Monday, December 23, 2013

Bernier v. Nygard: Appeal Dismissed

Earlier this year, I made two entries about the Bernier v. Nygard case.

It's an interesting case, in large part because it involves the relatively unusual scenario of an employee obtaining judgment for a significant period of reasonable notice, relatively early in the notional notice period.  It had a very interesting treatment of mitigation, among other things.

The employer commenced an appeal, which was heard and decided this month.  This is another case where the Court of Appeal released its reasons orally, meaning that they are very brief.  But, again, there's some importance here.

It appears that the employer made four arguments on the appeal:  That the motion judge erred in rejecting the employer's allegation of an 'amending agreement'; that the reasonable notice period awarded was unfit; that the employee should not have been awarded her 2013 bonus; and that the decision to impose a 'trust' was incorrect.

Issue #1:  The Amending Agreement

If you read my earlier posts, you'll note that the employer claimed that an amending letter had been given to an employee, but their only evidence was a second-hand affidavit claiming on vague 'information and belief' that the employee had been given the letter.  Whether or not such a letter would have been effective to change the contract is another interesting legal challenge, but we don't get there here:  The Court of Appeal agreed with the motion judge that the employer had failed to lead evidence on the point, and rejected the employer's contention that the employee's evidence of the employer's usual practice constituted evidence of an amending agreement.

Issue #2:  The Reasonable Notice Period

Under all the circumstances, I can see the employer's argument that 18 months is high for this employee.  However, appellate courts don't generally tinker, and the Court of Appeal considered this to be "within the acceptable range".

Issue #3:  The Bonus

This is an important issue, and one that I've touched on in a number of entries:  Entitlement to a bonus during the reasonable notice period can be very tricky.

The Court of Appeal's commentary on this point is likely to be frequently cited in the future:
Had the plaintiff been given proper notice, she would have been employed as at November 30, 2013.  The appellant cannot disentitle the plaintiff to damages for the loss of her bonus by reason of its own breach.
There was also some issue raised about the calculation - the judge looked to prior years' bonus to calculate it, which the Court of Appeal considered acceptable.  In the appeal, the employer unsuccessfully sought to lead fresh evidence regarding the calculation.

Issue #4:  The Trust

This is one of the most interesting aspects of this case, because it's highly unusual:  The judgment was 'impressed with a trust', meaning that if the employee earns mitigation income during the reasonable notice period, she'll have to repay Nygard.  It's an interesting resolution to a difficult problem, even if it is imperfect, seeing as it has the impact of effectively relieving Bernier of the obligation to seek re-employment, and in fact giving her a disincentive to do so too actively.

The Court of Appeal approved of the approach, saying that it was "within the discretion of the motion judge", and did not render an injustice.

Once again, I have to highlight how quickly this case moved:  Ms. Bernier was dismissed on December 4, 2012, and within barely over a year she proceeded to have her claim decided, and successfully proceeded through an 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.

Why Trinity Western Shouldn't Be Allowed a Law School

Last week, Trinity Western University (TWU) in British Columbia obtained the preliminary approval of The Federation of Law Societies of Canada for their proposed law school.

What's the Deal with TWU?

TWU has had its share of controversies.  It's a Christian institution, which isn't unusual, but the relatively controversial feature of it is that it requires its students to commit to abiding by a Christian lifestyle while attending TWU, including - most notably - abstaining from "homosexual behaviour".

TWU denies that this becomes a "gays need not apply" rule.  They insist that homosexuals are welcome to attend, provided that they promise not to engage in homosexual acts while enrolled.  Likewise, they deny that this set of rules is in any way oppressive, because students agree to follow it up front.  If they don't want to follow those rules, they can go somewhere else.

That sounds a little disturbingly like the "If the person agreed to it, what's the problem?" that you hear so often from employers in workplace law contexts.  If the employee agreed to accept less than minimum wage, what's the problem?  If the employee agreed to a discriminatory dress code, what's the problem?  If the employee came into work knowing that the conditions are unsafe, what's the problem?

The reality is that the, "If you don't like it, go somewhere else" argument is significantly discriminatory, being a de facto barrier for most openly homosexual students, and ignores the underlying rationale for contemporary human rights.

Nonetheless, in most academic contexts, TWU's argument still holds water.  There are lots of post-secondary institutions out there, and TWU's only real claim to fame is its religious values.  It's a small school, enrolling about 4000 students, and while it's generally well-reputed academically (aside from some controversies about academic freedom), it's not a school that you absolutely need to attend if you want to get a top job in a particular field.  (By contrast, think about the University of Waterloo's reputation for computers.  If UW started excluding a given group, the result would be that that group would be excluded from top jobs in the computer industry.  TWU has no comparable fields.)

Within British Columbia, the biggest three schools are UBC, UVic, and SFU, with a combined student population of about 110,000.  (Not to mention the variety of other smaller schools around.)  So for a small private Christian school with 4000 students to create a barrier against homosexual students's not going to be a big deal.  Because the simple fact is that they're not largely going to have any reason to want to go there anyways.

What's Different About a Law School?

First, understand that law school admission remains an exclusive process.  And, if you want to become a lawyer, it's mandatory to attend an approved law school.  There aren't many law schools, and they don't take many students, and the take-away is that law school admissions are the gatekeepers to membership in our legal system - nearly all lawyers and judges in the country had to get through this process.  (I said 'nearly' because there are a handful of foreign-trained lawyers able to satisfy the regulators that their legal training is adequate to let them practice law in Canada without further training.  A small exception.)

Not just anybody can open up a law school.  There are approvals to be obtained from the Federation of Law Societies, the Provincial Law Society, and from the Province.  Within the last several years, a number of Ontario schools expressed interest in establishing a new law school - Waterloo, Laurier, Laurentian, and Lakehead.  Lakehead Law opened up in September, and to the best of my knowledge none of the other schools are getting one, in part because there are already too many law school graduates to be absorbed into the lawyer market.

So simply being able to have a law school makes a University part of a pretty small and hard-to-enter club.  Which raises the question:  Why TWU?

In British Columbia, there are two law schools:  UBC and UVic.  UBC Law admits about 180-190 students per year; UVic Law admits about 110.  In other words, in the entire Province of British Columbia, about 300 people start law school every year.

TWU's proposed law school will admit 60 students per year - a 20% increase in current Provincial enrolment figures.  With a 20% increase, one expects law school admission to be relatively easier.

But, for homosexual students, less so.

Because, while a straight student might compete for 1 of 360 spots in the whole Province, a full sixth of those will be effectively closed to active homosexual students.  It is very easy to imagine a scenario where a homosexual person falls just shy of the UBC and UVic admission criteria, yet who may nonetheless be more qualified than the lower echelon of TWU students, and therefore gets excluded from law school admissions in favour of less-qualified straight candidates.  That is the core of the problem.  A law school that effectively excludes homosexual students will have the result, in the present market, that it will be easier for straight people than gay people to obtain a legal education.

Clearly, there's a threshold at which we could not tolerate this kind of exclusion.  Hypothetically, if both UBC and UVic reorganized themselves into Christian institutions with this discriminatory practice, then it would completely bar practicing homosexuals from obtaining a legal education (or, for that matter, most educations in general) in B.C.  This would be intolerable.  If UBC alone did so, that would still have the effect that the lion's share of post-secondary education spots are closed to homosexuals.  Clearly not acceptable.  I would argue that a 1/6 share of the market is still far too high to allow to maintain such an exclusionary practice.

Let me also be clear on one point:  My objection has absolutely nothing to do with quality of education.

Some people find it alarming that a sixth of the lawyers in B.C. moving forward will come from a school that openly discriminates in a way that is deeply offensive to some very fundamental constitutional principles.  Will lawyers and judges come out of TWU not caring about equality rights?

Personally, I consider this to be a different question.  One worth asking, but the answer is not a foregone conclusion.

During my undergraduate degree, I was enrolled at St. Jerome's University, a Catholic University-College which was federated with the University of Waterloo.  I took many of my courses at SJU, but others on main campus.  I had excellent instructors at SJU in English, Sociology, and even Religious Studies, but I regretted the philosophy courses I took there, because they were taught on such an overtly religious bent that it felt more like going to church than going to class.

This is why it's worth asking the question, and worth ensuring that the curriculum and instructors are in line with our expectations of Canadian legal education.  But that's not impossible to do.

Near the end of my time at SJU, through some rather unfortunate circumstances, SJU's philosophy department was reduced from 3 professors to essentially zero.  One retired; another passed away from cancer; another had become ill and taken an indefinite leave of absence.  The retired instructor came back to teach on a part-time basis, but SJU was basically required to reconstitute their entire philosophy department, and I became aware of an internal controversy - to secularize or not to secularize.  I argued in favour of secularization, that a non-secular education in philosophy was...not really an education in philosophy.  (Friends of mine countered that, for those of us who wanted a secular education, there was a large campus right across a creek.)  One of my favourite English professors - a fellow who insisted we read the bible, not for religious reasons, but rather because it was an important underlying text for most English literature - was part of the committee, and argued strongly along the same lines I did, and I believe that this argument won the day.

All the other courses I ever took at SJU, even ones centered on religious matters, were taught from balanced and neutral perspectives.  Likewise, one of my favourite 'main campus' professors taught a similarly balanced course, though in his personal life he was a devout Catholic.  The point is that a religious school can provide a quality education.  (Though, truth be told, I can't fault anyone for being reticent about their potential legal education when they take the position that it's okay because people who don't like it can go somewhere else.)

The Legal Framework

In general, under human rights legislation, religious schools are okay.  There are exemptions and exclusions allowing for meaningful religious education.  That's fine, so it's unlikely that a complaint under B.C.'s human rights legislation would have much potential.  (Qualifier:  This is a Provincial matter, and I'm not licensed in B.C.  Take my comments on the point with a grain of salt.)

The Charter, however, is another matter.  Ordinarily, for a private university like TWU, the Charter of Rights and Freedoms would have no application.  However, legal licensing is performed through a government-established monopoly, and the establishment of law schools is a function of that monopoly.  While the Charter can't be said to directly constrain TWU, it absolutely does govern all the bodies that TWU has to go to for permission to establish the law school.

It would not surprise me to see a judicial review application of the approval of TWU Law, on the basis that approving the school offends s.15(1) of the Charter without justification.


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.

Friday, December 20, 2013

Damaso v. PSI: The Perfect Storm of Constructive Dismissal

There's a delightfully convoluted judgment from the Superior Court this week, decided - coincidentally - by the same judge who decided Loyst v. Chatten's Better Hearing Service, the unsuccessful appeal from which I just posted about.

This new case is Damaso v. PSI Peripheral Solutions Inc., and though the fact-pattern is highly complex and nuanced, the judge cut through the complexity with reasons of exceptional clarity and precision.

The Facts

Mr. Damaso was hired by PSI in May 1999 as a "Field Service Technician and Computer Technician".  It appears that he did his job satisfactorily, because he continued with the company for 12 years, getting raises except during times of financial hardship for the company, and taking on new duties over time.

In 2005, he assumed additional duties, performing software support for a new division of the company.

In 2008, his income hit its top level, at $55,000 per year, and he didn't get further raises because of difficulties experienced by PSI (2008, of course, marking a major economic downturn).  In early 2009, PSI added to Damaso's duties by making him IT Administrator, and purchasing a new software system, from a company called ERP, to provide a common software infrastructure across all departments.  For the purpose of ERP support and implementation, Damaso was named "Project Champion" - nope, can't make this stuff up.

By 2010, Damaso was expressing concerns about his workload and the fact that he hadn't received a raise since 2008.  Eventually, in early 2011, after putting him off for some time, PSI's owners met with him on a series of occasions to discuss these concerns.  They took the position that the duties he was now performing were a 'natural extension' of his original position.

Then PSI scheduled another meeting for April 4, 2011.  In this meeting, a number of things occurred:  Firstly, PSI said that it had been reviewing its security footage and discovered that Damaso was allegedly cutting out of work half an hour early regularly.  Secondly, Damaso insisted that his IT functions be reassigned after April 15, 2011, because he was not able to continue with them.  Thirdly, the owner (Mr. Panunto) indicated that there would be no raise.

Subsequently, PSI retained an independent contractor to take over IT functions, who changed the system passwords so that Damaso could no longer access them independently.

Then, on May 13, 2011, they gave Damaso 12 months' working notice of termination, in which notice they told him that they expected him to continue to perform all the duties he had taken on, set out his hours of work with great specificity, etc.

Damaso then took off on disability leave, and then wrote in September taking the position that he had been constructively dismissed.

The Issues

The court identified three issues:

(1)  Was Damaso constructively dismissed, or did he repudiate his contract with PSI?

(2)  Did Damaso fail to mitigate his damages?

(3)  What are Damaso's damages?

Constructive Dismissal

The judge concluded that Damaso was constructively dismissed, and looked in a very nuanced and detailed way to the fact pattern to demonstrate how.  While he understood the reasoning for expanding Damaso's duties, he felt that, as of Spring 2011, PSI lacked justification for continuing to insist that Damaso perform the expanded duties.

PSI took the position that, if the additional duties constituted a constructive dismissal, Damaso had acquiesced to the new terms by performing the additional duties for years.  This is a cogent argument, but for the fact that he started objecting to the workload shortly after the most recent added duties were piled on.

Moreover, the escalation that occurred in 2011, in the face of legitimate workload objections by Damaso, were a major consideration.  The fact that he could no longer access the systems on his own suggested that the workload would be even more onerous.  This is probably the keystone which will make the decision very difficult to appeal.  But it couples with an atmosphere of hostility - a Shah-type constructive dismissal - to generate a very sympathetic plaintiff.  PSI took a "very hard line" with Damaso, and the judge concluded that the working notice wasn't a good faith attempt to give working notice.

There are a few things that PSI did wrong:  Firstly, management overtly lied to him when putting off his raise requests, telling him in 2010 that they would discuss it with the Board of Directors.  Not only was this not done; it wasn't the practice at all.  It was just a way of putting him off, because they had no intention of considering his raise request.  Panunto was clearly 'irritated' by Damaso's raise requests, and felt that they were intended to 'threaten' the company.  (That contention, in and of itself, deserves a great deal of discussion.  It's an interesting thought.  But one for a later date.)

Secondly, the allegations that Damaso was leaving early were bad faith, and over-the-top.  Panunto framed it as "theft" at trial, that Damaso was "stealing" from the company.  The judge took exception to this, but the characterization isn't unusual:  If you're billing the company for time that you aren't working, it might be called "time theft".  The problem is, firstly, that these allegations clearly arose in response to Damaso's objections to his workload, and secondly, that they weren't borne out by the evidence:  Damaso indicated (and the judge accepted) that he frequently came into work much earlier than other employees, to work on the computers when they weren't in use, and that he frequently worked remotely from home.

Thirdly, Panunto claimed in the April 2011 meeting that he would have offered a raise (which probably wasn't true) but for the 'time theft' issue.

All things considered, the judge accepted that there was a great deal of hostility in these interactions, and that the heavy-handed and lawyer-written letter giving him 12 months' working notice and imposing new and additional restrictions while forcing him to do the work he had already said was too much...amounted to a constructive dismissal.  This isn't disconnected from the mitigation issue, where the judge describes the relationship between Panunto and Damaso as "acrimonious to the point of being poisonous".


It's well-established now (for better or for worse) that in the absence of evidence that the employment atmosphere would be one of hostility, embarrassment, or humiliation, an employee can be expected to keep a job from which he has been constructively dismissed, in mitigation of his damages.

In this case, however, the clear acrimony described by the judge in his findings in respect of constructive dismissal rendered this employer argument pretty obviously defunct.

It also entailed an accusation that Damaso was malingering while on disability leave, which doesn't appear to have been supported by the evidence.  Under all the circumstances, I'm a bit surprised that the judge wasn't more critical of the employer's position on this point.  (He merely rejected the argument, saying that he was satisfied by the legitimacy of the disability claim.  But this is the sort of attack which could really hurt an employer, in light of the duty of good faith and fair dealing.)


Neither side challenged the notion that 12 months was a reasonable notice period.  It seems about right.  So that's what was awarded.  However, while this would have been a clear case for Wallace damages, they are no longer available.  I am somewhat perplexed by the absence of any discussion of aggravated damages in the Fidler v. Sun Life framework, given the disability leave issues, but not particularly surprised by the judge's finding that the employer's misconduct did not rise to the level calling for punitive damages.


This case has all the earmarks of an employer trying to have its cake and eat it too, with an employer insisting that the employee absolutely can't stay in the workplace, but also absolutely can't get paid out.  I see this often enough.  Most likely, around the time of the April 2011 meeting, the employer sought legal advice, of the "I want to fire this guy" variety.  They had decided that he was a troublemaker, they didn't want him there anymore, and Panunto probably insisted that the whole 'time theft' issue was a "gotcha" fact.  That's the kind of claim that needs to be thoroughly investigated, though, and it clearly wasn't here.  I can't tell you how often I've had employer clients come to me with what they insisted was a smoking gun for just cause, where I had to figuratively shake them by the shoulders until they realized that it wasn't going to fly as just cause, or at least wasn't sufficiently airtight.  The fact that they didn't fire Damaso and allege just cause is a sign that their counsel urged caution, so they tried to take a different tack.

But lawyer-urged caution doesn't necessarily get a fiery employer to let go of the issue.  The employer wanted Damaso gone, and didn't trust him to leave him as unfettered IT administrator, but absolutely didn't want to have to pay him out a year's notice (as the lawyer probably told him he'd have to) to make him go away, because he was likely utterly convinced that Damaso was a bad apple and didn't deserve a payout.  (Or perhaps because that kind of money isn't always easy for a midsize company to come up with.)

So the notice of termination tried to do too much.  It tried to (a) give working notice, (b) draw an uncompromising line regarding the disputes giving rise to it, and (c) set disciplinary groundrules, all while taking autonomy and responsibility away from the employee to limit his power to do damage.

Working notice is rare, precisely because there's a danger of employees with nothing to lose 'acting out', so to speak.  And while the 'working notices' I've drafted (it comes up every so often) remind employees of their ongoing responsibilities, it's usually in a "Of course you'll do this, because you always have so well" kind of tone.  When there is pre-existing acrimony between management and an employee, to the point that you feel the need to making the notice of termination semi-disciplinary, working notice is simply not the way to go.

Had the employer dismissed the employee for cause for refusing to carry on with his duties, or at least taken a disciplinary line with insisting that he carry on, then that would have had the better potential to generate a successful 'just cause' defence:  We were entitled to insist on him carrying on these duties, and he refused, so we dismissed him.

But if you're going to give working notice, you can't simultaneously fetter the employee's ability to do the duties you're insisting they continue.

And you absolutely can't turn the working notice into something akin to a disciplinary warning for the other not-quite-just-cause issues that caused you to issue the working notice of termination in the first place.

That notice of termination looked to Damaso like an "Even if I go back, I'm just going to get fired anyway" letter, because it raised the bar he had already said was too high, and came in an atmosphere of hostility where they clearly wanted to be rid of him.

Lessons for Employers

While this is something of a perfect storm, there are a lot of points to draw for employers:

(1)  Just because an employee has been performing additional duties for a while doesn't mean you're safe from those additional duties factoring into a constructive dismissal action.

(2)  Working notice, while in fact the only way to terminate most employment contracts in accordance with their terms, can nonetheless constitute constructive dismissal if it imposes terms which are unreasonable or otherwise hints at bad faith.

(3)  Don't lie to your employees.  If you think they're making an unreasonable demand, you need to either talk that out with the employee asap, or talk to an employment lawyer asap - because if you can't discuss or at least refuse the demand, that employment relationship is already on the downslope, and you should take efforts sooner than later to control its ending, before it becomes acrimonious.

(4)  Properly investigate allegations of misconduct.  If you have a concern with an employee's conduct, you need to have a properly-documented conversation with them about it.  Throwing around allegations of time theft without getting the employee's side of the story (in a well-documented meeting) can land you in hot water.

(5)  If you can't trust an employee with working notice, don't.  Get them out now, and take the hit of pay in lieu of notice, or keep them in their position through a period of working notice...but there are no halfway measures.  Saying "I expect you to work another year, but I really don't trust you to do your job properly, so here's the microscope you'll be under" is the long way around to pay in lieu of notice plus significant legal costs.


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.

Loyst v. Chattens: Appeal Dismissed

A year and a half ago, I posted about the interesting case of Loyst v. Chatten's Better Hearing Service (also known, it seems, as Chatten Enterprises Limited), an interesting case involving an employee who, following dismissal, was entitled to pay in lieu of the remaining ~30 months of her fixed term contract, plus damages in respect of an interest in the company she had been promised.

It was stunning, because it involved an employee with six years of service making a salary of about $60,000 per year, whose damages (after accounting for statutory amounts already paid) exceeded a quarter of a million dollars.

Chatten commenced an appeal, which was heard and decided yesterday.  The Court of Appeal dismissed the appeal, and awarded the employee $15,000 in costs on the appeal.

The decision was delivered on the spot and orally, which tends to result in a less-thorough background of the appeal.  But there are some really important issues covered here.


The Court of Appeal reminds us that the trial judge found as fact that Ms. Loyst refused to agree to significant unilateral changes being imposed by Chatten, and that Chatten responded by terminating her employment, and, as findings of fact are entitled to very significant appellate deference, upholds the finding: "We see no basis upon which we can interfere with this finding of fact."
"Given that finding of fact, the appellant's argument that the respondent did not mitigate her damages by staying in her employment under the new terms proposed by the appellant cannot succeed.  Put simply, the appellant took that option away when he terminated the respondent's employment."
That makes sense, doesn't it?  Indeed, it seems straightforwardly correct.  But it's a more important proposition of law than it appears at face value.  Remember the obiter from Bannon v. Schaeffler, and my comments comparing the case to B.C.'s Silva v. Leippi?  These cases both suggest that the duty to mitigate can be triggered by the offering of modified contractual terms - i.e. that when an employer says "Here are your new terms and conditions of employment", the contract is (to use the language from Bannon) "effectively repudiated", and therefore that the effect in law is that the first contract is terminated and a new one is now on the table, and therefore there is an obligation to mitigate.

Remember my comments earlier this week about 'repudiation' of contracts:  At law, a repudiation of a contract does not terminate the contract unless the repudiation is accepted.  "An unaccepted repudiation is a thing writ in water and is of no value to anybody: it confers no legal rights of any sort or kind."  So the Bannon obiter seemed wrong to me at face value, as did the Silva v. Leippi decision.

The fact patterns are nearly identical:  In all three of Silva, Bannon, and Loyst, the employer put modified contractual terms to the employee, the employee rejected them, and then the employee was dismissed.  This Court of Appeal decision stands as authority for the proposition that, in such a scenario, the approach applied by the British Columbia courts in Silva is not the state of the law in Ontario.


There were two challenges to the calculation of damages.  Firstly, the contract had shifted from an 'independent contractor' relationship to an employment agreement, but - as you might recall - it wasn't exactly lawyer drafted.  So the compensation structure in the contract, even after it became an employment contract, was left intact as including GST amounts as being payable.  The Court of Appeal concluded that, when the agreement shifted to an employment agreement, even though GST was no longer required, the amount to be paid by the employer (being the gross including GST) wasn't reduced by that.

This is interesting, and could be a very important element for future cases where 'independent contractor' agreements are found to actually create employment contracts:  When calculating wrongful dismissal damages, one might treat the employee's salary as including the HST amounts.

Chatten also argued that the wrong valuation method was applied for the ownership interest promised to Ms. Loyst.  The Court of Appeal considered that there might be some merit to the argument, but this was a different position from what Chatten argued at trial, and they had led no evidence as to how damages would be quantified under this new proposed method of calculation.  So the Court of Appeal refused to interfere with the assessment of damages.


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.

Monday, December 16, 2013

Another Limitations Case: Commissions

Last month, I looked at a decision from the Divisional Court about the effect of the Limitations Act on a claim for unpaid bonuses.

This month, the Court of Appeal released a decision relating to the effect of the Limitations Act on unpaid commissions.  The case is Ali v. O-Two Medical Technologies Inc.

The facts are fairly simple.  Ali worked as a mechanical engineer for O-Two from 2002 to September 2007.  There was also a 'side agreement' involving Ali selling O-Two's products in Iraq on a commission basis.  He got his commissions after the products were delivered and paid for.

On December 5, 2006, Ali negotiated a significant sale to the Iraqi Ministry of Health.  On December 12, O-Two unilaterally changed the terms of the commission arrangement, reducing the rate of commission.  Ali rejected the change, and his lawyer wrote a letter insisting that payment be made at the higher rate.

In October 2007, the Iraqi Ministry started making payments; Ali became entitled to receive his commission in November 2007, and he was paid commission at the reduced rate.  Ali issued a statement of claim in September 2009.

The Limitations Act

In Ontario, most actions - there are a few exceptions, which is one reason that it is always important to get prompt legal advice on any given issue - must be commenced within two years of the event giving rise to them.  The limitations framework is pretty firmly set in stone - there is a relatively narrow range of scenarios in which the Courts can relieve against the limitations period.

However, there is frequently an argument as to precisely what started the clock running.  The basic rule is that the clock starts when the cause of action arose - or more precisely when the plaintiff discovered or (acting reasonably) ought to have discovered it.

A 'cause of action' - i.e. a tort, or a breach of contract - is required, in most cases, in order to sue.  All elements of the cause of action have to exist in order to succeed in an action.  Consider, for example, malicious prosecution.  Under the law as it presently stands, it is a core element of the tort of malicious prosecution that the prosecution in question have terminated in the plaintiff's favour.  So if I'm charged with an offence, even maliciously, I don't have a case for malicious prosecution until I successfully defend the charges.  So until the charges are dismissed, or dropped, or stayed, it would be premature for me to bring a malicious prosecution action, and I would generally have two years after the dismissal of the charges to commence an action.

(The 'discoverability' of the cause of action is often the issue, but that isn't relevant here.)

When is a Contract Breached?

This is a nuanced area of contract law, because the interactions between parties can take many different forms.

At a glance, a breach of contract occurs where a party fails to comply with its contractual obligations - i.e. by doing something that the contract prohibits, or omitting to do something that the contract requires.

If that were the extent of it, though, it could have some undesirable consequences.  Because there are times when parties become aware, in advance, that the contract is not going to be performed, and such a strict doctrine would require the 'non-breaching' party to go through with its obligations up until the non-performance by the other party, even where it's in everybody's interests to acknowledge that the deal's dead and try to salvage the situation otherwise.

As a result, we've developed a doctrine of "anticipatory breach":  If I 'repudiate' the contract - i.e. I firmly tell you that I have no intention of complying with my obligations of a contract we've entered into, then you may elect to accept my repudiation, treat the contract as at an end, and pursue damages based on my repudiation.

However, under many circumstances, you may also elect to reject my repudiation, and to treat the contract as still being alive, and carrying on with your obligations thereunder and insisting on my compliance.

So while the simplistic way of asking when the Limitations clock starts is by asking "When was the plaintiff first able to sue?", that doesn't capture the dynamics of an anticipatory breach, where the plaintiff has the option of treating the contract as already being over (and suing) or not, because if the plaintiff rejects the repudiation, then no cause of action actually arises until the defendant's later failure to comply with its contractual obligations.

Analysis of this Case

The motions judge (decision here) regarded O-Two's alleged breach of contract as being the imposition of the new contract, to which O-Two then adhered.  Ali objected to it, obviously knew about it and understood it to be a violation of what he felt his contractual rights to be, and yet did not bring the action until more than two years afterward.

The plaintiff argued that O-Two's imposition of the 'new contract' was a repudiation, which the plaintiff rejected, and therefore that the 'original' contract was still in place, meaning that the breach only arose when the employer failed to pay the amounts owing under the original contract.

The motions judge rejected this argument, but the Court of Appeal saw it otherwise.

O-Two had some interesting arguments, the most compelling of which is that the commission structure was part of an employment contract, and that if the employer wasn't entitled to change the commission as it was, that would amount to a constructive dismissal as of the date the change was made.  The Court of Appeal, however, considered this argument to rely upon a 'mischaracterization' of the claim:  Ali didn't claim constructive dismissal; Ali "challenges the commission agreement in particular rather than his employment relationship with O-Two in general."  To me, this is a rather unclear way of addressing the argument.  In contract law, in general, you can sue on a specific breach of contract without treating the whole contract as being fundamentally breached.  If this differed in constructive dismissal law, as the employer's argument implies, then the Court of Appeal's response would be no answer to it.  (But, as I will explain below, the employer's reliance on constructive dismissal law is misplaced.)


I see the Court of Appeal as having it right here.  The motions judge's decision, to my mind, turns on the notion that the new 'contract' was, in fact, binding upon the plaintiff.  This would have to ignore the underlying principles of contract law - i.e. that a contract requires, among other things, acceptance.

It can be within an employer's rights to modify a remuneration package unilaterally, within limits.  But it's hard to imagine a scenario where a remuneration package might be modified retroactively (i.e. in respect of work which is already done), even if it's not sufficient in scale to generate a constructive dismissal.  Depending on the particulars of the arrangement, it might be completely cogent for the employer to argue that the lower rate of commission would be payable at a lower rate for a deal negotiated the day after the commission structure changed.  But for a deal signed prior, that's much more difficult, and there's little doubt that employee agreement would be necessary to give any legal meaning to a term purporting to make the modified terms retroactive.

Suppose that you and I have an agreement whereby you pay me 10% of the sales I make, and under that arrangement I make a million-dollar sale.  If you then say, "We're only going to pay you $50,000 of that", that doesn't establish a new contract.  It might be a repudiation, it might be a proposal, but unless I accept a repudiation or proposal, such a statement is completely empty and meaningless.  To quote Lord Asquith in the 1951 case of Howard v. Pickford Tool, "An unaccepted repudiation is a thing writ in water and is of no value to anybody: it confers no legal rights of any sort or kind."  The breach, in that case, will be your failure to pay the full amount owing on its due date.

So the Court of Appeal looks at essentially in terms of the 'first principles' of contract law.  But the employer suggests that the connection to an ongoing contract of employment changes it.

Employment law is a niche area of law, with a lot of sophisticated and well-developed common law doctrines.  However, most of the doctrine of 'constructive dismissal' is built upon, and adheres to, similar principles of repudiation of contract.

When an employer unilaterally and fundamentally changes a term of employment, an employee generally has three choices:  He may acquiesce and accept the change; he may - subject to his duty to mitigate - quit and sue for damages; or he may expressly reject the change but stay in the job, whereupon the employer may decide to terminate the existing contract (upon provision of appropriate notice, of course) and, if it pleases, offer new employment on the modified terms.  If, in the face of an express rejection of the modified terms, the employer permits the employee to continue carrying out his duties, the employee is entitled to insist on adherence to the terms of the original contract.  These options are well-established in the law at this point.  (Note well:  These options are very similar to those available to the recipient of an anticipatory breach - it isn't a variation of the general law, but rather a statement of how it applies in the employment context.  The first option is seldom described in context of anticipatory breach, but there is no doubt that it is available.)

The third option is seldom used, and even where it is it will seldom have much impact on the application of the Limitations Act, because most of the time a changed term of employment will have a more immediate impact.  (If you reduce my salary, my damages will start accruing on my next pay cheque.)

But in this case, even if you treated the employer's actions as amounting to a 'constructive dismissal', that wouldn't fundamentally change the fact that the employee rejected the modified terms, and therefore continued to be entitled to insist on the original contractual terms being fulfilled.


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.

Friday, December 13, 2013

Waterman v. IBM: Majority of SCC Dismisses Appeal

This is a long-awaited decision from the Supreme Court of Canada.  I posted about the case after the SCC agreed to hear it, and a year after the hearing, the SCC has finally dismissed the appeal.

You may recall that Mr. Waterman was a long-service employee (putting it mildly) who was dismissed in his mid 60s after an economic downturn.  At that point, however, he had a fully-vested defined benefit pension, which he started receiving after his dismissal.

In a nutshell, the issue was this:  Where a termination triggers the payout of a defined benefit pension, do the pension payments count as "mitigation earnings", reducing the employer's liabilities for pay in lieu of notice?

The majority of the Supreme Court says "No."

In my earlier post, I pointed out that IBM actually had a fairly compelling position on the first principles of the law of damages, for reasons concisely explained by the SCC at paragraph 2:
The general rule is that contract damages should place the plaintiff in the economic position that he or she would have been in had the defendant performed the contract. IBM’s obligation was to give Mr. Waterman reasonable notice of dismissal or pay in lieu of it. Had it given him reasonable working notice, he would have received only his regular salary and benefits during the period of notice. As it is, he in effect has received both his regular salary and his pension for that period. It therefore seems clear, under the general rule of contract damages, that the pension benefits should be deducted. Otherwise, Mr. Waterman is in a better economic position than he would have been in had there been no breach of contract.
However, the majority goes on to note that this case "in fact raises one of the most difficult topics in the law of damages, namely when a 'collateral benefit' or a 'compensating advantage' received by the plaintiff should reduce the damages otherwise payable by a defendant."  The majority concludes that pension payments, being a form of "deferred compensation for the employee's service", are not intended to be an indemnity for wage loss upon dismissal.  "The parties could not have intended that the employee's retirement savings would be used to subsidize his or her wrongful dismissal."

Collateral Benefit

The Supreme Court defines a "collateral benefit" as "a gain or advantage that flows to the plaintiff and is connected to the defendant's breach."  The issue arises in situations where there's some sort of third party compensation arising in connection to the breach of contract.  The court notes the example of EI benefits - not a great example anymore, because it's dealt with by statute, but this has not always been the case.

There are better examples:  After losing my job, my spouse starts covering my car payments.  She never would have done that if I'd still had my job.  So if I get pay in lieu of notice, too, isn't that a windfall to me?

It would clearly be absurd to suggest that assistance I get from my family, or friends, or charities, etc., because of the hardship imposed on me by the termination without notice, should be accounted for in calculating the employer's liabilities.

The majority also notes that there are a number of exceptions to the compensation principle...but the language it uses invokes notions of 'disgorgement' - measuring damages by the defendant's profits through its breach, which is available in certain scenarios - which would be wholly inappropriate in most wrongful dismissal situations.  Nonetheless, I do not take issue with the core premise here:  There are circumstances in which, for reasons of "justice, reasonableness and public policy", a compensating advantage should not be deducted from damages.

In evaluating these principles, the court looks at a couple of scenarios:  In the case of charitable gifts, if one were to account for them, the calculations would often be impractical, and "the springs of private charity would be found to be largely, if not entirely, dried up":  Allowing such a deduction would be poor public policy, because it would modify the behaviour of others in an undesirable way.  Makes sense.

Private insurance is the other common scenario, which the court notes is of limited practical importance because of "the widespread use of subrogation" - meaning that my insurer won't pay out on my insurance claim unless I sign over to them the right to pursue my damages.  (You steal and wreck my car, my insurer pays me the value of my would be really bizarre if I could then sue you for the value of the car, regardless, but in practice the terms of my insurance policy simply don't allow me to do so; rather, the insurer will sue you.)

The 'private insurance' exemption has arisen on a number of occasions in employment law, and there have been some problematic and inconsistent treatments of it.  In a couple of cases, including Sylvester, where the insurance was employer-purchased, for benefits intended to indemnify for "the type of loss" that resulted from the defendant's breach, the benefits have been deducted.  In a lot of other cases, the decision has gone the other way, distinguished on the basis of facts such as that the employee had "paid for [the benefits] through reduced wages".  (Frankly, I think that's a rather odd way of distinguishing these cases.  An employee's remuneration package is bought and paid for in its entirety - salary, non-cash benefits, insurance, etc. - by the employee through provision of labour.  That's what an employment relationship is all about.)

After a detailed summary of the case law, the majority notes the following about the private insurance exemption:
[76] From this review of the authorities, I reach these conclusions:
(a) There is no single marker to sort which benefits fall within the private insurance exception.
(b) One widely accepted factor relates to the nature and purpose of the benefit. The more closely the benefit is, in nature and purpose, an indemnity against the type of loss caused by the defendant’s breach, the stronger the case for deduction. The converse is also true.
(c) Whether the plaintiff has contributed to the benefit remains a relevant consideration, although the basis for this is debatable.
(d) In general, a benefit will not be deducted if it is not an indemnity for the loss caused by the breach and the plaintiff has contributed in order to obtain entitlement to it.
(e) There is room in the analysis of the deduction issue for broader policy considerations such as the desirability of equal treatment of those in similar situations, the possibility of providing incentives for socially desirable conduct, and the need for clear rules that are easy to apply.
On the basis of these factors, the majority concludes that Mr. Waterman's pension should not be deducted.

The Dissent

Justice McLachlin and Justice Rothstein dissented, and the dissent is somewhat compelling.

Because the pension, and the entitlements in respect of reasonable notice, flowed from the same contract of employment - and bearing in mind, of course, that this defined benefit pension did not vary at all for being required to draw upon it early - it makes little sense to permit double-recovery by the employee, on the one hand getting the pension benefits to which he was entitled by the contract, and on the other hand getting the salary to which the contract entitled him, when the contract did not contemplate him getting both at once.

As well, the dissent notes that the employer is ultimately responsible for actuarial deficiencies, and benefits from actuarial surpluses, in the pension fund.  To slightly oversimplify the point, I'd sum up the dissent's argument as being that money out of the pension fund is money indirectly out of the employer's pocket.  This is important, because it affects the public policy considerations:  The B.C. Court of Appeal, and the majority of the SCC, expressed concerns that allowing a deduction creates an unfavourable incentive for employers to dismiss pensionable employees, because they can use the pensions to satisfy part of their pay in lieu of notice obligations.  The dissent here answers that this would not be an effective strategy of saving money:  If you dismiss pensionable employees, you increase the liabilities of the pension fund, for which you are ultimately responsible.

The dissent also offers a fairly harsh critique of the majority, as trying to distinguish the Sylvester case, on the one hand, and trying to rely on it, on the other.  The dissent feels that a fair reading of Sylvester leads necessarily to the conclusion that the pension payments should be deducted.

My Thoughts

The lower courts have spent years and years distinguishing Sylvester on some fairly superficial and arbitrary bases, because it frequently yields a result that just looks wrong.  Now, the majority of the Supreme Court of Canada is following suit, in a case where the result wouldn't even look as wrong as Sylvester itself did!

The doctrine is muddy, and this muddies it up more.  What we need is to throw Sylvester completely out the window, and to send a clear bright-line message to employers that, if you want to receive the benefit of insurance benefits paid to the employee, you should contract for it.  Or perhaps a whole reboot of the doctrine entirely, and start regarding the notional reasonable notice period as not running until disability benefits cease (perhaps at the option of the employee?)

Because the truth is that in most of the Sylvester-type cases, it is immensely unfair to the employee to allow their insurance benefits to be deducted from their wrongful dismissal damages.  They are both income-replacement, yes, but they are income replacement benefits with ostensibly different purposes:  Pay in lieu of notice is supposed to keep you fed while you look for work; LTD benefits are supposed to keep you fed while you can't look for work.

So yes, one can imagine a windfall.  Suppose I'm on LTD, getting 60% my regular pay (and probably non-taxable!) for 12 months, and my employer terminates me around the start and I get a judgment for 12 months' pay in lieu of notice.  If I get a new job right at the end of my LTD, then in a one-year period I've made a boatload more money than I normally would have, and landed on my feet at the end.  But that's not the reality we should presume.  The more reasonable expectation is that, once I'm no longer disabled and no longer eligible for LTD, I'll start looking for a new job, and it will take me a 'reasonable' period of time to find one.  So, with a 12-month reasonable notice period, I might reasonably expected to be out of work for a year after LTD ends.  And if you've deducted my LTD benefits from my pay in lieu of notice, that means that I've had one year's pay to keep me going for two years.  So I don't see the 'private insurance exemption' as being an exemption to the compensation principle, necessarily, in this context; I see the contract damages and the insurance benefits as compensating for two potentially-discrete losses.

Whether or not the disability insurance premiums were paid out of my salary, or out of the employer's pocket as compensation for my labour on top of my salary, seems to me like it should be immaterial.  And it's the same with a pension.  Let's suppose that I maxed out my own RRSP every year, and suddenly after losing my job I get huge tax benefits drawing down that RRSP.  That's a pretty good case for a collateral benefit, no?  Is it different if my RRSP contributions were made directly by my employer instead, as part of my remuneration package?

In the Waterman case, though, there's a huge difference:  I don't see it exactly as being a 'one contract' issue, as Justice Rothstein describes it, but it's similar.  It's IBM's pension plan, and IBM promised Waterman a pension after he stopped working, and they provided that pension because - and only because - he was no longer drawing a salary.  They would have been better off, theoretically, putting him into an empty office and paying him his salary through the reasonable notice period.  (I mean, I could put together a compelling argument that this would be a constructive dismissal, but on the flip side the case law also presents a compelling case that for him to quit and sue in constructive dismissal would constitute a failure to mitigate.)

Consider this:  If I put my own money aside into a retirement plan, and bought an annuity after I was dismissed, then there's no way that that annuity income would be considered mitigation income.  I could have bought that annuity even before I was fired.  And that's the point:  While it's kind of like an annuity, and I see Waterman as having paid for it himself through his labour, the terms of the annuity said, in effect, "You don't get this money while you're still working for IBM."  And it's that contractual term that makes it inappropriate to give the annuity income together with lost income damages from IBM.

I'm not altogether alarmed about Mr. Waterman's windfall, though.  There's another feature of this case that he likely could have retired, started drawing his pension, and started working elsewhere.  The pension didn't necessarily exclude employment income; it excluded employment income with IBM.  Which is kind of a strange arrangement, and results in all sorts of absurdities - police officers retiring from one police service with a full pension and taking another job with another police service with a full salary.  So it's not the end of the world to see a double-recovery on a defined benefit pension.  But I just don't see any basis on which to exempt it from the application of the compensation principle.

Wider Implications

So, now that we know that, in a strong 7-2 majority decision, an employee can collect a defined benefit pension without deduction against his common law pay in lieu of notice, what does that mean for employers?

The answer is this:  Very little.

As interesting as the case is from an academic and legal perspective, and as interesting as it is to see the principles of collateral benefits further fleshed out, the truth is that this is such a rare fact pattern within this legal framework that it has narrow implications.  Defined benefit pensions are relatively rare, and increasingly so, in non-union environments.  So for an employee seeking common law wrongful dismissal damages to receive benefits from a defined benefit almost unheard of.  Certain very large and public sector employers will have to take note of this decision.  But for everyone else, this is a decision of relatively narrow import.


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, December 12, 2013

The Importance of Investigations: Employer Fails to Prove Just Cause

Pop quiz:  You're the General Manager, and you receive a report that a long-term supervisor, with no disciplinary record, was overheard making anti-Semitic remarks about the company's owner.

What should you do?

There's an interesting case, decided last week by the Ontario Superior Court of Justice, which fundamentally illustrates the importance of a meaningful investigation by management.  The case is Ludchen v. Stelcrete Industries Ltd.

The Facts

The fact pattern here is slightly unusual.  Richard Ludchen worked at a Stelcrete's plant in Welland for about 11 years, and was a welding supervisor for most of that time.  Stelcrete is a closely held family company.

In January 2008, shortly after the introduction of the "Family Day" holiday, Stelcrete exercised an option available to it that year to not provide a paid holiday on Family Day and instead provide an extra day off at Christmas.  Ludchen was instructed to post an announcement to that effect.

It was alleged that, when doing so, Ludchen loudly made an anti-Semitic remark about the company's owners.

The allegation came to management through an unusual source:  There was a Private Investigator, named Stacey, in the workplace, tasked with investigating drug use by certain employees.  She was undercover as an ergonomics expert.  Stacey had not heard the remark herself, but said that she had heard it reported to her by several employees.

Stacey reported this information to the HR Manager, Dietsch, and the General Manager, Nichols.  They consulted with one of the owners, and decided to terminate Ludchen for cause.  They met with Ludchen, told him that he was alleged to have made an anti-Semitic remark (he was never told the specifics of the allegation, and his evidence was that he didn't know what "anti-Semitic" meant), and terminated him on a 'for cause' basis.  After the termination, Ludchen had called Dietsch, offering to apologize if that would help.

I note, in passing, that there's little strictly wrong with management's approach.  If one assumes that they were able to prove the allegations, then there would have been a reasonably strong case for cause, and the failure to properly investigate, and the failure to actually specify the allegations against Ludchen, would likely not be misconduct in the strictest sense.  (Some question about the duty of good faith and fair dealing, perhaps, but in a termination where just cause is established, that won't likely matter.)

If you can't prove the allegations, however...

At Trial

The judge found Dietsch and Nichols to be reasonably credible and forthright witnesses.  He did, however, call out Dietsch's failure to properly investigate:
[38]          My greatest criticism of Dietsch was the fact that, as the Manager of Human Resources, she had received a very serious allegation about Ludchen’s misconduct, and she chose to not conduct any investigation into the truth of the allegation. She did not arrange to speak with any of the men who had apparently heard the remarks; she did not tell Ludchen what he was alleged to have said; and she did not ask Ludchen if he had made any anti-Semitic remarks.
[39]           The case law as to the extent of an employer’s duty to investigate is unclear, but from a practical perspective, the failure of an employer to conduct an investigation into a serious allegation makes it difficult for an employer to later prove the allegation in a courtroom, as is obvious in the present case.
You see, neither Dietsch nor Nichols could provide any firsthand evidence as to Ludchen's alleged misconduct.  So the fact that they are believed...doesn't really matter.

The judge had some reservations about Ludchen's credibility.  Ludchen's story was that he had expressed some dissatisfaction with management's decision to not give Family Day off, but that it was more nuanced - certain employees had come to him expressing concerns, and he basically said that he shared their concerns and didn't like the decision either, but the company was generally a great company to work for nonetheless.  He claimed that this approach was the result of a leadership course he had taken, which the judge considered doubtful.  (Indeed, that's actually a really bad approach for a front-line supervisor.  However, if true, it alone would be a far cry from just cause.)

However, the judge was highly critical of Stacey's evidence.  He found her to be evasive and argumentative, and then - at points - surprisingly specific including direct quotations of what people had purportedly said to her five years prior, without any reference to notes.  Indeed, even the exact words of the anti-Semitic slur at the centre of the case had changed.  She gave one set of exact words to management at the time, and at trial insisted that it was otherwise.  And her story also conflicted with management's in other material ways - she insisted that she went to management on the day of the incident; both Dietsch and Nichols testified that it was a week later.

At trial, Stacey's evidence was that "everyone on the shift" had heard Ludchen's remarks.  As the judge highlighted, this is an inherently suspect remark, and moreso when you bear in mind that nobody else corroborated it.  (Recall my remarks last week about people claiming third-party corroboration to bolster credibility?  To lawyers and judges, it reeks.  Indeed, not only does "Everybody heard it" send off alarm bells, but it also raises an expectation that there should be other people taking the stand to say so.)

Stacey didn't give more detailed information to the employer until several months later, likely after litigation had commenced or become apparent, providing the names of five employees who she said heard the remark.  None of them corroborated her story, and in fact two of them testified that they had never heard Ludchen make any anti-Semitic remarks.  When asked on the witness stand to list the employees who heard the remarks, she provided a list of six names, only two of which had appeared on the previous list.

A few months before trial, Stacey provided further information to the employer claiming that she had heard Ludchen make anti-Semitic remarks on various other occasions, as well.  The employer then amended its defence to reflect that.  But it raises some pretty serious credibility problems - why is Stacey only saying this now?

So Stacey's evidence is mostly hearsay in the first place, and extremely unreliable altogether.

The only other person who testified that he heard Ludchen say anything anti-Semitic was another supervisor, Burns, from a different part of the plant, who happened to be in the area at the time.  His evidence of what Ludchen said is very different from Stacey's evidence on the point, being far less egregious (still highly inappropriate, but not quite the angry slur reported by Stacey).  But more importantly, he didn't come forward with his information until 2012, raised questions as to his own credibility, and others who were around when Ludchen posted the announcement in question said that Burns wasn't.  (Not to mention that, of all the lists of names Stacey gave of people who heard the remark, Burns was never on any of them.)

Employer's counsel also argued that Ludchen's offer to apologize constituted an admission.  On other facts, that might be a cogent argument, but on these facts the evidence was that Ludchen didn't know what he was accused of having said, because the employer hadn't told him.  It's not an admission if you don't know what you're admitting.

The judge ultimately concluded that just cause wasn't proven, and awarded Ludchen 12 months' pay in lieu of notice, minus some fairly significant mitigation earnings.

What Should Employers Take Away?

The judge summed up the lesson to be learned by employers here:
[68]           This brings me to the problem caused by the inadequate investigation into this matter.  In my view, as a practical matter, it was unwise for Stelcrete to terminate Ludchen’s employment without conducting an independent investigation in order to assess the validity of the alleged misconduct. Further, it would have been prudent for management to confront Ludchen with the allegations and give him an opportunity to respond. 
[69]           Most concerning was the fact that prior to the termination Dietsch and Nichols never obtained the names of the employees who had direct knowledge of what Ludchen was alleged to have said.  Again, as a practical matter, it is important for management to know who was making allegations about the conduct of one of their supervisors, exactly what was alleged, whether that person worked directly under the supervisor in question, and whether that person had any history of problems with that supervisor.
[70]           Having failed to thoroughly investigate this matter at the time, Stelcrete now has great difficulty assembling the evidence to prove the alleged misconduct on which it acted more than five years ago. Several employees from Ludchen’s assembly division shift testified at this trial. Each of those witnesses had some credibility issues. However, the fact remains that every person from Ludchen’s shift who testified said that they did not hear any anti-Semitic remarks from Ludchen and had not told Stacey that Ludchen had made any anti-Semitic remarks.
Moral Damages

The judge declined to award any moral damages.  The claim was commenced before Honda v. Keays decimated the Wallace doctrine, but in light of Honda, Wallace damages are not available.  There wasn't the evidence to support an aggravated damages claim, and - the judge found - no basis for punitive damages.

At the end of the day, the damages are actually very modest, for a trial of this nature.  I would expect a fairly substantial costs award, but still, it seems problematic for an employer to take a matter to trial on just cause allegations under these circumstances.

Under the Employment Standards Act, Mr. Ludchen should have been paid some 19 weeks (give or take) worth of termination and severance pay within a very short period of time after his termination.  Relying on allegations of just cause, the employer presumably did not make this payment.  We are now nearly six years past that.  Being unable to prove wilful misconduct, that failure to pay is a quasi-criminal offence.

And why?  The problems in the employer's case should have been apparent from fairly early on.  Both sides' counsel are experienced employment litigators, and this action required an unusual number of procedural steps to get Stacey's evidence out into the open, and that should have made the credibility problems apparent.  The employer failed to find any admissible evidence which corroborated Stacey's allegations, and seeing as they were primarily hearsay in the first place, going to trial on the basis of what evidence they surprising.

Had the employer investigated Stacey's allegations immediately, one of two things would probably have happened:

(1) They would have obtained corroborating statements from other witnesses, sufficient to prove just cause, or
(2) They would have found a decided lack of corroboration of Stacey's allegations, and been left with the option of terminating not-for-cause (i.e. paying him out) or merely disciplining him for the conduct he admitted.

One might argue that where this case ended up is Stacey's fault.  One might even imagine causes of action available against Stacey.  But at the end of the day, the termination of employment is between the employer and the employee, and the fact that the employer acted prematurely on inadequate information from an unreliable source, resulting in a long-term failure to pay statutorily-required sums...the employer is ultimately responsible for that, and one might reasonably argue that there should be meaningful consequences for that failure.

Food for thought:  Ludchen obtained significant mitigation earnings.  In the ordinary course, if Ludchen were dismissed on a without-cause basis, he would have received at least his statutory minimums at the outset, and then they would have negotiated regarding the common law notice period.  I have little doubt that the lawyers involved here would have been able to reach a settlement in a case so straightforward, and they probably would have done so well before Ludchen found his new job - there's an incentive on both sides to reach a final resolution before the statutory notice period runs out.  But I would not wager on such a settlement including an accounting for potential mitigation earnings, and certainly not one that would result in a dollar-for-dollar deduction.  (Sometimes, for lengthy notice periods, a mitigation clawback clause is included in the settlement, but even then it's not a 100% clawback.)

In other words, litigation costs aside, the employer's irresponsible hardball tactics may well have saved money.


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, December 10, 2013

Reviewing an Order to Pay? Better Get Your Chequebook.

Here's a scenario I've seen frequently, including in my own practice:

An employee makes an employment standards complaint against an employer.  The employer tries to handle the process itself, and eventually gets hammered with a significant "Order to Pay" and/or "Order for Compensation".

Then the employer applies for a "Review" of the Order - basically, an appeal to the Ontario Labour Relations Board.

But there are a couple of procedural pitfalls here:  Namely, there's a strict timeline of 30 days in which to file the application for Review, and in order to file that application, you need to pay the amount of the Order to the Director of Employment Standards in trust.  (Up to a point.  Orders to Pay generally cap at $10,000 per employee, plus administrative costs; Orders for Compensation don't have that cap, but the 'payment in trust' nonetheless caps at $10,000.  That being said, there are often multiple orders, or orders in respect of multiple employees.  I have seen cases where employers were required to pay amounts well into the six digits in order to seek a Review.)

This is a fairly unique feature in legal proceedings.  Indeed, in most circumstances, an appeal of an order includes (or can include) a stay of the order pending appeal.  But the point here is this:  If you're going to make the employee fight for his or her money, you're not going to be able to resist collection efforts afterwards.

And the problem is that, for many small or mid-size employers, paying a couple of sizable Orders to Pay creates financial hardship.  This is where lawyers often see a file for the first time - where the employer is suddenly alerted to the fact that they're on the hook for more money than they can afford.  (Of course, retaining the lawyer is often a challenge, in those circumstances.  We aren't cheap.  There's value, in a great many cases, but if you simply don't have the money...)

So employers, often acting on their own, have tried to find all sorts of creative ways to get an application for review in without having to get the funds together.  Some tell the Board they can't pay the money, figuring that a fair system won't deny them their day in court just because they're broke.  This doesn't work:  The Board has been consistently clear that it has no jurisdiction to consider an application for review without payment of the requisite funds.

Some employers, thinking they're especially clever, make a "director's application" for review, because such an application doesn't require payment of money in fact, lots of employers try this, and I've had clients come to me saying, "Can't we do that instead?"  But it doesn't work:  A director's application is only available in circumstances where a director of the corporation has been ordered to pay the money personally, and it's a review only against the finding of personal liability against the director.  It's not available if no Order has been made against the director personally, and even when such an order has been made the director's application doesn't attack the order against the employer itself.

I've occasionally theorized that a Judicial Review Application to the Divisional Court, against the Order to Pay, might be possible in a scenario where the employer is truly unable to pay the money into trust.  It's a complicated argument, I'm not sure if it's ever been tried, and most importantly I'm not sure it would be useful.  It's costly to go to court, and if the problem is that you can't pay the Order to Pay, quite often that's going to correlate to "I can't afford legal fees".  Even if you did convince the Divisional Court to hear the merits of the application, you wouldn't get the same kind of review the OLRB would offer - the OLRB has a hearing de novo, meaning you call your evidence, the employee calls his evidence, and the OLRB makes its own decision, without regard to the decision of the Employment Standards officer.  By contrast, on a Judicial Review Application, you would need to convince the court that the Employment Standards officer erred.  Depending on the nature of the issues in dispute, it can be a much higher burden.

Timeliness is also an issue.  While it isn't quite as bright-lined as the Board's position that it cannot consider an Application where payment has not been made, missing the 30-day deadline can be fatal.  Consider the recent Premier Salons case, where the application itself, seeking to review Orders for an aggregate of over $50,000, was filed 4 days late (apparently because the U.S. HR department wasn't aware of the deadline), and the payment in trust wasn't made until months later due to 'counsel's inadvertence'.  (Note:  I don't know who their counsel was.)  The Board found that neither explanation was compelling, and in any event the lateness of the payment in the face of directions from the Board showed a lack of effort to minimize delays.  The Board refused to grant an extension of time, and dismissed the application for review as untimely.  (The Courts tend to be a little more forgiving of "counsel's inadvertence" - in the absence of prejudice to the opposing party, technical defects are generally looked at fairly generously.  The judge might tear a strip off of the lawyer, but won't lightly put the lawyer in a position to be sued by his client.  At the OLRB...less so.)

In the appropriate case, an extension of time can be granted, but in many cases the Board says that it won't decide whether or not to exercise its discretion until the money is paid.  In other words, once you've missed the deadline, the Board tells you, "If you don't pay the money, we won't hear the application...and if you do pay the money, we still might not hear the application."

What Should You Do?

The lesson to be drawn here is this:  The sooner you get a lawyer involved, the better.  A lawyer can assist you in dealing with the Employment Standards officer's investigation in the first place.  That may help you avoid ending up in the position of having an Order to Pay made against you, such that you need to pony up the money to go to the OLRB.

But, even better, you can get a lawyer involved before a complaint is made, to help ensure ESA compliance and head off the likelihood of having to face substantial liabilities in that regard.  A lot of small and mid-size employers make a lot of mistakes - fail to withhold and remit taxes, EI, and CPP; fail to provide statutory vacation pay; fail to keep appropriate vacation records; fail to provide statutory holiday pay; fail to comply with the overtime provisions of the ESA, fail to pay employees for all hours worked...

...these all add up to some fairly impressive liabilities when the stuff hits the fan.  And it won't necessarily be just one employee, either:  When one employee goes to the Ministry, the Ministry might well look into all of your payroll records.

In particular, there's a trend these days to call employees "independent contractors" and say "We don't have to worry about all that now."  That is often completely wrong, and puts employers into a position of serious jeopardy.

If you're too small to hire an HR department and/or in-house counsel, there are HR consultants and external employment lawyers who are able to help you understand and comply with your obligations as an employer.


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.

Monday, December 9, 2013

Tis The Season

Here's the obligatory "Holiday Party" post.

There are a lot of concerns about holiday parties, and a lot of situations in which employers can or have ended up on the hook for serious liabilities.  Most of them are related to alcohol consumption leading to inappropriate, dangerous, and/or illegal behaviour.  That's not always true, however.

In a casual setting, employees feel a little more free to 'let loose', and there's a feeling that "We're not at work anymore; the policy manual was left at the door."  For employees, I cannot say this firmly enough:  That is not true.  Inappropriate behaviour towards co-workers, subordinates, supervisors, or others will almost certainly be disciplinable, and potentially expose you to legal liabilities.  Or even criminal sanction, in some cases.

Sexual harassment is a common problem, and employees need to remember that any advances which you know or ought reasonably to know are unwelcome...are illegal.  Unwelcome advances to somebody to whom you are in a position to provide a benefit are especially problematic.

In the absence of an anti-fraternization policy, though, there's nothing strictly improper about flirting between willing co-workers, or about welcome advances to co-workers.  And that's half the problem, because (a) an employee might see the holiday party as an opportunity to try to get to know a given co-worker better and (b) many people don't know where to draw the line on their own behaviour, especially where alcohol is involved.

So employees should remember to use their best judgment, to remember that you still have to work with these people, and to remember that inappropriate behaviour might jeopardize their careers.

That's good advice for employees at all times.  But an employer cannot simply wash their hands of it, because we all know that some employees will not use good judgment.

So here are a few tips for employers to reduce the odds of finding a statement of claim in your stocking.

1.  Make Expectations Clear

There are a lot of 'common sense' things that we should be able to take for granted.  Unfortunately, we can't.  Reminding employees before the party that you expect them to drink responsibly, plan a safe ride home, and avoid workplace-inappropriate or offensive conduct, helps to set the tone.

It's also helpful to point the employees to any relevant policies - the anti-harassment policy, any anti-fraternization policies, drug & alcohol policies, etc.  (Note that, if it's the employer's practice to permit alcohol consumption at after-hours events, the drug & alcohol policy should reflect this, setting out expectations that employees act responsibly.)

Notably, while employees need to be careful to avoid sexual harassment, it's also important to remind employees that they should not stay silent in the face of unwelcome conduct.  If somebody is trying to flirt with me, and I am made to feel uncomfortable, then I should say something - make sure the person knows that the behaviour is unwelcome.  (This is the keystone of 'informal resolution', the first level of dispute resolution under most sexual harassment policies.)  If the harasser persists, then under those circumstances I should be bringing the matter to the attention of management.  But the reality is that a huge majority of sexual harassment issues can be resolved informally - if I stay silent, the person may well continue, and my evening will get worse and worse.  But if I speak up, the odds are reasonably good that the person will back off.

To the extent that the regular dress code might be relaxed for a social event, it may still be prudent to set out clear expectations.

As well, consider if there are workers with identified issues of alcohol dependency.  Depending on the nature of the workplace and the accommodations necessary for such an employee, it may be worth querying whether you really need to have alcohol served at the party at all, or if there's some other prudent approach you might take.

2.  Offer Safe Rides Home

There are a lot of ways of getting your people home safely.  Encourage Designated Drivers, refer to "Operation Red Nose" services, offer taxi chits or hotel rooms, even rent a bus.  Whatever avenue you choose, you should make sure that you take an interest in seeing that nobody drives drunk, whether it's by providing transportation, or by having sober managers tasked with identifying and diverting people who are too intoxicated to drive.  Also bear in mind that a host's liability doesn't necessarily stop at the door - you want to get them home, not to the bar across the street.

Other strategies include an early cut-off for alcohol (closing the bar an hour or more before it's time to go home), serving food to slow the absorption of alcohol, or limiting the number of drinks for each employee.

3.  Supervise the Party

Managers want to party, too, but they of all people should be staying sober anyways.  So make sure that there are trusted managers tasked with overseeing the party.  If somebody is acting inappropriately, there should be people responsible for identifying and addressing the conduct on the spot (i.e. by cutting them off, or perhaps sending them home in a cab).

Giving managers that kind of responsibility also highlights the fact that they're still kind of on the job.  Some trouble-making employees enjoy encouraging their bosses to have a couple more drinks than they should.  (Of course, I've never done such a thing.  Back in my days as an employee, I never got management information out of a supervisor who had drank one pint too many...  Of course, there are possible consequences far darker than that, too.  As I said, of all people, managers should not get drunk with subordinates.)

As well, whether it's a private function or in a public venue, bartenders should not be serving people who appear intoxicated...however, in a private function, the employer should probably be reminding the bartenders of that expectation.  (I have seen plenty of private functions where the usual rules go out the window, but that's less likely to happen if the 'client' has clarified expectations that things be done by the book.)

4.  Consider Limiting Alcohol

Drink tickets are a reasonable way of making sure that your employees can drink casually without overdoing it.  People generally shouldn't be looking to get drunk at an office party anyways, but there's value in a glass of wine with dinner or a couple of cocktails, for a social occasion.  So it's understandable that people want to be able to drink a bit, but highly unnecessary to let people drink to excess.

However, giving people two or three drink tickets does not necessarily mean you don't have to be alive to intoxication.  Some people have surprising effects after a couple of drinks, and you won't necessarily know if they may have had a couple of drinks before arriving in the first place.

5.  Why Throw It On A Work Night?

On some level, being able to highlight  "I expect you alert and at your desk at 9:00am tomorrow" might emphasize to people why they shouldn't drink to excess.

But, realistically, in many workplaces, you expect that 'office party night' will run late, even if it doesn't include excessive drinking.  I've been in workplaces where groups of us went out to clubs after the office party.  So throwing it on a work night kind of invites a reduced-productivity day the next day.  Which you might be okay with.  In which case, alright, but there's something else to bear in mind, particularly for employees in safety-sensitive positions:  Sleeping it off doesn't do much - the only thing that sobers you up is time, and if you're drinking heavily, you need a lot of time.

It's a well-known reality in policing that they can catch a lot of impaired drivers the morning after a big drinking night.  People know not to drink and drive.  So on a night out, they get hammered, they take a taxi home, they sleep it off, then they get up and drive to work as normal.  Except that they might still be drunk.  Alcohol is removed from our bloodstreams at approximately 0.015 per hour.  So if you stop drinking at midnight after an evening of heavy drinking, bringing your BAC up to 0.2 (2.5x the legal limit for driving), then you aren't going to get rid of all the alcohol in your bloodstream until around 1pm.  Indeed, if you hit the road at 7:30am, you're almost certainly driving over the legal limit.

So if people do drink to excess, then not only do you need to worry about them getting home alright, but you also need to worry about them showing up to work drunk.

A Word On Political Correctness

"Merry Christmas" isn't generally a big deal in Canada.  I seldom hear people actually taking issue with it. I subscribe to an 'inclusive' approach to holidays, but for me that means proactively seeking to respect and honour everyone's beliefs, rather than simply watering down the tradition to the point of being generic.

(Once I saw a workplace celebrating "Festivus"...which would have been really innovative, except that the "Festivus" newsletter included a "Festivus Tree" and a lot of other distinctly Christmas-y imagery.)

I'm an advocate of reaching out to the workers and inviting input regarding religious or cultural traditions they might want honoured, and engaging in a dialogue regarding how to do so.  I believe that holiday celebrations present an opportunity to embrace and celebrate the diversity of the workplace.

Consider, for example, that I live in a community in Thornhill which has a predominantly Jewish demographic.  The building I live in openly celebrates the Jewish high holidays.  Against all odds, I'm a Christmas-observer.  I don't object to the Hannukah-related observances in the building, but I do appreciate that, nonetheless, there's a Christmas tree in the lobby.  To me, that's what a multi-cultural society is all about - about different beliefs and traditions co-existing side-by-side.

And a word on workplace Secret Santas:  Don't.  That's not for legal reasons.  Just...they're don't.

I can't put it any better than Rick Mercer:
But then there's the flip side, the madness of the season.  Things like the secret Santa office pool, which, I'm sorry, I'm just gonna say it, does not bring joy to anyone.  It's the opposite.  It brings anguish, resentment, and re-gifting.  If you are a grown man or woman there is nothing you need at the dollar store for under ten dollars.  Oh look, it's's a mug.

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.