Wednesday, April 25, 2012

Covelli v. Sears not to be Case Managed

Under the Rules of Civil Procedure, there's a process called "Case Management".  In essence, this involves the Court taking a more active role in the litigation, with a Case Management Master overseeing timeframes for the various necessary steps within the litigation, to make sure that the process moves along to a final resolution in a timely manner.  All motions end up getting heard before the same Case Management Master, which improves efficiency.

In Covelli v. Sears, which I've been following and posting about (here and here), the plaintiffs just brought and lost an unopposed motion to bring the actions into Case Management.

If you read my prior posts, you'll know that this case involves the pleading of systemic practices - essentially, the allegation is that Sears makes a practice of alleging just cause for termination to avoid having to satisfy its statutory and common law notice obligations.  Sears challenged the pleading of these practices, and was unsuccessful.

The Case Management decision looks at the background of the case a little bit.  The actions were started in November and December 2009.  Sears brought its motion to strike portions of the pleadings promptly, which were heard in April and July 2010.  The decision was released in March 2011.  Sears applied for leave to appeal, which was denied on November 23, 2011.

As I noted in my commentary on the latter decision, Sears was out of options relating to that issue, but it seemed likely to me that the case would not just go away, but would continue to be hard fought.

Apparently, Sears still hasn't served a Statement of Defence, but rather availed itself of a process that can defer the requirement for a Defence, being a Request for Particulars.  (The basic idea is this:  If I issue a Statement of Claim against you with vague allegations, you may not have all the information you need to understand the nature of the claim being made, so you can ask for more specific information before being required to serve a Statement of Defence.)

The plaintiffs responded to the Request for Particulars, but Sears isn't "satisfied" with the response, and the parties now can't agree on how best to move forward.  It appears that Sears is taking the position that it doesn't have to serve a Statement of Defence until the request is satisfied, whereas the plaintiffs appear to be of the view that the request has been satisfied.  The plaintiffs brought this motion in the hopes that Case Management would "break the log-jam".

Master Haberman heard the motion, and refused it.  Essentially, she held that the need for Case Management here was not sufficiently established.  She acknowledged that she had "no doubt that the parties' approach to this litigation will mean multiple trips back and forth to court", and that actions with more than a couple of motions are cheaper and faster with Case Management, but that doesn't matter because the test is not whether or not Case Management would be beneficial but instead is whether a "need for the court's intervention is demonstrated".  Case Management resources are limited, Master Haberman asserts, and have further been reduced recently, including that 2 Case Management Masters have been reassigned and Case Management Masters no longer have their own dedicated assistants, and therefore it is necessary to apply the test for Case Management strictly.

There's definitely something a little unsatisfactory about this decision.  Yes, Case Management would be useful.  Yes, we're nearly 2.5 years into this litigation without even having a Statement of Defence yet.  Yes, without Case Management the process here is likely to be long, drawn out, and expensive.  But no, we're not going to move the files into Case Management, because we don't have the resources.

Worse, by all accounts Case Management is more efficient in appropriate cases; if multiple motions will be needed in this process, it will still take up Court resources, and probably more Court resources than if they were Case Managed.  This means that the refusal to Case Manage may save *Case Management* resources, but what it saves there will be lost in other ways.


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.

Thursday, April 19, 2012

Buying a Business, and Employment Liabilities Too

This is an issue I've seen several times for small employers who have bought businesses, and ended up having problems with a long-service employee of that business.  They want to be rid of the employee, but probably can't meet the high threshold for just cause, and they're quite surprised to hear that the employee's "length of service" for the purpose of calculating termination entitlements includes their service before the business was bought.

With share purchase transactions (where the corporation remains intact but the shares are transferred to the purchaser), it's a really straightforward framework:  The employer is the corporation, the corporation is a legal person, and that same legal person continues to be the employer.  (There are ways of structuring the purchase to require the existing employees to be actually terminated, with holdbacks and/or indemnities for potential liabilities resulting therefrom, but barring such an arrangement, the employee's actual employment arrangement is unchanged by the transaction.)

Asset purchase transactions are a little more complicated.  I buy your facility, I buy your equipment, I buy your trademarks, intellectual property, and goodwill...what happens to your employees?

Well, I can decline to offer them jobs, in which case you're on the hook for wrongful dismissal damages.  Or I can make them offers of new employment.  But if I do so, and it doesn't work out with some of them, I don't want to have to pay them months and months of pay in lieu of notice.  So can I offer them a contract that stipulates that they won't get credit for their service with you for termination purposes?

The short answer is No.  Or at least, not usually.

The common law on the point suggests that it would be possible.  There's a common law doctrine which holds that it is an implied term of an employment contract, where a successor employer is involved, that the employee will be credited for service with the prior employer, unless the new employer advises the employee otherwise at the point of hire.  That made it possible for the new employer to start with a clean slate.

However, this had some adverse consequences from a policy perspective.  You take an employee who has been employed for decades in a given position, who would be entitled to many months of notice, except that the company changed hands a couple years ago - a transition which the employee barely even noticed, because her job remained otherwise unchanged.  So she gets shortchanged on termination for reasons which are essentially arbitrary, and completely disconnected to any of the relevant factors for calculating notice.

So, in Ontario, we now have s.9 of the Employment Standards Act, 2000:
If an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee's length or period of notice.
Remember, the ESA sets out minimum notice periods for termination of employment, based entirely on length of service, and trumps any inconsistent terms from common law or contract.  In other words, if I enter into a contract with the employees that they won't get credit for prior service, that would be in conflict with s.9, and therefore be void.

It's commonly believed - and I've even heard this from experienced employment lawyers - that the problem can be solved by requiring the vendor to formally sever the employment relationship.  So the seller fires the employee, pays out statutory notice and severance if applicable, the buyer offers a new contract on essentially the same terms of employment to start on the next day, and the seller is protected from further common law liabilities because the employee can be expected to mitigate her loss by accepting the new job. The theory is that this is a way of 'resetting' the length of service clock.

This does not work.

In fact, unless the break in the employment relationship is at least 13 weeks (i.e. from when the transaction closed to when the employee is re-hired), s.9 will apply in full force, deeming the employment relationship not to have been severed, regardless of whether or not notice/severance was provided.

So what can I do to protect myself from major employment-related liabilities?

Well, there are always options.  The first is to simply not hire the employees.  Of course, needing to restaff (and train the new staff for) the entire business is often not a practical solution.

So another option is to accept a certain continuity in the employment relationship, and to take the more established approach for limiting your liabilities with existing employees, because liabilities can be limited to as little as the ESA minimums, if done correctly.  Unless severance pay is required, ESA minimums are usually relatively modest, maxing out at 8 weeks notice.

However, to implement such a contract in a way that maximizes its possibility of being enforced by a Court, an employer will certainly need legal assistance.


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.

Tuesday, April 17, 2012

Thirty Years of the Charter: What has changed, and what has not?

Thirty years ago today, on April 17th, 1982, Canada patriated its constitution and implemented the Charter of Rights and Freedoms.

Views of the Charter have been varied ever since.  My father, a retired police officer, has often said that the Charter was a "make work project for lawyers".  In the criminal law field, he primarily sees the changes made in that arena.  And one can easily understand why police - particularly those whose service predated the Charter - might have a negative overall view of the Charter.  You're doing your job the way you've been told, and suddenly the criminal you worked hard to catch gets to walk free because the Courts find this new thing that you should have done first, but nobody ever told you to do it.

Conversely, however, it's important to look at the other perspective, at people like Donald Marshall, David Milgaard, and Stephen Truscott, who were all wrongly convicted of murder following investigations marred by (at least) tunnel-vision and an absence of appropriate disclosures to the defence.  It's unlikely that any of the three would have been convicted in the post-Charter era.  (Not that we don't still have miscarriages of justice, of course.)

But the effects of the Charter are much broader than simply on criminal law.  Substantive equality rights and fundamental freedoms have had huge impacts throughout society.  The Courts struck down the prohibition on abortion, they ruled that same-sex couples should be allowed to marry.  Both of these are now settled and established principles within Canadian law.  The Charter now protects certain rights in respect of labour organization.  There have been wide applications of the freedoms of religion and expression, and of equality rights, and moreover the various Human Rights statutes throughout the country are essentially a constitutional imperative in many respects.

In other words, a great deal has changed.

But there are limitations on the Charter.  s.1, the "reasonable limits" clause has been routinely applied by the Courts, and to good effect.  Freedoms aren't absolute, but are subject to such limits as are demonstrably justifiable in a free and democratic society.  More controversial is the notwithstanding clause, allowing the governments to expressly disregard certain provisions of the Charter, including s.7 - the right to life, liberty, and security of the person.

The notwithstanding clause has been seldom used, largely due to a lack of political will.  When the Supreme Court forces social reform in accordance with Charter values, the Canadian people are sufficiently on side that elected officials aren't strongly encouraged to use the notwithstanding clause.  In some ways, the notwithstanding clause serves as a balance against the power of the judiciary, and its lack of use is a testament to the appropriateness of the judiciary's conclusions on Charter values.

However, when we look at darker chapters of our history, such as the Japanese-Canadian internment camps, it's worth questioning whether or not the Charter really provides meaningful protection against similar events in the future.  Or at present, as in the case of security certificates.  Mind you, security certificates have been subject to Charter scrutiny - with a 2007 SCC ruling that the process was not compliant with the Charter, following which it was amended in 2008 - but it's surprising and disturbing just how little distaste there was throughout Canada for the unilateral detention of Muslims without charge and with no obligation to disclose the basis for the detention.  (One of the challenges of the Charter is time:  People were held for years under the unconstitutional process before the SCC struck it down.)  The amendment necessitated by the Charter resulted in the creation of independent advocates - essentially, lawyers with security clearance who were entitled to see the evidence against the suspects and required to advocate on their behalfs.  This had the result that a hearing on the reasonableness of the security certificate went from a non-adversarial process, with the Crown simply having to convince a judge in an ex parte process that there were reasonable grounds for detention, to an adversarial one, with a second lawyer in the room able to second-guess the Crown's evidence and point out the deficiencies in the Crown's case.

Consider the case of Hassan Almrei, who was detained in October 2001, until January 2009, when he finally received bail, which ended when the certificate was finally quashed in December 2009.  In fact, a number of certificates were quashed in 2009, which is likely directly attributable to the Charter ruling that disclosure in some fashion was necessary.

Canada still hasn't been too bad in the post-9/11 world as far as civil liberties abridgements are concerned; other liberal democracies have successfully justified very significant intrusions on personal liberties on the basis of security, and despite criticism from legal communities, the majority of the electorate hails these measures as necessary evils, which gives some insight into a particularly disturbing aspect of human nature:  When I am afraid, I am more concerned with my own security than your liberty.

Extrapolate this to a democratic country with a political override for the right to "life, liberty, and security of the person" (and equality rights), and it is entirely conceivable there may come a day when Canadians on the whole are so afraid of a group of people that mass internments may be politically palatable, and that in the distant future Canadian legal historians may be looking back on atrocities committed by the Canadian government in times of crisis despite the Charter, through use of the notwithstanding clause.

In summary, the Charter has marked 30 years of very positive movement for social policy in Canada.  The notwithstanding clause has been, if anything, positive, because it ameliorates any concerns about giving the appointed judiciary too much power.  Yet there remains a concern that the notwithstanding clause could be used for more than simply reeling in judicial activism, and that is a possibility that we as Canadians must always bear in mind - the notwithstanding clause puts power into the hands of the people, and accordingly we must exercise responsibility in regard to its use.

First they came for the communists, and I didn't speak out because I wasn't a communist.
Then they came for the trade unionists, and I didn't speak out because I wasn't a trade unionist.
Then they came for the Jews, and I didn't speak out because I wasn't a Jew.
Then they came for me, and there was no one left to speak out for me.
-Martin Neimoller, 1892-1984

Thursday, April 5, 2012

Waterman v. IBM - Going to the Supreme Court

I don't follow developments in extra-Provincial case law quite as closely as I do Ontario case law, so sometimes there are really interesting cases that escape my attention until they go up to the Supreme Court.

Waterman v. IBM Canada Limited is an interesting B.C. case.  Here's the trial decision, decided by Justice Goepel in March 2010.  And here's the unanimous decision by the B.C. Court of Appeal.

This morning, the Supreme Court allowed the application for leave to appeal, meaning that they will hear the case.

The Trial Decision

Mr. Waterman was hired by IBM in the U.K. in January 1967.  He was 24 years old, and it was his first full time job.  Two years later he transferred to IBM Canada.  And he continued working there for some forty more years, through thick and thin, including when he was diagnosed with Parkinson's disease in 2003.  Fortunately for him, IBM reversed its mandatory age 65 retirement policy in December 2006, meaning that he didn't have to retire in June 2008, when he turned 65.

However, due to changing economic circumstances, he was advised in March 2009 that his employment would end on April 27, 2009.  Because he had planned a vacation for the full month of April, he convinced IBM to extend the actual notice a further month, resulting in a termination date of May 22, 2009.  Length of service:  42 years, 5 months.

Still not ready to retire, he looked into the finite number of employers who could use his highly specialized skills from IBM - not as if his technology education from the early 60s is very useful these days - and found that they were downsizing too.  So he trained to work in the insurance industry instead, including taking a part-time job starting in September 2009.

Mr. Waterman sought a 24-month notice period.  It's quite surprising to me that he didn't get it - B.C. is usually relatively generous with notice periods.  Despite his exceptional length of service and his advanced age, his character of employment, without managerial responsibilities, was still a factor pushing the award downwards to 20 months.  (B.C. hasn't yet caught on to the trend which has been adopted in other Provinces, including Ontario, of minimizing or rejecting the importance of the character of employment.)  His illness didn't contribute to a longer notice period - the Court cited a precedent from 1984, decided by Beverley McLachlin (now Chief Justice of the Supreme Court of Canada) when she was a judge of the British Columbia Supreme Court (equivalent of Ontario's Superior Court), for the authority that illness doesn't affect notice periods.  And the full two months' actual notice he received was credited to the employer, though he was on a pre-planned vacation for a month of that time and argued that this rendered him unable to seek re-employment in that time.  (Food for thought:  If I'm entitled to 1 month's notice, and have a 1 month vacation scheduled and am fired the day before it starts, I get my accrued vacation pay plus the month's notice.  Nobody could argue that taking a pre-scheduled vacation was a failure to mitigate.  If I'm given notice that my employment ends the day I come back, meaning simply that I'm not coming back, I actually get the vacation pay, and not a dime more following termination.)

Waterman lost significantly on the components of his remuneration which continued through the notice period, too.  He failed to establish an entitlement to his annual bonus, overtime pay, and stock purchase plan.

So Waterman was unsuccessful at trial in many respects.  There is no doubt that his $90,000 judgment was substantially lower than what he had hoped for.

However, he won on a few critical points, too.  The Court found that his decision to seek employment in another field was reasonable; he didn't fail to mitigate.  More importantly, IBM funds a defined benefit pension plan, with no employee contributions, which Mr. Waterman was entitled to collect following the end of his employment, and accordingly the pension plan has paid Mr. Waterman over $2,000 per month since his termination.  IBM argued that his entitlements through the notice period should be reduced by the pension benefits received, and was unsuccessful.  This has become the basis for the appeals.

The Court of Appeal

IBM relies on a Supreme Court of Canada decision from 1997 called Sylvester v. British Columbia, which is a seminal case dealing with deductibility of disability insurance benefits during the notice period.  Where an employer provides disability benefits, and the employee claims those benefits during the notice period, do those benefits get deducted from the employer's liabilities?

The Supreme Court said "yes" in that case, that the parties couldn't have intended the double-recovery that would result otherwise.  It's a decision that has garnered some criticism, and rightly so:  The basis for the decision was, in a nutshell, that it is 'unequal' to give a disabled employee notice plus disability benefits, where the able employee gets only notice.  Yet "equal" treatment does not always require "identical" treatment.  If an employee is unable to work or meaningfully seek work for a six month period due to disability, then six months of disability benefits - intended to replace income for the period during which he can't work - plus a full measure of pay in lieu of notice - intended to replace income for the period of time needed to find new work - are not double-recovery, and put the disabled employee into no better a position than the able employee.

Courts have often distinguished Sylvester, however.  The Ontario Court of Appeal, in Sills v. Children's Aid Society of the City of Belleville, dealt with a scenario in which the employee had made contributions to the disability insurance, and in that case felt that an employer should not be relieved of its obligations because of an insurance benefit paid for by the employee.

In Mr. Waterman's case, the Court of Appeal also distinguished Sylvester, finding that the differences between a pension plan and an insurance policy were sufficient to warrant different treatment, and looked to the intention of the parties in 1967.  The contractual provisions didn't speak to the question, and the Court concluded that the parties would not have intended a clawback of the pension benefits in the event of dismissal.  More substantively, even though the contributions were made by IBM, they were made on behalf of the employee, and for all intents and purposes the plan appeared to be treated as property of the employee.

The Court of Appeal, as a matter of obiter, expressed some concern about the consequences of IBM's position, that it would have the impact of inviting employers to focus their layoffs on older employees with vested pension entitlements.

My Thoughts

Relying too heavily on Sylvester seems a poor approach to this.  Sylvester is a case which has been often attacked as being largely inconsistent with the Supreme Court's usual approach to employment law, and has been routinely distinguished.  One can't be surprised that the lower Courts are continuing that tradition in this case.  This will end up going to the Supreme Court as an opportunity to either broaden Sylvester, or to pull it back as an endorsement of the lower Courts' reluctance to apply it.  Frankly, I think the latter is far more likely.

That being said, I'm not so sure that IBM is wrong on the point.  While the Court of Appeal seems to be concerned about IBM's ability to trigger the pension entitlement itself via a termination without notice, and then to use that act so triggering to reduce its own liability, I think that may actually cut the other way.  Until his employment ended, he had no entitlement to draw on the pension.

This goes to the first principles of compensation and mitigation.  A dismissed employee is entitled to be put into the same position he would have occupied actual notice been given.  There are major nuances to contend with in context of disabled employees, but less so here.  We have a pension plan which vested, but which he could not draw (as far as I can tell from my review of the facts) until the end of his employment.  Fairly simple.

Had he been given actual notice, he would have continued to be paid until the end of the notice period, and his pension benefits would have started thereafter.  Simple, right?  (Of course, if his benefits were reduced because of having to draw on the earlier, that reduction would be compensable over time, too.)

Or let's look at this from another angle:  What is mitigation income?

Usually, in an employment context, it's pretty simple.  You get fired, you get a new job, your new employment income is mitigation income.  What happens if you already had a part-time job, though?  Does your old employer get full credit for your earnings in the other job?

No.  The central principle of mitigation income is that it arises as a result of the breach of contract.  In other words, if it can be said that I wouldn't have had the opportunity to make that money but for the breach of contract, it's mitigation income.  Ordinarily, when I'm fired from a full-time job and I pick up another full-time job, it's fair to say that I wouldn't have been able to work both full-time jobs.  But in the scenario of the part-time job, if I picked up additional hours in the time that I used to work for the other employer, those additional earnings would be mitigation income...but the income from the shifts I always worked even when maintaining both jobs would not be in the nature of mitigation.

Where am I going here?  It's simply this:  But for the termination of Mr. Waterman's employment without notice, he would not have received pension benefits over the relevant period of time.  He was given access to those benefits by the fact of the termination itself.  He made the money as a direct result of the breach, and could not have made it while still employed.

It's a simple and straightforward application of the mitigation principle:  By dismissing him, IBM entitled him to a new revenue stream, and so is entitled to the benefit of that through the notice period.


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.