Tuesday, December 11, 2012

Legal Advice and Privilege in Contract Negotiations

There's a new and slightly disturbing decision from the Superior Court of Justice, Drash v. Mircom.

In many ways, this is a very typical wrongful dismissal action dealing with questions as to the enforceability of a termination clause.  Mr. Drash began employment with Mircom, apparently as VP Marketing, on October 31, 2011, and says that he was dismissed on February 6, 2012.

His contract included this language:  "...during your initial year of service, Mircom will provide you with the notice of termination of your employment or payment in lieu of notice which complies with the standard required by the various Provincial, State and Federal Employment Standard Act."

Unless there's something more not reproduced in the decision (which, to be fair, there may be), Mircom may have a problem.  There's a lot of case law arguing about whether or not a clause serves to displace the presumption that an employee is entitled to reasonable notice of termination, and...well, let's just say that there is authority supporting Drash's attack on the language as not doing so.

But there are contextual factors here which appear to set the case apart:  Namely, Drash may have understood what Mircom intended the language to do, and signed the contract nonetheless.  It appears that he obtained legal advice on the contract, and the lawyer may have advised him that the clause would not likely be enforced.

I observed in an entry a few months ago that I never recommend my clients sign anything on the expectation that it would not be enforced, in large part because the Courts would not be thrilled with such bad faith.  That's exactly what's going on in this case.

The Issue

Drash pleaded that he acted in reliance on his lawyer's advice that the clause was not likely to limit his entitlements.  Mircom then took the position that Drash had put his lawyer's advice in issue, waiving solicitor-client privilege, making his lawyer a witness and requiring the records pertaining to his lawyer's advice to be disclosed.  (His litigation lawyer is the same lawyer; being a witness would mean he has to get off the record.)

So Drash wanted to change his pleadings, and brought a motion about it, and Mircom brought its own motion seeking a declaration that solicitor-client privilege had been waived.

Mircom argued that the statement that he relied on his lawyer's advice was an admission against interest, and couldn't be changed without satisfying a fairly rigourous legal test:  Because of the initial pleading, Mircom is entitled to rely on his 'valuable concessions' that he signed the agreement because he believed the termination clause was ambiguous and could not be used against him.

The Finding

The Master who heard the motion agreed with Mircom's position:  It was an admission against interest, and he can't simply change it now, and it does put into issue the legal advice he received, accordingly waiving privilege.

My Thoughts

I have a number of concerns with this decision:

Drash's Litigation History

The Master notes, and reiterates several times, and considers in some length, that this is Mr. Drash's seventh law suit for wrongful dismissal, at least three of which involved the same lawyer, and that multiple cases (including this one) involve him seeking notice periods exceeding the length of his actual service.  She calls him a "career litigant".

At the end of the decision, the Master awards costs against him, 'reminds' him that the action involved the "termination of employment with Mircom that lasted all of 3 months and 5 days", and encourages him "to approach this case on the basis of proportionality as our Rules require."  There is a definite sense, reading through the decision, that she thinks the law suit is a waste of the Court's resources.  (This is the same Master who, in March, refused to put Covelli v. Sears into case management because of an unavailability of Court resources.  Don't get me wrong:  I applaud Master Haberman's efforts to improve the effectiveness and efficiency of our judicial system, as it is certainly needed, and I absolutely agree with her concerns about proportionality, but I worry when concerns about appropriate use of Court resources appear to inform decisions on matters of substantive law.)

One might reasonably argue that his litigation history is not a relevant factor in general, and particularly irrelevant to the matters at issue on the motion, and that the Master's focus on the short length of service is especially out of place.

Length of service is one factor in determining the appropriate notice period; however, there are other factors, and the notice period is notoriously hard to predict for short-service employees.  For a senior-level employee, entitlements can still be relatively significant, and it is not unheard of for very short-service employees to have notice periods longer than the period of employment.

From the fact alone that he made 6 prior claims against different employers, the Master appears to draw an adverse inference about the validity of his claims.  To my mind, frankly, that's inappropriate.

Having an unusual number of wrongful dismissal claims can say any one of several things:  Suing frequently can be an indication that you are overly litigious, yes, but it could just as easily mean that you put yourself into poor situations.  Getting routinely fired without just cause can suggest that you're picking your employers badly, or you're a poor employee, or that you don't fit well into certain types of workplaces.  Or some combination of factors.  But without looking at the merits of the particular claims, implying that a person is in the wrong by virtue of the fact that they are frequently involved in litigation...is unwarranted.

What is, perhaps, most worrying about this adverse inference the Master seems to draw is that, on the face of the claim as described, there does not appear to be anything particular tenuous about it.  I have seen challenges to contractual language far more tenuous than this...and many of them even succeed.

His litigation record might be relevant if it were a question of unconscionability, or whether or not he actually understood the terms of the contract...but he had legal advice, and that much isn't being challenged, so...not so much.

Drash is "sucking and blowing"

This is a passage from the decision:
He expressly pleads that is [sic] was an express or implied term of his contract that he could only be terminated upon provision of reasonable notice, or pay in lieu thereof, or for just cause. [Emphasis in Master's decision]
There is, in fact, an express term in the contract that deals with termination.  Having relied on it, however, Drash then claims that the clause is invalid as it is ambiguous....  This is a classic case of "sucking and blowing".  Why would a party seek to undermine the validity of a clause he seeks to rely on?  As the statement of claim is not consistent with itself, it is not at all clear what it is that Drash means to say in this pleading.
My read of this passage - and I would invite alternative interpretations (perhaps he relied on the termination clause in some other way?) - is that the Master believes that the claim's description of "an express or implied term..." refers to the written termination clause in the contract.  Which, as reproduced above, does not provide 'reasonable notice', and clearly isn't what he's referring to in this passage.

I'll grant that the bolded segment isn't the vision of pleading precision, but it's pretty boilerplate.  Take out some of the disjunctions, and what you get is this:  an implied term of his contract that he could only be terminated upon provision of reasonable notice, or for just cause.  That's at the core of nearly every wrongful dismissal action - the common law presumption of an entitlement to reasonable notice.  Which can be displaced by an express contractual term, which is why a plaintiff would plead that the express contractual term contained within the contract does not displace his common law entitlements.

Frankly, there's a bit of a "The Lady doth protest too much" element to the pleading (to the limited extent to which I know its contents) - if I'm arguing that the contractual term doesn't displace my entitlement to reasonable notice because it's ambiguous, then if I talk about it at all in the Statement of Claim, I will describe it in terms of what my position is as to its meaning.  However, I don't fault Drash's lawyer for this, because it was clear where a fight was going to be, so setting up the real issues for dispute probably made some sense.

Relevance of the Legal Advice, and Privilege

This is where there are more substantive issues with the decision itself.  It is relevant *that* he obtained legal advice.  Maybe.

But what the legal advice is?  I don't see any basis for that to be relevant.  Because he obtained legal advice, it strengthens the presumption that he signed the agreement with full knowledge of the legal consequences of its terms.

Simply, it doesn't appear that the plaintiff's understanding of the meaning of the termination clause is in issue.  The real question is the actual meaning of the termination clause.  If the meaning of the clause is unambiguous, then that's that - there's one meaning only, and the Court must use that meaning without considering extrinsic evidence.  If it is ambiguous, then the Court has to interpret it.  And for that, the contra proferentum rule is likely to govern:  An ambiguous term will be interpreted against the interests of the one who drafted it.

To date, in wrongful dismissal actions, this has been a fairly bright-line rule:  If the termination language doesn't expressly and unambiguously displace the entitlement to reasonable notice...it doesn't have that effect.

One can envision an argument going another way:  That the parties understood and agreed that the termination clause of the contract would displace the implied term requiring reasonable notice of termination, and therefore that in the face of the ambiguity of the provision the Court should look to external "parol evidence" and give effect to the mutual intention of the parties.  (NB:  I'm not endorsing the argument, nor suggesting that it has any particular chance of success on these facts or on any other fact pattern.)

However, to set up the facts for argument, the lawyer's advice remains quite irrelevant.  The question of what Drash understood Mircom to intend is not informed by an examination of the lawyer.  The lawyer did not deal directly with Mircom, and would have no firsthand knowledge of their intentions.  To make this argument, they would need to lead evidence of what Drash intended the provision to mean.

If the contents of the lawyer's advice are irrelevant, the amendment to the pleading should have been permitted, which renders the question of privilege moot.  If they are relevant, then it's a trickier issue.

The reason that this decision is concerning is that privilege is an important part of our legal system, and cannot be lightly disregarded.  A leading authority on the principle, in a comparable context, is the Manitoba Court of Appeal's decision in Simcoff v. Simcoff, from 2009, which summed up several decisions on the issue from across the country, and the rule appears to be this:  Simply referring to receipt of legal advice is not enough to waive privilege, but "where a litigant relies on legal advice as an element of his claim or defence, the privilege which would otherwise attach to that advice is lost."

So the fact that Drash pleaded that he relied on the advice can open up the door.  But I think we may be talking about a different type of reliance from what's present in the case law.  For example, in a case in the 70's where a civil defendant had pleaded guilty to a related criminal charge, then defended the civil claim on the basis that he only pled guilty because his lawyer told him to, the Ontario Court of Appeal concluded that he had waived privilege.

In 1981 case in British Columbia, where a lawyer sued his partnership for expelling him for "conducting himself in a manner likely to adversely affect the interests of the firm" because he unduly delayed making a particular embarrassing (but legally required) disclosure, he tried to explain the delay based on legal advice he obtained:  The Court concluded that fairness required the waiver of privilege.

In other words, these cases involve situations where acts or omissions which are potentially compromising to a party's position are explained away on the basis of reliance on legal advice.  To apply the same principles to the Drash case, one would need to first conclude that signing the contract with the termination clause compromised his position - i.e. that the termination clause was sufficient to displace his entitlement to reasonable notice of termination.  Then, if he could make an argument that he shouldn't be held to it because he never intended to be bound by it - an argument which seems, at a glance, extremely tenuous - then his legal advice might be relevant.  If that's what's going on this case - it doesn't look like it to me, but I'm not familiar with the facts beyond the decision itself - then maybe there's a logic to the decision.

But to bring in privileged behind-the-scenes discussions from a contract negotiation just because a party pleads a particular interpretation of a contractual term on the basis of legal advice received...that has the potential to compromise privilege on a fairly significant scale:  The reason you hire a lawyer in contract negotiations is to inform your interpretation of the meaning of the contractual terms (or to draft terms), and if an ambiguity can require a party to justify his intended interpretation of the meaning, then that could open up privileged discussions in a wide class of cases.

Additional Thoughts

From a ten thousand foot view, I think that these procedural battles are indeed not prudent on a case that presumably falls within the Simplified Rules, and that the fight here should be a lot simpler.

Much of contemporary employment law is premised on the notion that the employer is both in a stronger bargaining position and is more sophisticated than the employee, and so the law has evolved in such a way that protects employees.  The higher Courts have increasingly taken the position that the employer should be the one burdened with ensuring statutory compliance of contracts, and that the contract protects their own interests adequately, and that if the employer doesn't do so, the employer loses.

Of course, the power imbalance is not universal - there are employees with better bargaining power, and it is not at all uncommon to find that an employee is just as sophisticated as the employer, or even moreso.  When the employee has received legal advice, one can presume that he isn't having the wool pulled over his eyes.  He knows what he is signing.

To date, no distinction has been recognized in the law treating sophisticated employees differently from unsophisticated employees.  There may be room to argue for one, and this may (or may not) be an appropriate case to do so.  If so, however, the facts Mircom needs to establish to that end are relatively straightforward:  That Drash had an understanding of the legal framework involved, and was aware that Mircom intended the contract to displace his entitlement to reasonable notice.  With those facts, one can have a cogent argument as to whether or not the contract should be interpreted in the ordinarily strict fashion.


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

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