Caskanette v. Bong-Keun Choi Dentistry Overturned on Appeal

Last year, I blogged about a decision at the Small Claims Court which I found to be troubling.  In the case of Caskanette v. Bong-Keun Choi Dentistry Professional Corporation, the Small Claims Court determined that both parties contributed to the breakdown of the employment relationship, no warnings or progressive discipline was issued, but the employer nonetheless had just cause to terminate.  I considered the decision to have a number of problem areas, and considered the result to be likely attributable, at least in part, to the fact that Ms. Caskanette did not have the assistance of a lawyer.

In a decision last week, unreported as of yet, the Divisional Court overturned the decision on appeal.  This time, Ms. Caskanette had the assistance of counsel - Paul Brooks of Lerners' London office.

In my earlier commentary, I raised several concerns with the decision:  The trial judge's non-application of the 'duty to warn' referenced case law that was easily distinguishable; the employer's conduct in trying to 'set up' a case for case was deeply inappropriate; and the expectation that Ms. Caskanette apologize proactively for her part in the dispute was at odds with the fact that she was never given a meaningful opportunity to apologize.

However, I noted that, while appellate review might be appropriate, it is a high test, as appellate courts tend to defer to trial courts on decisions of just cause.

The Decision

Justice Mitchell of the Divisional Court overturned the trial decision primarily on the basis of the failure of the trial judge to apply the 'duty to warn'.  As I argued in my blog, relief from that doctrine was not available on these facts.  The employer should have warned.

Justice Mitchell put it thusly:

It is trite law that an employer has an obligation to communicate its concerns to its employee and provide the employee with an opportunity to redress the wrongs committed including provide an apology if the circumstances warrant one.  While we can speculate what Ms. Caskanette may have done if provided with an opportunity to apologize, we will never know because that opportunity was not presented to her.  The employer holds most, if not all, the high cards in the employer/employee relationship hand.  It has long been recognized that there is an unequal bargaining power between an employer and its employee.  The employer has a duty to warn the employee that his or her conduct is unacceptable and to provide an opportunity to correct the misconduct.  The duty to warn and the duty to apply progressive discipline are inextricably interwoven and are imposed on an employer so as to minimize the power imbalance. [Citations omitted]

This is a truly excellent summary of the law of progressive discipline.  I'll probably end up working it into my own submissions in the future.  (If any lawyers want a copy of the decision...I kind of expect CanLII to report it in due course, but if it doesn't, feel free to email me for a pdf.)

However, that didn't entirely get Ms. Caskanette to the finish line, because the Deputy Judge also appeared to find that the culminating incident immediately prior to the termination was, in and of itself, gross insubordination sufficient to ground a just cause argument.  This is a finding calling for significant deference.  Justice Mitchell recognized this (while questioning the evidence underlying the finding), but regarded it as highly dubious that the insubordination could be characterized as "gross", and noted:

Even in circumstances of gross insubordination, an employer must provide the employee with an opportunity to atone.

Justice Mitchell may actually be going a step too far on this statement.  Just cause requires a contextual approach, and so it's hard to say as a universal proposition that gross insubordination always deserves an opportunity to atone, but it's generally true.  Given the Deputy Judge's failure to refer to the governing precedents setting out the contextual approach, I think Justice Mitchell's treatment of this as a reversible error is a safe one.

Finally, on the topic of the culminating incident - when the employer demanded that Ms. Caskanette return to work, and she didn't - Justice Mitchell concluded that it was immaterial because the employer had already decided to terminate the employment relationship.

It is difficult to conceive how Ms. Caskanette's failure to return to work for the purpose of presenting herself for termination could be construed as insubordination.  It was not the intention of the Chois to demand her return to work so that she might perform her duties as a receptionist.  As the trial judge found, the intention was to fire her.

I might respectfully disagree with Justice Mitchell on this point.  Unless the intention to terminate had been in some way communicated to Ms. Caskanette - such that she knew that this would be the result of her return to work - I can't imagine how that intention could be relevant to the expectations upon the employee in the circumstances.  If I ask an employee to come into a meeting during regular working hours, generally speaking, I'm entitled to expect that employee's presence.  Whether that meeting is to discuss a file, or discuss the employee's remuneration, or to discipline the employee, or to terminate the employment relationship, that expectation remains unchanged.

At law, the question is whether or not just cause exists.  If it exists - if the employee engaged in such misconduct as to warrant termination for cause - the extent to which the misconduct factored into the employer's actual motivation to terminate is, in most cases, totally irrelevant.  I've seen cases where a poor employee was initially terminated on relatively shaky performance grounds, but where significant misconduct (such as embezzlement, for instance) was discovered after the termination.  An employer, in such a scenario, is perfectly entitled to rely on the after-acquired cause rationale to justify the termination, even though they weren't aware of it when the decision to terminate was made.

(Mind you, my view continues to be that this was badly mishandled - that the expectation that she work on her historical day off should have been communicated to her well in advance - and I'm not sure it's insubordination, in most contexts, for an employee to reject a schedule change on the spot that has her come in immediately on her day off.)

Additional Damages

I like Justice Mitchell's commentary on punitive, aggravated, and exemplary damages here:

The defendants' conduct, albeit misguided, unprofessional, misinformed and insensitive at times, does not meet the high-water mark necessary to justify a monetary award.

Pretty accurate statement of the law, under the circumstances.  Many plaintiff-side lawyers take issue with the fact that it is almost unheard of to award any damages against an employer these days even for significant violations of the employer's duty of good faith and fair dealing - perhaps the "high-water mark" is too high - but Justice Mitchell is certainly right about the law as it stands.

Costs

You may recall that Ms. Caskanette had a hefty costs award made against her - $5500 to the corporate defendant, and $1250 to each of two personal defendants, plus $325 in disbursements, plus HST.

This was, in part, due to the fact that the two personal defendants should never have been named, and furthermore that she engaged in unnecessary pre-trial motions, etc., driving up costs.

While Ms. Caskanette's success on the appeal against the corporate defendant obviously results in a reversal of that costs award, she did not appeal the dismissal as against the personal defendants (and rightly so).  Her counsel asked the court to set aside that costs award nonetheless, and Justice Mitchell refused, finding that the trial judge had the discretion to make that award, and that it was appropriate under the circumstances.

Personally, I wonder if there might be a better pitch to be made for a Sanderson Order (or a Bullock Order) - the Small Claims Court Rules on costs make costs payable by the unsuccessful party or parties to the successful party or parties.  The reversal on the appeal means that Ms. Caskanette is no longer the unsuccessful party; rather, she is now the successful party, and the corporate defendant was the unsuccessful party.  Accordingly, there's a fair argument that the success on the appeal makes the costs of the successful defendants presumptively payable by the unsuccessful defendant, instead of the plaintiff.

Of course, there's still a very significant discretion on the court in costs-related matters, and under the circumstances, where the personal defendants should never have been named and costs were driven up unnecessarily by the plaintiff, it strikes me as unlikely that the court could have been moved off of the result here.

Conclusion

It bears remembering that this was a low dollar value case - the judgment she obtained was $7,575.  (To Justice Mitchell's credit, she exercised her discretion to grant judgment in the face of the trial judge's errors, adopting the Deputy Judge's assessment of damages, rather than sending it back down to be re-heard.  Certainly the right call.)

But by succeeding in the appeal, Ms. Caskanette not only obtained that judgment, but also reversed a large part of the costs award ($5,850 plus tax), obtained her own disbursements from the trial (interestingly, the Justice Mitchell did not award her the costs to compensate her for her own inconvenience, typically capped at $500), and will presumably get a costs award in connection with the appeal.

*****

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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Where the Wilson v. AECL Dissent Went Wrong

I posted yesterday about the new SCC decision in Wilson v. AECL, finding in favour of the consensus interpretation of the Canada Labour Code, that Division XIV of Part III has the impact of making not-for-cause terminations impermissible in certain cases.

As I explained yesterday, there was a three-judge dissent which found that the adjudicator's decision should be reviewed on the standard of correctness (which makes sense to me), and that the adjudicator's decision was, in fact, incorrect.  This bears some deeper analysis.

As a preliminary remark, I should highlight that the dissent frequently refers to the question as being whether Division XIV has the effect of "prohibiting all dismissals without cause".  Respectfully, that's a drastic oversimplification of the question, which has an important impact on the reasoning.  There is no question that, even for employees that fall within the Division XIV framework, the not-for-cause dismissal framework continues to apply for dismissals arising from a 'lack of work' or 'discontinuance of a function'.

What is Unjust Dismissal?

This question is at the crux of the case.  Non-lawyers will often confuse the term "unjust dismissal" with the similar-sounding term "wrongful dismissal".  Yet whereas "wrongful dismissal" is well-defined at law, meaning a dismissal in contravention of the implied or express contractual terms surrounding dismissal, "unjust dismissal" is quite devoid of definition altogether.  It's a construct that, to my knowledge, only exists under Division XIV of the Canada Labour Code.

The language in the Code is fairly simple:  A non-managerial non-union employee who has been dismissed, after at least 12 months of employment, is entitled to ask for a reason - this differs from the common law, where employers have no free-standing obligation to give a reason for dismissal (though one might argue about how the duty of good faith and fair dealing would apply to such an issue).  If the employee feels that the dismissal is 'unjust', he or she may make a complaint.  Following a brief investigation process, the matter may be referred to an adjudicator; if the adjudicator determines that the dismissal was 'unjust', there's a wide range of remedies available, including lost income damages and reinstatement.

So what does it mean for a dismissal to be 'unjust'?

That is, perhaps, less clear.  There's a clear exclusion for employees dismissed due to lack of work.  I think we can safely assume that a 'just cause' termination generally isn't going to be 'unjust'.  But where exactly is the line to be drawn?

The Wakeling Interpretation

Adjudicator Wakeling, now a Judge on Alberta's Court of Appeal, decided several cases on this issue, and essentially led the movement to the interpretation favoured by the dissent.

In essence, it appears that he viewed Division XIV as creating a statutory procedure for redress, without modifying substantive rights.  Bearing in mind that most employees are entitled to some form of contractual or common law notice, he regarded Division XIV as primarily being a means of redress for the failure to give such notice - thus, "unjust dismissal" is basically indistinguishable from "wrongful dismissal".

As Associate Dean Ross of the University of Alberta put it in Jalbert v. Westcan Bulk Transport Ltd.:

Adjudicator T. Wakeling determined [in Knopp v. Westcan Bulk Transport Ltd.] that for a dismissal to be unjust, there must not only be a lack of just cause, but also a failure to provide the employee with “the more generous of the dismissal packages required by sections 230(1) and 235(1) of the Code and at the common law”... . He was of the view that the Code’s preservation of common law remedies, and its lack of an express provision giving employees a “right to the job” meant that s. 240’s reference to “unjust” dismissal should be interpreted in the manner consistent with common law principles, and not in a manner that would create a “drastically different legal order”.

The role of the reinstatement remedy, on the Wakeling interpretation, is less clear.  It's clear that he neither viewed reinstatement as a right nor presumptive right, and he even periodically had his hand slapped on judicial review for not providing adequate reasons.  He himself once owned criticisms from the opposing camp about some adjudicators denying reinstatement on "flimsy" grounds, acknowledging that despite having found many dismissals to be 'unjust', "I have never ordered a former employer to reinstate a former employee."

The Consensus Interpretation

Wakeling, Ross, and a handful of others were among a small minority who viewed the Code in this light.

Most adjudicators would find that, subject to the exceptions indicated above, most not-for-cause dismissals were 'unjust', and reinstatement was a presumptive remedy.  When it went to court on judicial review (before the Wilson case, of course), while there was a great deal of deference to adjudicators, the courts tended to side against the Wakeling interpretation.  For instance, in AECL v. Sheikholeslami in 1998, Justice Letourneau remarked:

It is true that reinstatement is not a right even after a finding of unjust dismissal, but, as I. Christie et al. properly point out, the exception to reinstatement should be applied very cautiously otherwise the risk exists that an unjustly dismissed employee will be penalized by losing his job. Indeed, a finding of unjust dismissal is a finding that the work relationship should not have been severed in the first place. In such cases, the presumption is, in my view, clearly in favour of reinstatement unless there is clear evidence to the contrary.

So there are a number of cases where reinstatement isn't ordered, sometimes because the relationships involved are just too strained to have a productive relationship moving forward, but it's available in many cases, and it's an onerous remedy to impose on employers.

It has led to a number of interesting cases, where employers have tried to avail themselves of the Wakeling logic by providing a generous package in lieu of notice, to argue that this cures any 'unjust' nature of the dismissal, immunizing them against reinstatement.  The argument usually failed.

(This slightly reminds me of something my articling principal said in my first week of work, many years ago, that a dismissal can't contravene the Human Rights Code if it's accompanied by an offer of a generous package.  That seemed strange to me at the time, and I have no hesitation now in saying that she was wrong.  Practically speaking, that's something that happens often enough - employers dismissing employees for highly questionable reasons, but offering them enough money that the employee would rather just take the payout and sign the release rather than trying to litigate.  Every release has its price.  But that shouldn't be confused with saying that the package makes it legal.)

The Intellectual Basis for the Wakeling Interpretation

In many ways, the Wakeling Interpretation is the more intellectually rigourous one.  I respect the approach, even if I disagree with its conclusions.

Essentially, the argument advanced by the Wilson dissent hinges significantly on the issue of 'concurrent jurisdiction':  Division XIV expressly leaves intact the civil action in wrongful dismissal, giving employees the option of pursuing the issue through the statutory mechanism, or through the courts.

But a civil action in wrongful dismissal is premised on a breach of contract, of the employer being required to give employees 'reasonable notice' of dismissal.  If the Code has the effect of displacing the common law, to the extent that an employer simply cannot terminate on reasonable notice, then it is incoherent to say that the employee still has a civil action for a termination without reasonable notice.

I very frequently have to explain to employee clients, "Yes, your employer is entitled to fire you without any reason at all; they just have to give you notice."  That's the entire basis of the wrongful dismissal regime, and if the employer is not entitled to dismiss in the first place in certain Federal contexts, the intellectual basis for wrongful dismissal appears to fall apart.

Why That's Wrong:

The Existence of a Reinstatement Regime Doesn't Preclude Contractual Notice Requirements

The majority has a number of good reasons to infer a Parliamentary intention to create new substantive rights - for instance, the Hansard actually indicates an intention to protect employees against arbitrary dismissals - and the dissent's response to these, that the Hansard shows they didn't want to give exactly the same protections as to unionized employees, is unsatisfying.

Similarly, the dissent argues that the provision directing the adjudicator to "consider" whether the dismissal was unjust seems to be at odds with a contention that all not-for-cause dismissals are inherently unjust.  This is a particularly weak argument:  One can fairly assume that, if the dismissal were legitimately for cause, the adjudicator would not 'consider' the dismissal to be unjust.

But the 'concurrent jurisdiction' issue is trickier, more compelling on its face, so I'll focus on that.

The Trites Trap:  Reading Employment Standards as Permissive

To oversimplify the point a little, employment standards provisions don't so much displace the common law as get superimposed on top of it.  When courts start referring to employment standards legislation as actually displacing the common law, we start getting whacky decisions like Trites v. Renin Corp.  (Yes, that is, fundamentally, where the misinterpretation started:  "Renin relies on Elsegood in support of the proposition that statutes enacted by the legislature displace the common law.")

Yes, the language of 'displacement' is strictly correct, but they don't purport to displace the common law in any comprehensive way.  This is an important nuance, because the common law has evolved in a way that gives employees a number of face-value rights and protections in the first place, and employment standards laws usually leave those protections in place, quite expressly, while creating additional protections for employees that exist in parallel.

Employment standards laws typically create a bare minimum entitlement to notice and/or termination pay and/or severance pay.  Under Ontario's ESA, an employer can provide notice or termination pay.  At common law, the default obligation is notice - and failure to give appropriate notice is usually a breach of contract.  These aren't inconsistent.  An employer can comply with its statutory obligations, but still breach its contractual obligations, and then be held liable for breaching its contractual obligations.  Or common law doctrines might allow a 'just cause' dismissal without notice, under circumstances where statutory termination pay is still required because the statutory test for such misconduct is slightly different.

These different regimes co-exist simultaneously.

Part III of the Canada Labour Code is no different.  Section 168(1) specifies that the Part doesn't affect any rights or benefits more favourable to the employee; section 261 specifies that no civil remedy of an employee is affected by the Part.  This is the combination of factors that exists in every Canadian employment standards legislation I've read, that prevents us from ever reading an employment standard as being permissive on the employer - which is, in part, why Trites v. Renin Corp was so wrong, concluding that the ESA created a free-standing right for employers permitting them to implement temporary layoffs, regardless of what express or implied terms might be in the contract.

When interpreting the provisions of the Code that guarantee minimum notice and severance, sections 230 and 235, the dissent falls into the Trites trap of reading the provisions as being permissive:

Therefore, as a baseline, Part III of the Code permits federally regulated employers to dismiss their employees without cause. To conclude otherwise would ignore the text of ss. 230 and 235 of the Code.

Part III of the Code does no such thing.  Period.  It presupposes that there are circumstances where employees can be dismissed without cause (and nobody's saying there aren't), and guarantees minimum entitlements in such cases.  It does not stand, on its own, as authority permitting a dismissal without cause in any particular class of cases.

That is, perhaps, not a critical error in this case.  But falling into the Trites trap appears to have led the dissent down the wrong path, in failing to appreciate the quintessentially typical interplay between reinstatement regimes and traditional wrongful dismissal remedies.

Reinstatement Regimes Coexisting with the Wrongful Dismissal Framework

Many employment statutes, from many different Canadian jurisdictions, have express or implied reinstatement remedies.  Ontario's ESA has its own reinstatement remedies, albeit expressly narrower than those in the Canada Labour Code:  Section 104 of the ESA specifies that reinstatement is available where an employee was dismissed in contravention of the provisions dealing with employer reprisals, among other things.  This, too, co-exists with the contractual requirement to give reasonable notice of dismissal.

As do the provisions in the Labour Relations Act, Human Rights Code, and Occupational Health and Safety Act, which prohibit dismissal for certain reasons, and allow for reinstatement as a result of such terminations.  (I refer to such dismissals as being 'unlawful' - prohibited by statute - as distinct from merely 'wrongful'.)

These all impose limitations on the employer's contractual right to dismiss on notice, but none of them actually fully displace it.  The right to dismiss on notice is residual:  In circumstances where dismissal isn't unlawful, you may still dismiss on notice.

And it is NOT a defence to a wrongful dismissal action to say that the dismissal was, in fact, unlawful.

If, for example, a Federally regulated employer dismissed an employee for a reason which contravenes the Canadian Human Rights Act, and the employee sued in wrongful dismissal seeking pay in lieu of notice (NB: not human rights damages), the employer could not defend the action on the basis that the unlawful nature of the termination somehow undermined the employee's contractual entitlements that would have flowed from a lawful termination.  That's simply not an argument that makes any sense whatsoever.  Yet it's fundamentally the same logic that grounds the Wakeling Interpretation.

And this is where we see the importance of the preliminary note I made earlier:  The Code most certainly does not prohibit all dismissals without cause.  On the consensus interpretation, it creates a much wider scope of 'unlawful' termination than exist in most statutory regimes, but it still leaves the traditional wrongful dismissal framework as having residual application in cases where, for example, the dismissal is due to a lack of work or discontinuance of a function.

In other words, the consensus interpretation doesn't imply a right not to be fired, so as to be fundamentally inconsistent with an express or implied obligation to give notice of termination in the way argued by the dissent.  An employee's job is still in jeopardy in circumstances of good faith restructuring, and in those cases the employee will be contractually entitled to notice, per the 'usual' case.

Other Problems with the Wakeling Interpretation

There are, in my view, two key things that tell us that this isn't just a procedural option for enforcing existing common law rights.  Firstly, at common law, reinstatement simply doesn't exist.  A regime where employers are entitled to terminate is fundamentally inconsistent with a reinstatement regime.

Secondly, the dissent's belief that the purpose of Division XIV is to "provide a low cost, efficient, and effective procedural mechanism" is simply irreconcilable with the differential treatment between 'lack of work' dismissals and other dismissals.

Reinstatement Does Not Exist At Common Law

The fact that Adjudicator Wakeling admittedly never ordered reinstatement, and was sparse and 'flimsy' in his reasons for doing so, is telling, and is where the intellectual rigour of the approach fails.  Any reasonable interpretation of Division XIV simply must include some circumstance in which reinstatement would be an appropriate remedy.

The dissent argues, in what I believe is the only semi-cogent way of delineating such a test, that the reinstatement remedy is reserved for cases where the dismissal was "discriminatory or retaliatory" - and points to the fact that Provincial employment standards statutes do have reinstatement regimes in such cases.  Yes, they do.  Quite expressly, and very specifically and narrowly.  It is rather self-defeating that the dissent tried to make this argument right after arguing that Nova Scotia and Quebec, in creating 'only just cause' regimes, did so "expressly".

But let's be clear, we're still talking about the creation of a substantive right and remedy.  For all the dissent's discussion of there needing to be an express intention to displace the common law, etc., there's no read possible read here which doesn't do so.  Reinstatement is only a viable remedy in the face of an 'unlawful' termination.  Full stop.  The dissent's claim is simply that the scope of the unlawful terminations created and remedied by Division XIV is narrower than the consensus interpretation, limited only to cases where there's discrimination or retaliation.  Or maybe certain bad faith cases?

'Discriminatory' is tricky, because while labour adjudicators aren't "wholly without jurisdiction" to apply the Canadian Human Rights Act, that's not a simple analysis.  Creating a structure within the Canada Labour Code to address a wrong under the CHRA needs a bit more guidance than that.

Furthermore, given the already restricted range of cases to which Division XIV applies in the first place (non-managerial, employed for 12 months or more, not dismissed for lack of work), it's strange that they would put the reinstatement remedy into that quasi-wrongful-dismissal process, instead of the other processes available to everyone...

...except, to a very limited extent, they actually did.

As it happens, the anti-reprisal provisions in Part III are actually pretty thin.  There's no guarantee of non-reprisal, but there's an offence designated for certain narrow classes of reprisal:  If you dismiss somebody for testifying in an inquiry under Part III, or for giving information to the Minister or an inspector regarding wages, hours of work, annual vacation, or working conditions, then that's an offence under s.256, and s.258 requires that, on conviction, there will be an order to reinstate the employee in question.

Ultimately, creating a reinstatement power, with zero direction as to how it is to be used, seems deeply inconsistent with a contention that it's only to be applied in a narrow range of cases, and it seems very weird to create a substantive anti-reprisal remedy and then only apply it to a portion of your employees.

And perhaps most importantly, the Wakeling Interpretation simply provides no cogent reason for drawing the line there.  Given that this point absolutely requires a concession that Division XIV creates substantive rights and remedies, you need some rational basis for assigning which circumstances will call for the reinstatement remedy.  The consensus interpretation says, presumptively, all terminations of non-managerial employees with 12 months or more of service that aren't for cause or for lack of work or discontinuance of a work function.  That's pretty well grounded on a face value reading of the statute.  When you start moving away from that, and trying to add additional qualifiers on what makes a dismissal 'unjust'...well, then you're just making stuff up that Parliament didn't put in.

The Effect of Exclusion on Interpretation

The dissent ultimately concludes that Division XIV is really quite simple and minimalistic, creating a simpler and easier-access road to adjudication of wrongful dismissal disputes.

For some people.

An administrative tribunal capable of determining common law dismissal entitlements is, arguably, a good idea.  Professor David Doorey has argued that the processes under Ontario's ESA should be interpreted as including an adjudication of common law pay in lieu of notice.  (To be clear, they aren't presently, and I disagree with his argument on the point.)

But to exclude people dismissed, on a good faith basis, for lack of work or discontinuance of a function, from such a framework, would be completely nonsensical.  All other things being equal, these cases are simpler and easier in every way (and more suitable to summary adjudication in an administrative tribunal context) by contrast to the 'lack of fit' or 'alleged cause' cases.  To send these employees to the longer, more expensive, more drawn out court process to claim their entitlements flowing from dismissal, and to give a more accessible process to the employees with more complex claims, would be frankly bizarre and completely irrational.

Likewise with the exclusion of employees who have not completed 12 months of service.  Such employees will usually have entitlements, but, all other things being equal, they'll tend to be lower-value claims, more in need of a cost-effective accessible administrative process.

If the dissent were right, that Parliament's intention was simply to create a process that improves access to justice, these exclusions would be roughly the opposite of what we would expect to see.  Typically, an expeditious process with less rigourous procedural protections, relaxed rules of evidence, etc., is more suited to claims that are simpler and lower-value in nature, and less suited to high-value complex claims (such as long-service employees who have been dismissed for contentious reasons).

On the other hand, if we're looking at creating substantive protections against not-for-cause termination, then this is exactly what we would expect to see:  Something that gives greater protection to employees who have been there for longer, but which doesn't constrain employers against making legitimate and good faith changes to their business model.

Conclusion

Ultimately, I continue to be of the view that the dissent got the 'standard of review' question 100% right:  The standard should be correctness, for a question like this.

But, at the end of the day, in my view, the consensus interpretation is the correct one.  So, all things considered, I think the case was resolved correctly, if for the wrong reasons.

*****

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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Wilson v. AECL: Supreme Court Allows Appeal by Unjustly Dismissed Employee

This is a case that's been generating waves in the Labour and Employment bar across the country, and the Supreme Court just shot down what had been a bit of an earth-shattering decision by the Federal Court of Appeal.

First off, some mandatory constitutional law for context:  The vast majority of employment relationships in the country are regulated by the Provincial governments.  So when you see me writing about Ontario's Employment Standards Act, that's why.

However, organizations that fall under a Federal regulatory mandate, such as telecommunications, banking, and some finance, instead have their employment relationships governed by the Federal Canada Labour Code.  This is a relatively comprehensive statute, covering matters such as employment standards, labour relations, occupational health and safety, and others.

There are several differences between the Code and the various Provincial employment laws, but few differences are more stark than 'reinstatement' provisions in the Code.

Reinstatement Remedies versus the Entitlement to Fire

Outside of the non-union context, it's exceptionally rare that employees can get reinstatement remedies in Provincially regulated environments.  As the Ontario Court of Appeal recently upheld in Fair (I haven't posted a commentary on that decision yet, but I did when it came out of the Divisional Court), the Human Rights Tribunal of Ontario can reinstate an employee dismissed for reasons which contravene the Human Rights Code.  It's also well established that the Ontario Labour Relations Board can order reinstatement where employees were dismissed because of their union activities, and there are a handful of other 'statutory' reasons why termination is prohibited and reinstatement is available.

But those are the exception.  Outside of those few specific 'bad reasons' to fire an employee, at common law, you don't even need a reason to dismiss an employee.  I could walk into my office one morning and say to my employees, "Leafs lost; that means that you have to draw straws to see which one of you gets fired."  As an employer, I'm totally entitled to do that.  If I don't give the employee adequate notice of dismissal, it becomes a "wrongful" dismissal, and I'll be liable to provide the employee with pay in lieu of notice, but that doesn't detract from the fact that I'm entitled to terminate the employment relationship.

In Federally regulated environments, however, there's an additional framework - that of "unjust" dismissal:  The consensus view for a long time has been that, for non-managerial and non-union employers, termination by a Federally regulated employer must either be because of a lack of work or elimination of the position, or for 'cause' (which is similar, if not identical, to the high standard of 'just cause').

Procedural History

Mr. Wilson was hired by Atomic Energy of Canada Limited (AECL) in 2005.  He worked for over four years before he was dismissed, without cause, in 2009.  He filed an Unjust Dismissal complaint, and when the Ministry investigated, the employer took the position that he had been offered a "generous dismissal package", and therefore its obligations under the Code were satisfied.

Wilson also claimed that the dismissal was motivated by a reprisal - a whistleblower issue, of sorts.  This is not material to the case as it's currently before the courts, as the matter proceeded on the preliminary issue as to whether or not a 'without cause' dismissal, accompanied by a severance package, could be a 'just' one.

Stanley Schiff, a Professor Emeritus from the University of Toronto's Faculty of Law, was appointed to hear and determine the preliminary issue, and he concluded that a severance package simply could not render just an otherwise unjust dismissal - this being the consensus position among labour arbitrators up to that point, having been upheld at times at the Federal Court.

The employer brought an Application for Judicial Review to the Federal Court.  The Federal Court concluded that the adjudicator's decision was 'unreasonable', and the Federal Court of Appeal agreed.

The Supreme Court Decision

With four sets of reasons (one of which, by Justices Moldaver, Cote, and Brown, dissented in the result), this turns out to be a complicated case, more about certain principles of administrative law than about substantive labour and employment law.

The case turns out to be about 'standard of review':  Should adjudicators such as Professor Schiff be afforded deference so long as their decisions are 'reasonable'?  Or, for decisions of this nature, must he be held to a standard of correctness?

Put more simply, is it enough to warrant judicial intervention that a judge might disagree with his conclusion, or must the conclusion be unreasonable on its face?

The dissenting judges regard the 'unjust dismissal' provisions of the Code as only creating a procedural option, without changing the substantive rights or obligations of the parties to the employment relationship.  I could spend a great deal of time parsing this argument, and examining its consequences, starting with the question of what rights it would protect, if we regarded it in those terms.

The standard of review, according to the dissent, should be correctness:  The question appears to be strictly one of law, of interpretation of the terms of the Canada Labour Code, and the dissent is deeply concerned about a trend toward deference to administrative decision-makers when interpreting their own governing statutes, undermining the principles of certainty and predictability - because adjudicators are left to their own devices in interpreting the Code, Federally regulated employers can't really know their own substantive rights and obligations, because it kind of depends on what adjudicator they draw...

There's a certain appeal to the dissent's viewpoint on the 'standard of review' question.  Yet I think they're overstating the uncertainty, to an extent.  There was a consensus viewpoint.  Yes, certain adjudicators might go another way, but they're a small minority - a tiny handful of adjudicators that have disagreed with the consensus over the course of decades.

The other six judges, however, considered the appropriate standard of review to be 'reasonableness' - and they considered the adjudicator's decision to be reasonable.  They reviewed the legislative history of the provisions in question, and Parliament's Hansard, showing clear indicia that the provisions were intended to bring in job security protections comparable (though not identical) to those of unionized employees.

The tendency of labour arbitrators to apply union-esque philosophies, in a modified way, is therefore consistent with Parliament's intention, and not unreasonable.

However, there's another split.  Justice Abella proposed that the 'correctness' standard be done away with altogether - that the standard of 'reasonableness' be applied in all cases, with due regard to the circumstances of the decision.

Justice Cromwell, while agreeing with Justice Abella's disposition of the case, rejected this approach.  He argued that the existing framework is fundamentally sound and simply needs some fine-tuning, rather than a full overhaul.

All the other judges - both in the concurring and dissenting reasons - said they "appreciate" Justice Abella's efforts to stimulate a discussion on the point, but consider unnecessary to redefine standard of review in the context of this particular case.

Commentary

The takeaway here is actually fairly simple:  The consensus view, limiting Federal not-for-cause terminations, has been endorsed as reasonable by a majority of the Supreme Court of Canada, so Federally regulated employers should proceed very cautiously with not-for-cause dismissals moving forward.  Period.

But as to the finer legal points, there's more to be said.  There's a superficial appeal to Justice Abella's proposal to eliminate the 'correctness' standard.  Put all 'deference' issues on the sliding scale of reasonableness.

But, superficial appeal aside, I would have significant reservations about that approach.  I'm something of a legal intellectual purist:  I believe that all strictly legal questions should have one correct answer, based on consistent sets of common law principles and statutory interpretation principles.  Facts quickly muddy up the waters of any such discussions, but the law itself should be objective.

And this is what the 'correctness' standard is typically reserved for:  Questions of pure law.

Accordingly, I think the dissenting 'standard of review' analysis is solid:  The question "Does the Code prevent terminations on a without cause basis" is one that should have a fixed answer.  It's a legal question, a question of statutory interpretation, and there should be a right answer to it.  Not "It depends on which adjudicator you get".  Mind you, I'm not sure I agree with their substantive answer - I find it difficult to reconcile the availability of a reinstatement remedy with an unconstrained management right to fire - but I think that it's a question that the court can and should answer determinatively, rather than kicking it over to administrative decision-makers.

On a personal note, congratulations to my friend and colleague Lauren Wihak, whose 2014 paper "Whither the Correctness Standard of Review" was cited by both Justice Abella and the dissent.

*****

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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Fact-Check: Did Maternity Leave Really Arise Out Of A Postal Strike?

With the prospect of a postal strike on the horizon, I've been seeing increasing amounts of propaganda on social media, including this graphic (which appears to have been proliferated in connection with the 2011 strike):

Seems to make sense, no?  I mean, we're well accustomed to the idea that certain benefits, like the five-day work week and occupational health and safety protections, are the result of pressures by trade unions, so there's nothing unbelievable about the idea that mat leave might have arisen from labour disputes.

Except that this particular claim is totally and completely false.

Let's parse the post for a moment:  If you read all the fine print (you might have to zoom in a little), then it looks like the claim here is that the 1981 postal strike started the move toward what we now know as EI maternity/parental benefits.

It didn't.  In fact, EI first introduced maternity benefits in 1971, offering 15 weeks of benefits to qualifying mothers.  In 1990, additional parental benefits (available to fathers or mothers) were added, and expanded in 2000.

The union's push in 1981 didn't have anything to do with any of that.  The relevant issue, for our purposes, was that the EI (well, UI, at the time) benefits weren't enough:  Only 55% of insurable earnings.  So they negotiated a supplementary benefit from the employer (who in this case happens to be a Crown corporation) - getting more money over top of the EI benefit.

Okay, so the literal reading of this graphic's claim...isn't what happened.  But maybe the postal workers started a movement to improve the scale of EI benefits?  Nope, 35 years later, they're basically unchanged.

Or maybe they can take credit for starting a trend of employer-paid supplementary benefits, that might have percolated down to the general public?  No, not really that either.  As of 2008, only about 20% of new mothers were entitled to supplementary employer-paid maternity benefits.  Most of those were in the public sector, with about half of new mothers in the public sector being entitled to supplementary benefits for, on average, about 22 weeks.  In the private sector, it's quite rare to get any such benefits, and it's for a much shorter period of time.  (It's not even true that the postal workers were the first to get such benefits, but it clearly isn't something that's translated into the wider workplace like the five day work week.)

In other words, if you're one of the 20% of women who get some form of supplementary maternity benefit from your employer, then you can look at the 1981 strike as at least pushing on that issue a little.  If you're not such a person, however, then none of your mat leave rights trace back to the 1981 strike in any way.

I first saw the graphic because it was shared by a labour lawyer friend of mine...and so I feel that the occasion calls for this:

*****

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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

What's the Minimum Reasonable Notice Period?

Throughout English-speaking Canada, if you don't have a valid express contractual clause setting out your entitlements on termination in non-union environments, the usual result is that you're entitled to "reasonable notice".

Much of the job of an employment lawyer is figuring out what's "reasonable" in a given scenario, based on factors like length of service, age, character of employment, and availability of replacement employment.

In Ontario, at least, it's pretty well-established that there's a soft ceiling of 24 months.  There are exceptional cases, but you rarely see more than 24 months.

But what's the minimum?

There's no question that assessing the notice periods for short service employees can be a relatively difficult task, so the entitlements of 'new employees' are hotly debated.  There's long been an attitude among employers that 'reasonable notice' should never really be much more than about a month per year of service.  In the 1990s, respected employment lawyer and mediator Barry Fisher used a comprehensive database he developed to prove that this "rule of thumb" didn't really track the outcome of cases, especially for particularly short-service and particularly long-service employees.  In 1999, in the case of Minott v. O'Shanter, the Ontario Court of Appeal expressly rejected the "rule of thumb", finding that it placed an undue emphasis on length of service, to the detriment of the other factors.

Accordingly, while it's always surprising to people outside of employment law, it's not at all uncommon to see employees with less than a year of service getting notice periods of 3 months or more, or to see employees with just three years of service getting upwards of 6 months.  For managers in particular, it's not at all unusual to see someone with 3 or 4 years of service obtaining a reasonable notice period approaching one year.

A few years back, I watched a presentation by Justice Sproat, a well-respected employment law judge, where he asserted that any 'real job' can be expected to take no less than 3 months to replace.  I've had similar conversations with experienced employment law mediators, including one recent mediation for a very short-service employee where the mediator suggested that anything outside the 3-6 month range was very improbable.  This is in line with much of the case law.  It's fairly rare to see notice periods assessed at much less than 3 months, and this tends to be the understanding in the employment law bar in general.

Yet there's very little case law actually talking about general propositions for short-service employees.  Is there a floor, or even a soft floor, for reasonable notice periods?  A number that you won't get below, barring exceptional circumstances?  It would actually be very helpful to have such a figure.  As employee counsel arguing my client's position, or employer counsel advising my client, to have a judicial decision setting a rough minimum for notice periods.  (It's not unusual to see an employer offering 6-8 weeks of notice, or sometimes even less, which is usually a pretty aggressive posture.)

However, in recent years, there have been some cases out of the west coast talking a bit about low-end notice periods - a couple of decisions from the British Columbia Court of Appeal Hall and Saalfeld, culminating in a recent decision from the Yukon Court of Appeal, in the case of Cabott v. Urban Systems, where the Court referred to a range of "two to three months" as being "a useful starting place" for a short-term employee.  The Court concluded that, because of Cabott's level of responsibility, the range should be bumped up to four months (but not to six months, as found by the trial judge).

On the facts, the Court's treatment of Ms. Cabott is, perhaps, rather questionable:  The Court refers to the the Hall and Saalfeld decisions as being essentially a baseline, and places Cabott's circumstances slightly above them.

On the other hand, there is some force to the submission that Ms. Cabott’s position in Whitehorse, described by the judge as senior and supervisory management, involved somewhat greater responsibility than the positions discussed in Saalfeld and Hall. Accepting the description of the range of notice for specialized employees in short term positions as two to three months as observed in Saalfeld and Hall, the character of this employment would justify an award modestly beyond that range.

While it's certainly true that Cabott, at age 53, was older than Hall (42) and Saalfeld (35), and likewise true that the trial judge considered her role to be "senior and supervisory", unlike Hall and Saalfeld, there remains one minor hitch with the Court's reasoning here:  The British Columbia Court of Appeal had upheld a five month notice period for Saalfeld.  They had felt it was at the high end, but not so outrageous as to warrant appellate intervention.  The trial judge awarded Cabott, with a more senior role, a significantly higher age, and even a longer period of service, a modest one month improvement over what the BCCA had upheld for Saalfeld.

There's a bit of revisionism here:  The BCCA was clearly of the view that 2-3 months would have been more appropriate for Saalfeld, but 5 wasn't totally outrageous.  Yet, in the Cabott decision, one would think that going much beyond the three months for a short service employee requires executive-level and/or retirement age employee.

What's more, I might resist the idea that Cabott's age and character of employment should move the notice period so very little.  It seems to put far too high a degree of importance on 'length of service'.

Indeed, the very language of a 'starting position' for short-service employees, to be bumped up depending on other factors, looks a little too similar to the "rule of thumb" language the Ontario Court of Appeal rightly rejected in Minott.

If we read the "starting place" language as creating a floor, assuming all Bardal factors to be toward the low end, then that would make sense.

Yet the Yukon Court of Appeal's reasoning appears instead not to do this, ultimately asserting 2-3 months not so much as a floor, but rather as a soft ceiling based on one of the Bardal factors.  This reasoning is reminiscent of the Ontario Court of Appeal's reasoning in Cronk in 1995 - a decision which was dismantled piece by piece, starting with Minott in 1999.

Notwithstanding a questionable application, however, I expect that, across the country, Cabott will be routinely cited for this simple proposition:  "For a short term employee the useful starting place in discussing range is the two to three months spoken of in Saalfeld and Hall."

And I suspect that this will make many wrongful dismissal cases far easier to settle.

*****

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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Superior Court Declines to Follow Trites v. Renin Corp

Three years ago, the Superior Court of Justice released its decision in the case of Trites v. Renin Corp, where an employee claimed to have been dismissed or constructively dismissed by the imposition of a temporary layoff.

In a statement which made the entire employment law bar do a collective double-take, Justice Moore held that:

there is no room remaining at law for a common law finding of constructive dismissal in circumstances where a temporary layoff has been rolled out in accordance with the terms of the ESA.

I have come to refer to this proposition as the "Trites proposition".  I argued at the time that the Trites proposition is wrong, and will not largely be followed, because it's obiter (in that Justice Moore concluded in any event that the temporary layoff had not been rolled out in accordance with the ESA), inconsistent with established and binding jurisprudence, and fundamentally rooted in a misinterpretation of the Employment Standards Act.  The widely-accepted status quo, before Trites, was that a temporary layoff would constitute a constructive dismissal unless the employer could demonstrate an express or implied term in the employment contract authorizing such a layoff.

I've had to argue about Trites in court since then:  I argued a motion for summary judgment on such a case last year.  I think the judge, who generally sits in the family court, was happy to be able to conclude that there was a constructive dismissal without needing to resolve the Trites question, in an unreported decision this past January.

But I'm not the only one who's been arguing about it.  In 2014, Deputy Judge Hagan declined to follow it in the case of Wiens v. Davert Tools (my commentary here).  As a Small Claims Court decision, it has little precedent value, but nonetheless it was striking that the Small Claims Court declined to follow an ostensibly binding precedent:  To do so, Deputy Judge Hagan concluded (as I had previously argued) that the Trites proposition is obiter, and therefore not binding, and inconsistent with the rulings of higher courts.

Until recently, however, Trites hadn't been expressly considered by any other Superior Court judges.  Which brings us to the recent case of Michalski v. CIMA Canada, in which Justice James expressly rejected the Trites proposition.

Justice James reviewed the Stolze and Chen cases (see my first linked entry above), as well as McLean v. The Raywal Limited Partnership, as well as the text "Employment Law in Canada", and concluded that these were out of step with Trites.

To the extent that the decision of Moore J. in Trites stands for the proposition that the common law conditions precedent to a lawful layoff have been completely displaced by the ESA, I respectfully disagree.

Commentary

While this can't be said to finally resolve the question for once and for all, I would suggest that the results in Michalski and Wiens bring into focus my earlier caution that employers should not place reliance upon the Trites decision.

When I was arguing against following Trites in court last year, it was a tricky argument.  A contention that a recent decision of the Superior Court was wrongly decided on the law is not a submission to make lightly.  I needed to make the argument, with significant and detailed appeal to the authorities with which Trites was inconsistent, and an indepth examination of the intellectual framework of the Employment Standards Act.  Even then, I was happy to be able to add to my factum the corroborating viewpoint of Deputy Judge Hagan, as an example of an independent judicial officer coming to the same conclusions about Trites that I was making on behalf of my client.

Now, that will be even easier.  With a Superior Court decision that expressly rejects Trites, providing authorities for the position, I expect that it will be much easier to deliver future arguments that Trites was bad law, to the point that I expect most employer counsel will advise their clients that the Trites argument is a long shot - making many such files much easier to settle.

So the lesson to employers is simple:  If you want the right to temporarily lay off your employees, put it in the written contract.

Other Issues Surrounding Temporary Layoffs

There's another tidbit of useful commentary in the Michalski decision, as well.  Quite often, employers facing a temporary layoff constructive dismissal allegation are taken by surprise, as some employers (including large national employers) have been routinely using layoffs to control costs for a lengthy period of time:  "I've been doing this for decades, and this employee knew it!"

Quite often, in these cases, I see employers attempting to rely on the long-standing practice as supporting a contention that the ability to lay off becomes an implied term of the employment contract.  (There are contexts in which this is the case.  The onsite construction industry comes to mind.)  In dealing with such an argument, Justice James noted:  "Standing alone, it is difficult to see how the layoff of one worker can result in a unilateral amendment of the employment contracts of other workers."  Only in cases where the right to layoff is "notorious, even obvious, from the facts of a particular situation" will it be found to be an implied term.

Of course, this doesn't head on address the other variation of that argument we sometimes see, of acquiescence to temporary layoffs: there are scenarios where an employer may have temporarily laid off an employee in the past, and the employee did not raise an objection at that time, and then takes a constructive dismissal position in response to a subsequent temporary layoff.  (Personally, I regard this as a difficult argument, most of the time, requiring a fairly particular factual matrix, for a number of reasons.)

There's also another variation in cases where an employee takes a constructive dismissal position after a lengthy layoff, or even after being recalled.  Andrew Monkhouse recently litigated such a case, Kurt v. Idera, at the Divisional Court, and it was sent back down to the motions court.  The employee in that case responded to a recall notice, over six months after the layoff, with a letter indicating that he took the position he had been constructively dismissed.

I find this variation to be challenging, as well:  On the more fundamental principles of constructive dismissal law, the employee has the option (or sometimes the obligation) of 'trying out' the changed terms and conditions of employment for a reasonable period of time.  If your employer changes your employment conditions, and you try it out for just long enough to conclude, "You know, this really doesn't work for me", then you're not blocked from taking a constructive dismissal position.  On the other hand, if you continue with the changed employment conditions for a much longer period of time, you'll be said to have accepted the change.  This is the root of the acquiescence argument here.

Yet it's difficult to apply this concept to temporary layoffs at all, and moreso to a single continuous temporary layoff:  The image of acquiescence is that the employee is going into work and doing his job under the modified conditions.  Even with multiple temporary layoffs, that's a tough pitch, because when the employee does report back to work, it's presumably under the same terms and conditions as before.  But with a single lengthy temporary layoff, and particularly for one of an indeterminate length, it seems inherently difficult to suggest that the employee has to make that assessment before knowing just how long the temporary layoff will be.  Maybe I'm prepared to acquiesce to a one week layoff, but not to a 12-week layoff.  Seems reasonable that I might hit a point where I say, "Hey, this isn't right" and want to seek recourse for an ongoing breach of contract.  Yet the longer the temporary layoff has gone on, the less likely it is to be a constructive dismissal?  Seems a little off.

*****

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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Employer's Failure to Pay Settlement Funds Does Not Repudiate Settlement

The vast majority of employment law settlements get paid out without much difficulty.  Most of the time, the employer has the funds to pay the settlement, and would rather get it done and over with.  In many of my settlements with '30 day payment' clauses, the cheque still comes in within a week, just to get the file closed.

But every so often, you run into a file where a struggling employer can't make the payment.  And that puts a plaintiff in a position of asking "What do I do now?"

Such was the case for Mr. Ball, following his dismissal from employment:  He was dismissed from employment on June 13, 2013, and quickly entered into a settlement (as of June 21, 2013) contemplating payment of three months' wages over six months, by way of 12 bi-weekly payments.  There were other aspects of the settlement, too, including the forgiveness of a large loan.  The settlement was ultimately very different from the termination entitlements set out in Ball's contract, which entitled him to 12 months' notice or pay in lieu.

After the first six payments, the employer stopped.  There was some email correspondence through 2014, with the employer basically saying "We don't have the money right now, but we're working on it."

In late 2014 and early 2015, Mr. Ball's counsel wrote to the employer, but received no response, so they commenced litigation in April 2015.  The employer didn't defend, so the plaintiff sought default judgment on the basis of the terms of his employment agreement - as opposed to merely enforcing the settlement terms.

The story is similar for Mr. Clark, who worked for the same employer, except that his settlement did not include forgiveness of a large loan - it was strictly a 'salary continuance' plus benefits type arrangement.

In two recent decisions (here and here), Justice Rasaiah awarded judgment to both plaintiffs based only on the settlement terms.  Ball was not entitled to treat the settlement agreement as never having been reached: No material misrepresentations induced him to enter into the agreement, there was no 'fundamental breach', and the employer had not *actually* repudiated the agreement., because they always expressed an intention to honour the agreement.

In the alternative, Justice Rasaiah indicated that even had the agreement been repudiated, she still wouldn't have awarded additional damages, because there wasn't evidence of damages.  (This, based on the limited description of the employment agreements, appears to be a very problematic conclusion, failing to consider the consequences of Bowes v. Goss Power and Howard v. Benson Group.)

Commentary

In the course of litigation, a breached settlement has consequences which are fairly clearly set out in the Rules:  The non-breaching party can bring a motion to enforce the settlement, or alternatively the non-breaching party can continue the litigation as if no settlement had been reached.

Outside of litigation, it gets a little bit more complicated, but the practice is similar:  When a settlement is fundamentally breached, the non-party has two options:

It could have elected to affirm the settlement and hold the appellants to the performance of their contractual obligations. Or, it could have elected to accept the breach as a repudiation of the contract and proceed with the action.

Here's how it works:  When a party, by words or conduct, fundamentally breaches a contract and/or evinces an intention not to be bound by the terms of an agreement, the other party can elect to 'accept' the repudiation, releasing both sides from performance of the agreement, or alternatively the other party can seek to enforce the terms of the agreement.

Normally, your damages following repudiation of a contract are to put you in the position you would have occupied had the contract been complied with.  However, in the context of settlements, there's an additional hitch:  Because an accepted repudiation releases both parties from performance of obligations under the contract, the non-breaching party is no longer precluded *by* the settlement from pursuing the entitlements that the settlement was intended to resolve.

So, in practice, it is a very similar 'election' process to the in-litigation settlement breach options.  As a non-breaching plaintiff, I can seek to enforce the settlement, or I can irrevocably say, "Fine, you don't want to honour the settlement, I'm seeking my full entitlements."

And, what's more, from a policy perspective, this makes sense:  I entered into a settlement with the intention of achieving a final resolution to the original dispute.  If I compromised my original position at all in reaching that settlement (which is the case in pretty much every settlement), and I were held to that compromise even though the other side didn't honour the settlement, then I'm put in the position of still having to litigate to enforce my compromised position - exactly the thing I was trying to avoid having to do by compromising in the first place.

Suffice it to say that I have my concerns about the outcome here.

In both cases, the judge focused significantly on the requirement that fundamental breach deprive the non-breaching party of "substantially the whole benefit of the contract".  In Mr. Ball's case, this allowed her to look at the very substantial benefits he received in the form of a forgiven loan, as well as having received more than half of the financial settlement, and conclude that he received "substantially what he bargained for".

In Mr. Clark's case, the judge found that simply providing approximately 60% of the amount of the settlement amount constituted "substantial performance of the obligations in the settlement agreement".  (This "substantial performance" language is interesting.  The phrase is not typically used in this context, but has a very particular meaning in construction lien law:  A contract is deemed to be substantially performed when the improvement being made or a substantial part thereof is ready for use, and any outstanding work is only worth a certain percentage of the contract price - the formula caps at 3%.)

Normally, when we're arguing about 'fundamental breach', it's because of an arguably technical breach, or because one party, in the course of completing its obligations, got a detail wrong.  It's pretty unusual that an ongoing non-payment of financial obligations under a contract was the subject of such a debate.

But perhaps that's because of the other side of the repudiation test:  Because, typically, when you aren't paying your bills, that's said to evince an intention not to be bound by the terms of the contract.

Justice Rasaiah got around that issue by pointing out that the employer never said they weren't going to pay...it was just taking a while.

She considered it a total non-starter that their breach required them to engage a lawyer and pursue legal action.  This, according to Justice Rasaiah, is not a factor when assessing whether or not the parties got what they bargained for.

A lot of settlements don't have a fixed timetable for payment.  In that case, you might argue about at what point a 'breach' has even occurred, much less a fundamental breach.  But in these two cases, where they stalled for several months, and then totally ignored a lawyer's letters with the outstanding settlement amounts more than a year in arrears, with no payment forthcoming approaching three years after the settlement was reached, it's really difficult for me to see how such conduct does not evince an intention not to be bound.

My concern about this is that it undermines an already-dubious element of dispute resolution:  The Payment Plan.  When you have a party who is in a difficult financial position, and you agree to settle the claim based on paying a reduced sum over an extended period of time - because you'd rather get paid something than nothing - then Justice Rasaiah's reasoning really leaves zero incentive for the payor not to breach the payment plan after a little while:  As long as you still got *something* that isn't insignificant out of the payment plan, and the payor keeps feeding you "The cheque's in the mail" types of responses, all you can do is try to enforce the settlement as you made it in the first place, and the defendant can say "Tell you what, I'll give you half of that, and save you the trouble of having to litigate."  (Believe it or not, I've seen this happen.)

In particular, there are many such cases where there is really not much controversy about how much the plaintiff is owed.  I might have a more-or-less airtight case for x, but enter into a settlement for 2/3 of x, paid over several months, for the sole reason that it's better than having to pursue formal legal action and obtain and enforce a judgment.  Yes, in that case, by being required to take it to court, I have been denied substantially the entire benefit of the agreement that I was to obtain by entering into it, and I think that Justice Rasaiah is likely giving the 'legal fees' issue too short of shrift by dismissing it in such a manner:  I've contracted for finality, for the bird in hand, and I don't have the bird in hand.

*****

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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.