reason, upon providing Employee all payments or entitlements in accordance with the standards set out in the Ontario Employment Standards Act, as may be amended from time to time.

(d)      If at any time KANATEK provides you with a bonus, it will not be included in the calculation of payment for the purpose of this Article or as otherwise agreed to or required by the Employment Standards Act.

Dimson took the position that 18(d) attempted to contract out of the Employment Standards Act, voiding the termination clause.  KTI argued otherwise, that the language in 2(d) preserved statutory entitlements.

On a motion for summary judgment, Justice Lederman found that the language complied with the ESA.  The Court of Appeal upheld the finding.

Before I get into the analysis, allow me to say that, though I've seen a few of them, I consider ESA-only termination provisions absurd for senior management.  At that level, a person should be consulting a lawyer before signing the contract, and in many cases should be getting advice to try to negotiate a better exit package.  I made some comments about this in an earlier entry.  ESA notice caps at 8 weeks, for an employee with over 8 years of service, whereas, to paraphrase Justice Sproat in a recent seminar, anyone with a 'real job' can reasonably expect it to take a minimum of 3 months to replace that job.  For long-service senior managers, that number generally goes up.  ESA minimums provide a person with essentially no job security, and leave the person at risk of a significant period of uncompensated unemployment.

It's irresponsible for a senior manager not to get legal advice on an employment contract, it's often unwise to accept such language , and frankly, I don't know why an employer would even want a senior manager who would accept such a clause.

The Meaning of "Or"

Obviously, the language of 18(d) is poorly drafted.  What do the "or"s mean?  That's really the question.  On the construction of the sentence, they don't appear to mean much.

When you use the word "or", you're often abbreviating a clause to avoid redundancy.  "I can walk or drive" means "I can walk or I can drive".  In a kind of mathematical distribution, the "I can" gets applied to both sides of the disjunction.  As in this case, when you're dealing with a negation, it's similar, except that when you extend it out, you have to reverse the disjunction to a conjunction:  "Do not jump or dive" becomes "Do not jump and do not dive."

So I'm looking at 18(d) and asking what's abbreviated, trying to construct the sentence otherwise.  And I really can't do it in a meaningful way - it's a really awkward construction.  I can see where the plaintiff gets his interpretation, being to the effect that a bonus will not be included in calculations under this article, and will not be included as otherwise agreed to, and will not be included as required under the ESA.  The trouble is that it is kind of absurd to say that something won't happen even if we agree otherwise that it will.  It doesn't really make sense.

Contracts tend to be interpreted to avoid absurd outcomes, and this is why the Court tended away from this interpretation.  (To me, the easiest way of making the provision make sense is by supposing that the first "or" was meant to be "unless".)

On the other hand, there were equal problems with the defendant's position, who argued that the provision in some way stood to affirm ESA rights:  Contracts also tend to be interpreted to give meaning to its terms - language is presumed to do something, and what does 18(d) actually do if it merely affirms the rights already asserted in 18(c)?

With 18(c) alone, one would conclude that, if a bonus isn't required to be paid under the ESA, then it wouldn't need to be paid under the contract.  And that if it is required to be paid under the ESA, then it would be paid.  So if you interpret 18(d) as saying "A bonus won't be paid unless the ESA requires it to be paid", then you're just restating a portion of 18(c).

The Value of Saving Language

What clinched it for the defence, however, is the fact that the language of 18(c) stood as a guarantee of compliance with the ESA, therefore the plaintiff's interpretation of the provision created an internal inconsistency in the language - which, again, is to be avoided - whereas the defendant's interpretation was harmonious on the face of the contract.

Ambiguity and Clarity

Justice Lederman and the Court of Appeal both concluded that the language is clear and unambiguous.  This is important, because ambiguity gives rise to certain presumptions - namely, that the ambiguity should be resolved adversely to the party who drafted it (generally the employer).

I have a lot of respect for Justice Lederman, and the panel on the Court of Appeal, and in general if they all unanimously say something, I'm reluctant to disagree.  However, I'm no lightweight when it comes to English grammar, and in this instance, I simply can't agree with them, as a result of my above analysis:  18(d), as constructed, does not make sense.  If you change the first "or" to "unless", it makes sense.  But in order to do that, you need to first conclude that there's ambiguity or an error in the language to be resolved.

Impact of this Decision

In my view, the most important aspect of this case is the treatment of the saving language, the inclination of the Court to read other provisions as being ESA compliant because of a blanket statement that ESA entitlements will be paid out.

Nonetheless, the treatment has to be more nuanced, because there absolutely are cases where language clearly contravenes the ESA, despite a blanket statement elsewhere that the ESA will be complied with.  These can be difficult cases.  The general rule is that the specific prevails over the general, when there are two seemingly-contradictory provisions.  For example, if one part of a contract says that no company equipment can be used for personal purposes, then another part of the contract allows for limited personal use of the company cell phone, then the likely interpretation will be that the latter creates an exception to the general proposition.

And that's what I see the plaintiff's argument as suggesting is the case here, that 18(d) qualifies that the payments in 18(c) will not include any calculations for bonuses.  And, in general, it's a bad idea to qualify ESA-minimum provisions, because at best the qualification is - as here - meaningless.  If you actually back anything out of the ESA minimum, you've rendered the provision void.

But this is something I see periodically:  Contractual language which sets out a formula for entitlements on termination, which seem to have some pretty clear ESA deficiencies, and then a saving clause that says something to the effect of "In no case will your payment be less than the ESA minimum."

As much as this decision may stand in support of this kind of language, I consider the language to be deeply problematic.  Let's imagine a clear-cut scenario, where the formula is inherently deficient:

(Disclaimer:  The following language is for the sake of argument only.  It is NOT sample contract language, and should not be used in contracts.)

1. We may terminate your employment at any time, without just cause, on provision of two weeks' notice or pay in lieu thereof, and no other notice or pay in lieu shall be owing.
2. In no case will your payment on termination be less than your minimum entitlement under the Employment Standards Act.

Clause 1, on its own, is generally unenforceable.  Pretty academic at this point.  Even if you're dismissed after 6 months of work, where your minimum entitlement is one week, the clause itself can't be enforced because the language itself stands in contradiction to the requirements of the ESA.

So what's the effect of clause 2?  Does it save the language in clause 1?  I don't think so.  The only way of reconciling the two clauses is by concluding that the contract asserts that one's minimum entitlements can never exceed two weeks, which is simply untrue.  The real litmus test, in my mind, is this:  What happens if an employee with over three years of service is dismissed?  Clause 1 says you get two weeks only, but that's not enough.  Clause 2 respects the fact that clause 1 doesn't give you enough, and so provides...what?  Does it create a 'bump-up' to the ESA minimums?  I don't think so.  That's exactly the kind of effect that the Supreme Court has said an employer can't expect.  So, in my mind, the language is clearly going to be void for an employee whose ESA minimums exceed two weeks, and will probably be similarly void in other cases too.

The impact of the Dimson decision, I expect, will be that Courts will use saving language to help interpret language which might arguably be construed as being non-compliant with the ESA.  However, a formula that is simply not ESA-compliant will not be rendered compliant, or interpreted as being compliant, or have language read into it to create compliance, simply because another provision guarantees compliance.

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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.

Phillips v. Ontario Racquet Club Makes the News

Back in December, I made an entry about a motions decision in the Phillips v. Ontario Racquet Club case, involving a tennis pro suing in wrongful dismissal and defamation, among other things.  In that motion, the ORC had challenged significant aspects of the pleadings, and won on only minor points, most of which were procedural and easily fixed.

Today, the Toronto Star is running a story about the case, summarizing the pleadings.  It's not clear that there's anything new going on, though it appears that the pleadings were amended as required by the Court.  (In my previous entry, I noted that the plaintiff had improperly claimed a blanket sum of two million dollars in respect of various causes of action, whereas a plaintiff should set out the causes of action independently.  The Star's story refers to the action as being for five million dollars, suggesting to me that the plaintiff's response was to go high on each of the causes of action for which damages are being sought.  I probably would have done the same - while there are some dangers in an overly-inflated claim in some contexts, the reality is that it's better to go too high than too low.)

I do find myself somewhat curious as to how the Star's attention was drawn to the story.  Court proceedings are public record, of course - you can see the November decision on CanLII; you could sit in on any hearings; you could go down to the Courthouse and pull copies of all the filed documents.  Nonetheless, this case appears to have been commenced in 2010, the motion regarding the pleadings was dealt with late last year, and at any given time there are countless proceedings moving forward in the Courts, so what made this one newsworthy now?  Did a party decide to go to the press as a way of exerting negotiating pressure?  Unlikely - this is the kind of case that neither party wants to get a whole lot of publicity, given that it involves egregious allegations of misconduct against both sides.

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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.

Can Construction Industry Unions be Decertified?

I've previously posted about decertifying unions in the non-construction industry, showing how 'easy' the process is in a tongue-and-cheek kind of way.

The reality is that there are a lot of nuances, even in the non-construction industry, about when and how to file an application to terminate bargaining rights.  It's a complicated framework, and the trouble is that employees have to navigate it on their own, or pay a lawyer out of their own pockets to do so.

Your union - who is usually supposed to assist you with navigating the labour relations regime - will not have much reason to be helpful with such matters, and in fact can throw up some pretty insurmountable barriers if they get a whiff that you're thinking of bringing a termination application.  And if the employer gives you any assistance understanding how to decertify the union, that's likely to be fatal to your application.  Which means that a bargaining unit member has to go and pay a lawyer out of his own pocket to terminate bargaining rights.

It doesn't often happen.  I've done a number of such matters, occasionally involving a group of bargaining unit members pitching in for legal fees, but the reality is that unions have a lot of resources to pour into these matters, and they often will, driving up the employee's legal fees as well.  This is the point.

Nonetheless, it can be done.  Outside of the construction industry, the bargaining unit has power - namely, the Rand Formula means that the bargaining unit members are not beholden to the union outside of their relationship with the employer, and they have the power to refuse to ratify a collective agreement.

So, in the ordinary course, a union has to show support among the members of the bargaining unit, then has to win a representation vote, then has to negotiate a collective agreement acceptable to the employer and employees.  Failure can - with certain logistical challenges - lead to decertification.  Then when the collective agreement runs its course, there are other opportunities to decertify.

In the construction industry, however, a union gets certified much more easily, and once they are certified, it is much harder to be rid of them.

Construction Industry Certification Process

First of all, the certification process is different.  There are seldom representation votes in the construction industry - a union need only show 55% support of the bargaining unit in order to be automatically certified as the bargaining agent for the bargaining unit, without a representation vote.  This means signed union cards.  Make no mistake:  Signing a union card is not an "I'm interested in learning more" or an "I'm interested in picking up more work outside this employer", and there will not be an opportunity to vote later on if the union decides to try to certify your employer.  Once they have cards signed by 55% of the bargaining unit, they're in.

And it gets better.  The dynamic nature of the construction industry workforce means that the OLRB has adopted a particularly pliable interpretation of the bargaining unit, being the people performing bargaining unit work on the day the Application is filed.  (There are some nuances, too, but not worth going into here.)  So suppose you work for an employer that ordinarily employs 50 people (in a particular trade, in a particular area, etc.), generally being the same 50 people, on a handful of job sites.  On one day, due to extreme weather (or any other reason), all but one of the small job sites gets shut down, and only 3 people are working that site.  If the union has gotten 2 of those people to sign union cards, they can file an application on that date, and they will be certified automatically, without a vote, and without the other 47 people usually working for that employer even being counted.

And it still gets better:  There are times a union can get certified even without having the support of the bargaining unit, through what is called "remedial certification".  The theory is that the employer can take such oppressive actions to put down a union that there is no way that a vote could show the employees' true intentions, so the remedy is to bring in the union even though the employees don't want it (because of course any free-thinking group would want a union?).

In practice, the way that this often works is that a new employee will start working with the intention of bringing in the union. He often doesn't particularly care about doing the job well, and if his co-workers do care about their work, then he'll often rub them the wrong way, getting branded even among his peers as an unproductive troublemaker.  Even if the union organizing efforts don't come to the employer's attention, it usually won't be lost on the employer that this guy is a non-producer, and that he's causing friction on the team, so he will probably get fired.  Then, the union makes an application for remedial certification, alleging that he was fired because of his union organizing efforts.  This triggers a reverse onus:  The burden is upon the employer to prove that the decision to terminate has absolutely nothing to do with his union organizing efforts.  (Not even just that it wasn't the main reason, but that it wasn't even a factor in the decision.)  If the employer can't prove that, then the union automatically gets certified.

Then What?

This is where the construction industry framework gets really complicated:  Sometimes, immediately upon certification, the employer becomes bound to a pre-existing collective agreement.  There is no need to negotiate, no requirement for the employees or employer to consent to it.  It's just there.  In other contexts, the union may have to negotiate a collective agreement with the employer, but even in that context there is no requirement for employee ratification.

If there's no automatic collective agreement, and no collective agreement is reached within six months, then an "open period" starts, and the employees may be able to bring an application to terminate bargaining rights.  But even then, that's not necessarily straightforward.

A union is able to block most "open periods", including this one, by seeking the appointment of a mediator and/or conciliation officer.  In this case, the open period is blocked until - in most cases - 30 days after the Minister releases a notice that no conciliation board will be appointed (a "no-board report").

The issuance of a no-board report also triggers the right to go to first contract arbitration, to have an arbitrator determine the terms of the collective agreement.  Once a collective agreement is in place, any open period expires - you can't bring a termination application until the earlier of the last 3 months of the operation of a collective agreement, or the 34th month of operation of a collective agreement.  So there may or may not be a window where an application can be brought after the issuance of the no-board report, and it may not be a particularly long window.

Now here's the rub:  The Ministry of Labour treats the notification of the appointment of a conciliation officer and the issuance of a no-board report as private correspondence between it and the parties (i.e. the union and the employer).

In other words, an employee won't know that a conciliation officer has been appointed (closing off his opportunity to bring a termination application) nor whether a no-board report has been issued (potentially reopening his opportunity to bring a termination application) unless he is told by the union (and why would they?) or the employer (which might be argued to taint the application with employer influence).  They may have to bring their application, likely incurring the legal fees to do so - bearing in mind that the average construction worker isn't experienced with that kind of paper-intensive process - without any basis for knowing whether or not the application will be 'timely'.

This is an absurd state of affairs.  It is difficult enough for bargaining unit members to justify spending their own money on legal fees to try to bring a termination application when they are entitled to do so, but to define their entitlement to bring a termination application with reference to factors of which they will have no knowledge?  The message this sends to bargaining unit members is clear:  Don't bother trying to exercise your rights.  You aren't really involved in the labour relations regime, anyways.

After the Collective Agreement is Reached

As noted above, another open period begins in the last three months of operation of the collective agreement.  (For collective agreements with terms of more than three years, open periods exist in the last three months of every year starting in year three.)

If no new collective agreement is made before the old one expires, the open period continues until a new collective agreement is reached, but this open period is again subject to the above caveats regarding no-board reports.

So the only times when an employee can be confident that he is able to bring a termination application is in those 3-month open periods.

But again, there's a catch.  Termination of bargaining rights is a democratic process, as one might expect:  In order to successfully terminate the union's bargaining rights, you need to show 40% support at the outset (i.e. through a petition), and you need to get majority support at a vote.  And the catch is that, in the construction industry, most collective agreements have a security clause, meaning that employers are only able to hire union members, as referred by the union.  In other words, when you're trying to garner support against the union, you're seeking signatures from union members who, in most cases, were referred to the employer by the union in the first place.

The challenge is self-evident.  The union's security clause has the impact of enabling itself to loosely define the voting constituency of the bargaining unit, meaning that an incumbent union is in a deeply-entrenched position.

Ultimately, decertifying a construction industry union isn't impossible.  But the cards are definitely stacked against the individual bargaining unit members who may want to do so.

Discussion Questions:

(1)  Is there a justification for not keeping employees in the loop regarding the appointment of a mediator, the issuance of a no-board report, etc.?  What would the impacts be of requiring employees to be notified of the steps being taken through official channels?  Or of removing the impact those steps have upon employee rights?

(2)  Should the termination process be more accessible?  Should employees necessarily know when and how they are permitted to attempt to terminate the union's bargaining rights?  Perhaps the open period should even endure through statutory conciliation?  Would this encourage unions to be more open and active in keeping their bargaining unit members informed and happy?  Or would it encourage them to make otherwise-unnecessary concessions to establish a new collective agreement more quickly, to close the open periods as soon as possible?

(3)  It is well-known that it is difficult if not impossible to terminate bargaining rights, and this leads to a firm resistance to workplace organization by those who don't want a union there.  If bargaining rights were more transitory, if a union's rights could be more easily terminated or displaced, could this make people more open to union organizing efforts?

(4)  Do you agree with remedial certification?  Doesn't the very notion that an employer can irreversibly taint a vote undermine the democratic underpinnings of the labour movement in the first place?  Even if they can and do taint the vote, how does this logically lead to certification of a bargaining unit that simply doesn't support the union?  Unionization has a very significant impact on employee rights, which is in some ways detrimental, and reasonable people can absolutely disagree on whether or not to unionize, or to organize with a particular union, and it would be simply wrong to presume that any free-voting constituency would support a union.  So how can we justify imposing a union, with all that entails, on an unwilling bargaining unit, because of employer misconduct?  Doesn't that kind of look like you're punishing the employees for bad actions by the employer?

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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.