It seems to me that, if there's an identifiable corporate executive, it's Joel Matlin, who has long been not only the president, CEO, and founder of Alarmforce, but also its face and voice. I can't tell you how many times, over how many years, I've heard Matlin's distinctive and calming voice over radio and television telling me that he so wants me to be safe at home that he'll cover the installation and I'll only have to pay a modest monthly fee for the monitoring. Or something to that effect - I never actually got Alarmforce, but I still think it's been an amazingly effective ad campaign, if only for successful branding.
According to this story on the Star, the Board of Directors fired him this morning.
Matlin isn't just an employee, though. It looks like he's also a member of the Board of Directors, and holds significant shares in the company. And according to the Star's story, he's not planning to meet with employment lawyers; he's planning to meet with securities lawyers.
This is interesting and unusual. Ordinarily, an executive in Matlin's position would pursue very substantial pay in lieu of notice. This can be severely limited through contract, but - while I don't know the specifics of Matlin's employment contract - that would be a pretty unusual thing to see in these circumstances. At common law, one would expect Matlin's entitlements to be very substantial. However, with an employee who is also a director and holds significant share capital, there may be other options: Namely, it looks like Matlin's going to try to get his job back. Which will probably entail replacing most of the Board of Directors.
That's going to entail advancing a 'dissident proxy circular' - basically, in advance of the next AGM of the shareholders, nominating directors to compete with the nominees of current management, and asking the shareholders to vote for them instead. It can be difficult and expensive, in part because shareholders are often passive investors who are pretty disengaged from the process.
I've seen this from time to time: An organization with a long-standing power structure gets new directors in the door, who aren't happy with how things are being run. A power struggle begins, and the new directors convince the Board to order an audit of management, the results of which they then use for an ouster. Once the old order is out, there is often significant litigation, often involving wrongful dismissal and allegations of just cause, and sometimes going further with the new leadership trying to take the old leadership to task for things that they think were improper, sometimes going back years or even decades, or with the old leadership alleging that the new leadership have acted oppressively, etc. These power struggles can get very nasty.
I don't know the facts of why the Board of Directors wanted Matlin out, but this could well be an interesting fight to watch.
*****
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, July 23, 2013
The Growing Controversy of Unpaid Internships
There has been a growing firestorm about unpaid internships in the news and employment blogosphere. The Star just ran a story about legal challenges to internships on both sides of the border, and I've seen a few other stories make the press in the last few weeks, as well as frequent criticisms of them by commentators such as Andrew Langille and David Doorey. (On Professor Doorey's blog, The Law of Work, he has even been finding and reproducing postings for internships which flagrantly violate the Employment Standards Act...but more on that in a minute.)
Some call for legislative reform. Personally, I'd be happier to see enforcement of existing laws.
Are Unpaid Internships Legal in Ontario?
The answer is yes. But it's a very qualified yes.
Let's start with the position that employees have certain entitlements governed by the Employment Standards Act, 2000, including minimum wage. For most employees in Ontario, that's $10.25 right now.
There are a number of exceptions to employment standards exemptions, but in this case, what we need to look closely at is the definition of "employee", which includes persons receiving training, as qualified by s.1(2) of the ESA:
(As well, s.3(5) creates additional exceptions for, among others, work programs operated by secondary schools, colleges of applied arts and technology, and universities.)
There is surprisingly little case law on the point, and most of the cases are pretty clear-cut, involving small employers who try to characterize the training phase of a job as an 'internship', or similar nonsense.
The Ontario Labour Relations Board released a decision earlier this month in Sandhu v. Brar, involving a claim for wages by a 'co-op student' who worked for two weeks in a role as a computer technician - he installed software, answered the phone, and was taught how to build computers. It was understood that the employee (Brar) would not be paid (criterion 6), but...
You see, a lot of the 'unpaid internships' pay zero heed to the factors. You would think that telling people they won't be paid would be an easy one, but Professor Doorey, in a post linked above, highlighted an unpaid internship which promised a $500 honorarium for the whole full-time internship. (There were other problems, too, but that alone would be enough to undermine any justification for it being an unpaid internship.)
But there will be more difficult cases, too.
If the Ministry Cracks Down, What Will They Look For?
Criterion 6 is pretty objective. An employer should make it clear at the outset, in writing, that it's an unpaid internship. Number 5 is also fairly objective: If subsequent employment is promised, it can't be an unpaid internship. (There may be an argument to be made that even the prospect of subsequent employment, or the fact that subsequent employment is offered at the end of the placement, may be a problem. I would tend to interpret the language otherwise, and the limited case law on the point leans toward an interpretation that making an offer at the end of the placement isn't a problem.)
The other factors are more difficult, though.
Training Similar to Vocational Schools
It isn't entirely clear what it means to be similar to the training in a vocational school, but presumably that would set a standard regarding the professional nature of placements. So Burger King wouldn't be able to hire 'interns' to learn how to cook Whoppers, though one might reasonably imagine a chef training interns in the kitchen of fine restaurant.
For the Benefit of the Person Being Trained
This one should actually be relatively easy, given that, if you're not getting paid, I'm not sure I see much reason to do the work unless it provides you with some benefit. But this may well create substantive requirements for the quality of the internship - an actual obligation to provide meaningfully beneficial training.
Little, if Any, Benefit
This is going to be an exceptionally difficult factor. In a lot of the case law to date, the Board has looked at the fact that products or services provided by the intern have been sold by the employer to customers. On the cases the Board has looked at, it has been pretty clear-cut. But that can't be the whole test, because the whole point of the internship is to get the intern experience doing tasks which are marketable to clients, often involving direct interaction with clients and building their feedback into the product. While artificial training exercises are all well and good, that's what school is all about - if I'm doing an internship, I ought to be working on something real.
At the same time, there's a cost to an internship, done properly. Training isn't cheap, and supervising an intern, in a proper internship, will invariably require a significant time investment of the employer. But it becomes something of an apples-and-oranges comparison: I may create some value with my work, and while it may be less than the value that the folks supervising me could have created with their time otherwise, that's a really tough comparison to make.
Not Displacing Other Employees
I imagine that it would be pretty difficult to prove, in most cases, that an intern's work has displaced another employee. But this goes hand-in-hand with the 'little, if any, benefit' provision: If interns are part of your business model on an ongoing basis, generating meaningful production for you, then they are probably taking real jobs.
Ultimately, one can definitely imagine internships which meet the statutory criteria...but the reality is that, whereas most people offering internships are doing so because they want the free labour, that very goal probably undermines the legality of the internship itself.
Why Are Unpaid Internships So Prolific?
It's a tough economy out there, and it's well-known that younger folks just starting out are having a hard time finding jobs: The economy is far more heavily loaded with small and mid-size employers than ever before, with a workforce that is more mobile than ever before, so employers are unwilling and unable to invest in training new entrants to the workforce. As a result, most employers are looking for experience. You can't get experience if you don't have a job, and you can't get a job if you don't have experience: It's the catch-22 for the younger generation.
So young people, once they finally come to the inevitable conclusion that more education is not what they need to become employable, are trying to find alternative ways of getting experience: If nobody will pay me for the experience I need, I guess I have to work for free.
For a long time, it has been well-known that academic co-op programs are excellent for improving employment prospects after graduation. So take a school like the University of Waterloo - it has a massive co-op program across all fields, but particularly so in its computer-related fields of study. Because it has a good reputation in those fields, top employers hire co-op students from UW, and those co-op students go on to be in high demand immediately after graduation.
(Incidentally, to the extent of my awareness, though it may not be universally true, UW co-op jobs are paid.)
For most university and college grads, things aren't so rosy. They're graduating with hundreds of others, and competing for very finite entry-level positions, and lack meaningful professional experience.
So the 'unpaid internship' is the supposed answer to the problem, a way of getting young people much-needed experience without generating a significant cost to employers. Win-win, right?
Do They Work?
Let's get one thing clear: Many young people are so desperate to find a job in their field that they'll do just about anything that they think will improve their odds. These are all things I've seen tried:
Some call for legislative reform. Personally, I'd be happier to see enforcement of existing laws.
Are Unpaid Internships Legal in Ontario?
The answer is yes. But it's a very qualified yes.
Let's start with the position that employees have certain entitlements governed by the Employment Standards Act, 2000, including minimum wage. For most employees in Ontario, that's $10.25 right now.
There are a number of exceptions to employment standards exemptions, but in this case, what we need to look closely at is the definition of "employee", which includes persons receiving training, as qualified by s.1(2) of the ESA:
For the purposes of clause (c) of the definition of “employee” in subsection (1), an individual receiving training from a person who is an employer is an employee of that person if the skill in which the individual is being trained is a skill used by the person’s employees, unless all of the following conditions are met:
1. The training is similar to that which is given in a vocational school.2. The training is for the benefit of the individual.3. The person providing the training derives little, if any, benefit from the activity of the individual while he or she is being trained.4. The individual does not displace employees of the person providing the training.5. The individual is not accorded a right to become an employee of the person providing the training.6. The individual is advised that he or she will receive no remuneration for the time that he or she spends in training.So that's one of the provisions that speaks directly to unpaid internships: A person receiving training from an employer, in the skills used by the employer's employees, is an employee, entitled to minimum wage (among other things) unless all six criteria are satisfied. Therefore, if even one of those criteria is not satisfied, an unpaid internship is illegal.
(As well, s.3(5) creates additional exceptions for, among others, work programs operated by secondary schools, colleges of applied arts and technology, and universities.)
There is surprisingly little case law on the point, and most of the cases are pretty clear-cut, involving small employers who try to characterize the training phase of a job as an 'internship', or similar nonsense.
The Ontario Labour Relations Board released a decision earlier this month in Sandhu v. Brar, involving a claim for wages by a 'co-op student' who worked for two weeks in a role as a computer technician - he installed software, answered the phone, and was taught how to build computers. It was understood that the employee (Brar) would not be paid (criterion 6), but...
Based on the employer’s evidence, Brar, a trained software engineer, answered the telephone and installed computer software. The directors acknowledged that they received the benefit of Brar’s skills and charged their customers for his expertise. In exchange Brar received some training as a computer technician, however there is no evidence before me that the training provided to Brar was comparable to vocational school training to become a computer technician. The employer provided no evidence as to what particular skills were taught to Brar or the number of hours of instruction.There could be interesting times ahead.
You see, a lot of the 'unpaid internships' pay zero heed to the factors. You would think that telling people they won't be paid would be an easy one, but Professor Doorey, in a post linked above, highlighted an unpaid internship which promised a $500 honorarium for the whole full-time internship. (There were other problems, too, but that alone would be enough to undermine any justification for it being an unpaid internship.)
But there will be more difficult cases, too.
If the Ministry Cracks Down, What Will They Look For?
Criterion 6 is pretty objective. An employer should make it clear at the outset, in writing, that it's an unpaid internship. Number 5 is also fairly objective: If subsequent employment is promised, it can't be an unpaid internship. (There may be an argument to be made that even the prospect of subsequent employment, or the fact that subsequent employment is offered at the end of the placement, may be a problem. I would tend to interpret the language otherwise, and the limited case law on the point leans toward an interpretation that making an offer at the end of the placement isn't a problem.)
The other factors are more difficult, though.
Training Similar to Vocational Schools
It isn't entirely clear what it means to be similar to the training in a vocational school, but presumably that would set a standard regarding the professional nature of placements. So Burger King wouldn't be able to hire 'interns' to learn how to cook Whoppers, though one might reasonably imagine a chef training interns in the kitchen of fine restaurant.
For the Benefit of the Person Being Trained
This one should actually be relatively easy, given that, if you're not getting paid, I'm not sure I see much reason to do the work unless it provides you with some benefit. But this may well create substantive requirements for the quality of the internship - an actual obligation to provide meaningfully beneficial training.
Little, if Any, Benefit
This is going to be an exceptionally difficult factor. In a lot of the case law to date, the Board has looked at the fact that products or services provided by the intern have been sold by the employer to customers. On the cases the Board has looked at, it has been pretty clear-cut. But that can't be the whole test, because the whole point of the internship is to get the intern experience doing tasks which are marketable to clients, often involving direct interaction with clients and building their feedback into the product. While artificial training exercises are all well and good, that's what school is all about - if I'm doing an internship, I ought to be working on something real.
At the same time, there's a cost to an internship, done properly. Training isn't cheap, and supervising an intern, in a proper internship, will invariably require a significant time investment of the employer. But it becomes something of an apples-and-oranges comparison: I may create some value with my work, and while it may be less than the value that the folks supervising me could have created with their time otherwise, that's a really tough comparison to make.
Not Displacing Other Employees
I imagine that it would be pretty difficult to prove, in most cases, that an intern's work has displaced another employee. But this goes hand-in-hand with the 'little, if any, benefit' provision: If interns are part of your business model on an ongoing basis, generating meaningful production for you, then they are probably taking real jobs.
Ultimately, one can definitely imagine internships which meet the statutory criteria...but the reality is that, whereas most people offering internships are doing so because they want the free labour, that very goal probably undermines the legality of the internship itself.
Why Are Unpaid Internships So Prolific?
It's a tough economy out there, and it's well-known that younger folks just starting out are having a hard time finding jobs: The economy is far more heavily loaded with small and mid-size employers than ever before, with a workforce that is more mobile than ever before, so employers are unwilling and unable to invest in training new entrants to the workforce. As a result, most employers are looking for experience. You can't get experience if you don't have a job, and you can't get a job if you don't have experience: It's the catch-22 for the younger generation.
So young people, once they finally come to the inevitable conclusion that more education is not what they need to become employable, are trying to find alternative ways of getting experience: If nobody will pay me for the experience I need, I guess I have to work for free.
For a long time, it has been well-known that academic co-op programs are excellent for improving employment prospects after graduation. So take a school like the University of Waterloo - it has a massive co-op program across all fields, but particularly so in its computer-related fields of study. Because it has a good reputation in those fields, top employers hire co-op students from UW, and those co-op students go on to be in high demand immediately after graduation.
(Incidentally, to the extent of my awareness, though it may not be universally true, UW co-op jobs are paid.)
For most university and college grads, things aren't so rosy. They're graduating with hundreds of others, and competing for very finite entry-level positions, and lack meaningful professional experience.
So the 'unpaid internship' is the supposed answer to the problem, a way of getting young people much-needed experience without generating a significant cost to employers. Win-win, right?
Do They Work?
Let's get one thing clear: Many young people are so desperate to find a job in their field that they'll do just about anything that they think will improve their odds. These are all things I've seen tried:
- Go back to school for a graduate degree. (In most fields where a graduate degree isn't completely necessary in the first place, this isn't helpful.)
- Learn a language. (Can be helpful, but you need more than that.)
- Go to professional conferences for networking. (And find that 90% of the other attendants are also unemployed new graduates looking to do the same thing.)
- Randomly add established professionals on LinkedIn. (And get banned from LinkedIn.)
- Send out cold resumes to every related employer you can find on Google. (I know where the applications I've received have gone.)
The list goes on. I'm pretty sure that if career counsellors started suggesting that you could show how much you want the job by cutting off your left hand in the interview, there'd be a lot of jobs opening up for folks who make prosthetics.
So the fact that market entrants are trying this approach, en masse, doesn't suggest to me that it's necessarily effective. In fact, the numbers don't seem to be panning out, and there are a couple of good reasons why:
(1) Companies that can't pay their interns lack the credibility to bolster a CV. Let's say you intern at a small tech company to get your foot in the door. First of all, small tech companies don't necessarily know how to manage internships. They don't necessarily offer appropriate training, nor provide real learning opportunities, and you're half-likely to spend most of your time answering phones and fetching coffee. Even if you don't, that's the perception. If you weren't performing work worth getting paid for, then there's no reason to think that there's any value in the experience. Larger, more reputable companies, by contrast, usually pay their interns, trying to attract the best candidates.
(2) Numbers. Unpaid internships are widespread, meaning firstly that there are a lot of people who have completed unpaid internships, and secondly that there is a lot of junior work being completed by unpaid interns. You see the problem, I hope: I, as an employer, have so many young people willing to work for me for free. I can hire one of those, and pay nothing, or I can hire someone who has, say, completed an unpaid internship (and therefore has a bit of experience, but still not much), and pay them at least minimum wage. (A minimum wage employee, over the course of a year, costs an employer well over $20,000 on wages alone.) It's a no-brainer. This not only reduces the market value of new entrants to the marketplace, but also devalues the very experience obtained through an unpaid internship.
Closing Remarks
I don't think that all unpaid internships are exploitative. In law school, I worked for a summer at a legal aid clinic, and one of the staff lawyers there had, years earlier, shown up at the clinic's door desperate for an articling job, and when they said they didn't have the funding, she said she'd work for free. As I understand it, the clinic made arrangements to fund part of her articles, and the other part was completed elsewhere...but the reality is that she couldn't get licensed without her articles, the clinic served a good cause, and that experience became the start of a great career for her.
But there are good reasons for the legislative restrictions on unpaid internships, and I do not believe that society or the economy is well-served by relaxing those restrictions. Yet the people who want such internships aren't generally going to complain to the Ministry, and because half the point of the internship is to develop positive references, they aren't going to complain afterwards either. With a legislative regime like the ESA which is so significantly complaint-driven, that creates an atmosphere of non-enforcement.
I've expressed concerns before about the Ministry's "Let the employees come to us" approach for employment standards enforcement. Especially when they added the policy of making employees ask the employer for relief first, I became particularly concerned about that, as it becomes an invitation to the employer to flout employment standards until an employee asks them not to. And since many employees don't have the stomach to challenge their employers on that sort of thing, many employers will get away with it indefinitely, with little risk of serious consequence because there's probably going to be an opportunity to simply correct the deficiency with no further penalty.
Likewise in this case. Employment standards exist for the protection of employees, and to require employees to proactively learn the law and stand up to their employers...kind of defeats the point.
*****
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, July 22, 2013
No Need for Discoveries Before Summary Judgment of Wrongful Dismissal
There's an increasing trend to decide simple wrongful dismissal cases by way of motion for summary judgment. I recently made an entry about such a case where judgment was awarded early in the notional notice period.
There's a new decision in Kotecha v. Affinia, which takes an interesting look at summary judgment motions.
This decision came after the end of the reasonable notice period; the action wasn't commenced until January of this year, but Mr. Kotecha was given 8 weeks notice of dismissal in May 2011.
There was no issue that he was dismissed without cause, and no issue that he was owed reasonable notice. The issues were the length of notice, and the value of his compensation package over the notice period.
Mr. Kotecha was a machine operator in his late 60s, dismissed after about 20 years of service with Affinia. He made $18.23 per hour - over a 40 hour work week, this works out to just under $38 thousand annually. However, from 2008 to 2010, his average gross earnings were just under $44 thousand (consistently in the $42-$45 thousand range), due to overtime. There were also employer contributions to Kotecha's pension/RRSP, and benefits.
Affinia advanced the argument, on its own motion, that the defendant should be entitled to an examination for discovery prior to the hearing of the motion for summary judgment. It appears that Affinia put all its eggs in that basket, not making significant (any?) submissions on the plaintiff's arguments on the issues up for judgment, instead making the argument that a substantive response to the motion required an examination for discovery first.
The Test for Summary Judgment
Summary judgment is a process available for a party to seek a final adjudication of issues without needing to go through the whole litigation process. It used to be the case that there was little-to-no room for the weighing of evidence on such a motion: If there was a critical point of fact in dispute, a trial was necessary.
However, the process was changed recently, resulting in a change to the test: Now, a judge may give summary judgment if he or she can achieve a "full appreciation" of the evidence in the matter, and is entitled to engage in weighing evidence, evaluating credibility of a deponent, and drawing reasonable inferences from the evidence.
So, in this case, with the matters in dispute being the length of the notice period, the scale of damages (i.e. inclusion of overtime, RRSP contributions, benefits claims), and mitigation, summary judgment is available if the Court can achieve a full appreciation of the underlying facts for these issues.
The motions judge proceeded to hear the arguments on both motions before deciding either. And having heard the argument on the motion for summary judgment, without much contribution by Affinia, it's pretty natural that it's going to be fairly one-sided, and there isn't going to be much reason for the judge to want to drag out the process. The Court dismissed Affinia's motion, granted the plaintiff's motion, and granted the full relief sought by the plaintiff, being the equivalent of 22 months' pay in lieu of notice, less amounts already paid, after taking into account the 2 months of actual notice.
Why Did Affinia Want Examinations for Discovery?
Affinia's counsel argued four points on which it should be entitled to have an examination for discovery:
(1) Entitlement to overtime pay;
(2) Entitlement to medical benefits;
(3) Pension contributions;
(4) Mitigation.
The trouble with, in particular, the first and third, is this: Affinia would presumably be in the same position as the employee, if not a better position, to lead evidence pertaining to receipt of overtime pay and pension contributions. The employee's own evidence was based on T4s and pay stubs which were prepared by Affinia. That makes it difficult for an employer to say that it's somehow unfair to proceed without examining the employee. If Affinia has other documents or information which would add context to these documents, then it should be leading them into evidence.
The same is true, to a lesser extent, of the second issue: Kotecha claimed to have incurred a little over $700 in respect of medical benefits which would have been covered by his workplace health benefits. Whether or not these expenses would be covered would be within the employer's knowledge - it knew what coverage it provided. While one might reasonably argue that there should be an opportunity to test the strength of the evidence that these expenses were properly incurred...the truth is that, in the time period in question, and for an employee of Kotecha's age, $700 is pretty modest. (And consider that an examination for discovery entails hiring an official examiner, buying transcripts by the word, and paying at least two lawyers hundreds of dollars per hour to sit through the examination and review the documents afterward.)
In another case, I would find the fourth point to be compelling. Strictly speaking, the onus is upon the defendant to prove failure to mitigate, but knowledge of mitigation efforts would be known to the plaintiff. So if a plaintiff sat on the couch watching soap operas for a year, then sued in wrongful dismissal, the employer needs the opportunity to put the plaintiff under oath and ask "What have you been doing to try to find replacement employment?" There are a number of obligations throughout the litigation process which require a party to make disclosures, and if a summary judgment motion can sidestep these obligations, one might reasonably worry that a party could use summary judgment to avoid having to make disclosures which would be harmful to its case.
(In many cases, this is less concerning: For example, if a plaintiff can't articulate a basis upon which it could succeed in an action without disclosures from the defendant, then looking for an examination for discovery would be what we call a 'fishing expedition', which is frowned upon. So for the defendant to bring a motion to have the action dismissed without having to first make disclosures...that's probably a good thing. But on a point as specific and natural as mitigation, it's hardly a fishing expedition for a defendant to ask about it in examinations for discovery.)
However, in this case, the plaintiff did lead detailed evidence of his mitigation efforts, and the employer led no evidence on the point, so the judge was satisfied that it wasn't really a live issue.
I understand Affinia's approach, to an extent, focusing on the prior procedural matter to argue that it is unfair to proceed to a hearing. However, to really have a chance at success there, it did need to go a step further, to lead a basis for thinking that there would have been material facts revealed by an examination for discovery - otherwise, its own desire for an examination for discovery probably just amounted to a fishing expedition.
Why Didn't Affinia Cross-Examine on the Affidavit?
In the ordinary course, when you're making a motion, you need to support it with an affidavit - on most motions, all the facts before the Court are led by way of affidavit. And, ordinarily, the other party is entitled to cross-examine on the affidavit - an opportunity to test and challenge the evidence led by the other side on the motion.
However, there's a process called the "Simplified Procedure", which is often mandatory for claims worth $100,000 or less, which seriously limits the availability of out-of-court examinations, and blocks the entitlement to cross-examine on affidavits. This keeps litigation costs down.
But in the context of a motion for summary judgment, there's something a little disconcerting about it from a 'procedural fairness' point of view, about a person being able to get judgment against you without ever opening him- or herself up to an opportunity to be cross-examined.
And in effect, that was probably the intuitive unfairness that Affinia was seeking to address when arguing that it should be able to have its examinations for discovery. (It used to be the case, too, that there were no examinations for discovery in a simplified procedure case; that's no longer completely true.) Basically, Affinia wanted its examinations for discovery in lieu of an opportunity to cross-examine on affidavits.
However, the case law is relatively settled: The unavailability of cross-examinations informs the test for summary judgment in the Simplified Procedure.
Commentary on the Issues
There was a time, not so long ago, when a machine operator would likely have been limited to 12 months of notice. However, the Ontario Court of Appeal put that notion to rest fairly firmly in the Di Tomaso case in 2011 (my commentary here), upholding an award for a long-service machine operator of 22 months' pay in lieu of notice.
In light of the Di Tomaso decision, it should have been clear to all involved that the plaintiff in this case would obtain a very substantial notice period. And with a month's pay only being worth somewhere between $3166 and $3667, an agreement as to the appropriate range should have resulted in a settlement. With the kind of consistent overtime illustrated by his T4s, it really wasn't much of an issue, and at the end of the day was worth a little over $10,000. And the pension contributions also seemed relatively simple, being worth only $2420 in total. (It could have been more complicated had the plaintiff argued for a gross-up to account for differential tax treatment. But he didn't, and with the difference it would have made to the overall sum, that was probably a smart call.) Then benefits are a pretty academic entitlement, and with only $700 claimed, the employer should count itself lucky.
In other words, there are no issues that appear to be particularly difficult on the facts, and none of very substantial values. They all related to law which is relatively straightforward, and while the employer didn't lead any evidence itself (so maybe there's another side to the facts), the evidence that the employee did lead is the sort of evidence one would expect in such a case. It doesn't have the overall feel of having been decided on an incomplete record for lack of one party's participation.
This case should have settled. The plaintiff got everything he was seeking, and it is still not that far above what I would have considered to be a conservative estimate of his entitlements. It will be interesting to see if there's a reported costs decision, showing where the parties were sitting in their settlement positions.
Update: November 1, 2013
The costs decision came out last week. It also deals with interest, which is fairly unusual - especially at recent historical interest rates, the interest on a simplified rules judgement isn't worth fighting much over, even when there's a reasonable argument to be had.
I had commented earlier that it would be interesting to know where the parties' respective settlement positions were: Apparently, the plaintiff had served an offer to settle for $50,000, substantially less than the amount of the judgment (about $70,000). There was no offer filed by the defendant. This doesn't necessarily mean that the defendant didn't make an offer; however, as I said before, I would have considered the judgment to be not far above a conservative estimation of his entitlements.
In other words, it's hard to see how $50,000 could have not been a good deal for the employer, unless they had some basis to think there was a failure to mitigate (or actual mitigation).
However, the offers weren't the end of the costs discussion - conduct of the parties in the proceeding can also affect costs, and there were some allegations of unreasonable conduct going both ways. Kotecha's lawyer won that exchange handily: The employer's lawyer's conduct was criticized as "unreasonable", whereas the judge described the plaintiff's lawyer, Pamela Krauss, in some very favourable terms.
Accordingly, the plaintiff appears to have been completely successful on costs, obtaining $21,000 in respect of costs. This appears to be a rare case where the successful party was not left significantly out-of-pocket for legal fees.
This also means that Affinia is now on the hook for somewhere north of $90,000, on a file they could have settled earlier for $50,000.
It appears that Affinia is appealing, however.
*****
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.
There's a new decision in Kotecha v. Affinia, which takes an interesting look at summary judgment motions.
This decision came after the end of the reasonable notice period; the action wasn't commenced until January of this year, but Mr. Kotecha was given 8 weeks notice of dismissal in May 2011.
There was no issue that he was dismissed without cause, and no issue that he was owed reasonable notice. The issues were the length of notice, and the value of his compensation package over the notice period.
Mr. Kotecha was a machine operator in his late 60s, dismissed after about 20 years of service with Affinia. He made $18.23 per hour - over a 40 hour work week, this works out to just under $38 thousand annually. However, from 2008 to 2010, his average gross earnings were just under $44 thousand (consistently in the $42-$45 thousand range), due to overtime. There were also employer contributions to Kotecha's pension/RRSP, and benefits.
Affinia advanced the argument, on its own motion, that the defendant should be entitled to an examination for discovery prior to the hearing of the motion for summary judgment. It appears that Affinia put all its eggs in that basket, not making significant (any?) submissions on the plaintiff's arguments on the issues up for judgment, instead making the argument that a substantive response to the motion required an examination for discovery first.
The Test for Summary Judgment
Summary judgment is a process available for a party to seek a final adjudication of issues without needing to go through the whole litigation process. It used to be the case that there was little-to-no room for the weighing of evidence on such a motion: If there was a critical point of fact in dispute, a trial was necessary.
However, the process was changed recently, resulting in a change to the test: Now, a judge may give summary judgment if he or she can achieve a "full appreciation" of the evidence in the matter, and is entitled to engage in weighing evidence, evaluating credibility of a deponent, and drawing reasonable inferences from the evidence.
So, in this case, with the matters in dispute being the length of the notice period, the scale of damages (i.e. inclusion of overtime, RRSP contributions, benefits claims), and mitigation, summary judgment is available if the Court can achieve a full appreciation of the underlying facts for these issues.
The motions judge proceeded to hear the arguments on both motions before deciding either. And having heard the argument on the motion for summary judgment, without much contribution by Affinia, it's pretty natural that it's going to be fairly one-sided, and there isn't going to be much reason for the judge to want to drag out the process. The Court dismissed Affinia's motion, granted the plaintiff's motion, and granted the full relief sought by the plaintiff, being the equivalent of 22 months' pay in lieu of notice, less amounts already paid, after taking into account the 2 months of actual notice.
Why Did Affinia Want Examinations for Discovery?
Affinia's counsel argued four points on which it should be entitled to have an examination for discovery:
(1) Entitlement to overtime pay;
(2) Entitlement to medical benefits;
(3) Pension contributions;
(4) Mitigation.
The trouble with, in particular, the first and third, is this: Affinia would presumably be in the same position as the employee, if not a better position, to lead evidence pertaining to receipt of overtime pay and pension contributions. The employee's own evidence was based on T4s and pay stubs which were prepared by Affinia. That makes it difficult for an employer to say that it's somehow unfair to proceed without examining the employee. If Affinia has other documents or information which would add context to these documents, then it should be leading them into evidence.
The same is true, to a lesser extent, of the second issue: Kotecha claimed to have incurred a little over $700 in respect of medical benefits which would have been covered by his workplace health benefits. Whether or not these expenses would be covered would be within the employer's knowledge - it knew what coverage it provided. While one might reasonably argue that there should be an opportunity to test the strength of the evidence that these expenses were properly incurred...the truth is that, in the time period in question, and for an employee of Kotecha's age, $700 is pretty modest. (And consider that an examination for discovery entails hiring an official examiner, buying transcripts by the word, and paying at least two lawyers hundreds of dollars per hour to sit through the examination and review the documents afterward.)
In another case, I would find the fourth point to be compelling. Strictly speaking, the onus is upon the defendant to prove failure to mitigate, but knowledge of mitigation efforts would be known to the plaintiff. So if a plaintiff sat on the couch watching soap operas for a year, then sued in wrongful dismissal, the employer needs the opportunity to put the plaintiff under oath and ask "What have you been doing to try to find replacement employment?" There are a number of obligations throughout the litigation process which require a party to make disclosures, and if a summary judgment motion can sidestep these obligations, one might reasonably worry that a party could use summary judgment to avoid having to make disclosures which would be harmful to its case.
(In many cases, this is less concerning: For example, if a plaintiff can't articulate a basis upon which it could succeed in an action without disclosures from the defendant, then looking for an examination for discovery would be what we call a 'fishing expedition', which is frowned upon. So for the defendant to bring a motion to have the action dismissed without having to first make disclosures...that's probably a good thing. But on a point as specific and natural as mitigation, it's hardly a fishing expedition for a defendant to ask about it in examinations for discovery.)
However, in this case, the plaintiff did lead detailed evidence of his mitigation efforts, and the employer led no evidence on the point, so the judge was satisfied that it wasn't really a live issue.
I understand Affinia's approach, to an extent, focusing on the prior procedural matter to argue that it is unfair to proceed to a hearing. However, to really have a chance at success there, it did need to go a step further, to lead a basis for thinking that there would have been material facts revealed by an examination for discovery - otherwise, its own desire for an examination for discovery probably just amounted to a fishing expedition.
Why Didn't Affinia Cross-Examine on the Affidavit?
In the ordinary course, when you're making a motion, you need to support it with an affidavit - on most motions, all the facts before the Court are led by way of affidavit. And, ordinarily, the other party is entitled to cross-examine on the affidavit - an opportunity to test and challenge the evidence led by the other side on the motion.
However, there's a process called the "Simplified Procedure", which is often mandatory for claims worth $100,000 or less, which seriously limits the availability of out-of-court examinations, and blocks the entitlement to cross-examine on affidavits. This keeps litigation costs down.
But in the context of a motion for summary judgment, there's something a little disconcerting about it from a 'procedural fairness' point of view, about a person being able to get judgment against you without ever opening him- or herself up to an opportunity to be cross-examined.
And in effect, that was probably the intuitive unfairness that Affinia was seeking to address when arguing that it should be able to have its examinations for discovery. (It used to be the case, too, that there were no examinations for discovery in a simplified procedure case; that's no longer completely true.) Basically, Affinia wanted its examinations for discovery in lieu of an opportunity to cross-examine on affidavits.
However, the case law is relatively settled: The unavailability of cross-examinations informs the test for summary judgment in the Simplified Procedure.
Commentary on the Issues
There was a time, not so long ago, when a machine operator would likely have been limited to 12 months of notice. However, the Ontario Court of Appeal put that notion to rest fairly firmly in the Di Tomaso case in 2011 (my commentary here), upholding an award for a long-service machine operator of 22 months' pay in lieu of notice.
In light of the Di Tomaso decision, it should have been clear to all involved that the plaintiff in this case would obtain a very substantial notice period. And with a month's pay only being worth somewhere between $3166 and $3667, an agreement as to the appropriate range should have resulted in a settlement. With the kind of consistent overtime illustrated by his T4s, it really wasn't much of an issue, and at the end of the day was worth a little over $10,000. And the pension contributions also seemed relatively simple, being worth only $2420 in total. (It could have been more complicated had the plaintiff argued for a gross-up to account for differential tax treatment. But he didn't, and with the difference it would have made to the overall sum, that was probably a smart call.) Then benefits are a pretty academic entitlement, and with only $700 claimed, the employer should count itself lucky.
In other words, there are no issues that appear to be particularly difficult on the facts, and none of very substantial values. They all related to law which is relatively straightforward, and while the employer didn't lead any evidence itself (so maybe there's another side to the facts), the evidence that the employee did lead is the sort of evidence one would expect in such a case. It doesn't have the overall feel of having been decided on an incomplete record for lack of one party's participation.
This case should have settled. The plaintiff got everything he was seeking, and it is still not that far above what I would have considered to be a conservative estimate of his entitlements. It will be interesting to see if there's a reported costs decision, showing where the parties were sitting in their settlement positions.
Update: November 1, 2013
The costs decision came out last week. It also deals with interest, which is fairly unusual - especially at recent historical interest rates, the interest on a simplified rules judgement isn't worth fighting much over, even when there's a reasonable argument to be had.
I had commented earlier that it would be interesting to know where the parties' respective settlement positions were: Apparently, the plaintiff had served an offer to settle for $50,000, substantially less than the amount of the judgment (about $70,000). There was no offer filed by the defendant. This doesn't necessarily mean that the defendant didn't make an offer; however, as I said before, I would have considered the judgment to be not far above a conservative estimation of his entitlements.
In other words, it's hard to see how $50,000 could have not been a good deal for the employer, unless they had some basis to think there was a failure to mitigate (or actual mitigation).
However, the offers weren't the end of the costs discussion - conduct of the parties in the proceeding can also affect costs, and there were some allegations of unreasonable conduct going both ways. Kotecha's lawyer won that exchange handily: The employer's lawyer's conduct was criticized as "unreasonable", whereas the judge described the plaintiff's lawyer, Pamela Krauss, in some very favourable terms.
In my years of experience as a trial judge I have encountered some very experienced lawyers who have performed badly and some young lawyers who have done superb work. The performance of Ms. Krauss in this case is in the latter category.Then, after remarking about the number of hours she expressed that she spent on the file, said that "[t]he hours she spent are reflected in the quality of her work." It's always very gratifying for a lawyer to receive such recognition from the bench, and particularly so for that recognition to manifest in a favourable costs award for the client. Hard to imagine a better win for Ms. Krauss than what she achieved in this case.
Accordingly, the plaintiff appears to have been completely successful on costs, obtaining $21,000 in respect of costs. This appears to be a rare case where the successful party was not left significantly out-of-pocket for legal fees.
This also means that Affinia is now on the hook for somewhere north of $90,000, on a file they could have settled earlier for $50,000.
It appears that Affinia is appealing, however.
*****
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, July 19, 2013
Employer Permitted to Sue Former Employee, 8 Years Later
The case of Ciavarella v. The Atlas Corporation is an ongoing wrongful dismissal action, involving allegations of employee theft.
Mr. Ciavarella was the controller for Atlas since 1996. (For those unfamiliar with the term, 'comptroller' - pronounced and occasionally spelled 'controller' is roughly synonymous with the term 'Chief Financial Officer' - it's the top in-house accounting role in a company.) In 2005, the employment relationship broke down. Ciavarella says he was fired; Atlas says that he walked away. In 2007, Ciavarella sued in wrongful dismissal.
The process has moved at what Justice Edwards generously described as a "fairly leisurely pace". In broad strokes, the ordinary course of litigation means that after the plaintiff makes the claim and the defendant files a defence, there's usually an exchange of documents, followed by oral examinations for discovery, where each lawyer asks the other party questions. The examinations for discovery usually trigger another round of documentary disclosures by way of 'undertakings' - i.e. when I'm examining a party, it becomes clear that additional records are relevant to the proceedings, and so I ask for an undertaking that the party provide those records.
In 2012, Atlas was putting together it's documents to satisfy the undertakings it gave on examinations for discovery, and in the process came across records which they say establish theft by Ciavarella, in that he allegedly made false expense claims. Accordingly, they sought to add a counterclaim to the proceeding.
Comments on Employee Theft
I never cease to be amazed by employee theft. I've seen a lot of different types over the years, but they generally boil down to a few classes:
(1) Taking petty cash. This is a really low-level and unsophisticated type of theft, and is easily caught. Most larger retailers require cash registers to balance at the end of each shift, but smaller retailers often involve a shared cash register, which is balanced by the manager at the end of the day, and the minimum-wage employees working the cash are often unaware that the cash amounts are even scrutinized. So any employer doing any due diligence in terms of cash will promptly be aware of theft, and will be able to catch the thief pretty quickly.
(2) Manipulating cash receipts. This is a little bit more sophisticated than example 1, and basically involves an employee accepting payment from a customer and then not entering the receipt properly into the bookkeeping software. This can involve sleight-of-hand at the cash register, but that's difficult to pull off safely, and that's still going to be small-scale. For larger-scale thefts, the challenge is that most companies use invoices, which are entered into the books, which prevents the front-line person receiving the cash from being able to take it without it coming back around to the customer as an unpaid account receivable. However, where companies don't maintain books in the way they should, they're exposing themselves to risks here.
(3) Theft by the person tasked with maintaining the books - i.e. the bookkeeper or accountant. This is by far the worst in terms of scale and the most insidious in that it almost always involves a person who was deeply trusted by the employer...and I know a shocking number of cases where it happened or was alleged. In one case I know of, it was discovered because the employer's brother insisted on periodically reviewing the books. In another situation, it was discovered when a second part-time bookkeeper was hired by a related organization. In another, it was discovered only after the thief was fired for unrelated reasons, and a new bookkeeper stepped in. (I have a relative who is a senior manager with a major payroll processing company, who tells stories about the various schemes, some more sophisticated than others, which the employer's administrative staff employ to try to steal...of course, the payroll company is wise to such methods, and has developed ways of blocking it.)
In a case where a thief has taken measures to cover up the theft, it would be a relatively solid argument that the employer couldn't have been expected to discover the theft. However, that doesn't appear to be what's going on in Ciavarella.
I would expect that, in the ordinary course, an expense claim will have an authentication and approval process. That, in my mind, would generally qualify as 'reasonable diligence'. If the employee at the top of the authentication/approval pyramid is exploiting the system, or even in a case where there's a higher manager rubber-stamping claims, abuse by that employee could reasonably go undiscovered. (So if the process for getting an expense approved meant, "Give your receipts to Joe, and he'll process them up the chain for upper management approval", then one could reasonably imagine that Joe could get away with it without being discovered...because he's tasked with reviewing his own receipts. Conflict of interest.)
But I would have a hard time thinking that there's reasonable diligence where there's no scrutiny of claims in the first place, in general. Imagine I'm a front-line worker in a large company, and I start submitting expense claims for my mileage to and from work. In almost every scenario, that will be inappropriate, and even the attempt would be disciplinable. But if the employer just paid them without a second glance, then I would think that the Courts should be loathe to say, if the employer wanted to recoup them years later, that they acted 'reasonably' in not discovering the claims earlier.
Of course, there's a role for 'trust', in the appropriate case, too, in that an employer might reasonably be able to say that little-to-no scrutiny was applied because one might reasonably expect the employee not to make illegitimate expense claims.
That Justice Edwards considered this a question of 'mixed fact and law' is, in my view, quite appropriate. There's no hard-and-fast rule to be drawn about how much scrutiny is appropriate.
Still, where the employee has actually been accused of theft, 'trust' is off the table, and as far as historical trust or rubber-stamped approvals go, it simply makes sense for a prudent employer to conduct a thorough review of its books as far as the alleged thief is concerned, and I would have a hard time accepting that an employer who has already raised the issue of theft can let sleeping dogs lie for seven years until more solid evidence is found.
*****
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.
Mr. Ciavarella was the controller for Atlas since 1996. (For those unfamiliar with the term, 'comptroller' - pronounced and occasionally spelled 'controller' is roughly synonymous with the term 'Chief Financial Officer' - it's the top in-house accounting role in a company.) In 2005, the employment relationship broke down. Ciavarella says he was fired; Atlas says that he walked away. In 2007, Ciavarella sued in wrongful dismissal.
The process has moved at what Justice Edwards generously described as a "fairly leisurely pace". In broad strokes, the ordinary course of litigation means that after the plaintiff makes the claim and the defendant files a defence, there's usually an exchange of documents, followed by oral examinations for discovery, where each lawyer asks the other party questions. The examinations for discovery usually trigger another round of documentary disclosures by way of 'undertakings' - i.e. when I'm examining a party, it becomes clear that additional records are relevant to the proceedings, and so I ask for an undertaking that the party provide those records.
In 2012, Atlas was putting together it's documents to satisfy the undertakings it gave on examinations for discovery, and in the process came across records which they say establish theft by Ciavarella, in that he allegedly made false expense claims. Accordingly, they sought to add a counterclaim to the proceeding.
There's a fairly obvious challenge here, when seeking in 2012 to make a claim based on something that happened, at the latest, in 2005: The Limitations Act generally bars such matters.
However, there's a "discoverability" aspect to the analysis - the 2-year clock only starts when the employer knew or ought reasonably to have known about the underlying facts of the claim. So it's an interesting question: Atlas' own records purportedly demonstrate the theft, but they're saying they didn't know about them until 2012. Can that work?
Maybe. The question is whether or not, through the exercise of reasonable diligence, Atlas would have discovered the underlying facts earlier. Would 'reasonable diligence' require Atlas to closely scrutinize the expense claims when they were first made? Or would a reasonable employer take them at face value? The Court puts the question in an interesting and compelling fashion:
Justice Edwards found that it's an issue for the trial judge, and allowed Atlas to make the counterclaim. This is actually somewhat surprising - on Justice Edwards' own summary of the facts, it appears that the breakdown of the employment relationship, however it happened, was triggered by the boss' wife reviewing the company credit card statements and accusing Ciavarella of theft.
Maybe. The question is whether or not, through the exercise of reasonable diligence, Atlas would have discovered the underlying facts earlier. Would 'reasonable diligence' require Atlas to closely scrutinize the expense claims when they were first made? Or would a reasonable employer take them at face value? The Court puts the question in an interesting and compelling fashion:
Is an employer to assume that expense claims submitted by an employee are legitimate unless the opposite is proven, or is an employer to assume that every expense claim submitted by an employee are to be carefully scrutinized so as to ensure that each claim is legitimate? Ultimately, this will come down to a mixed question of fact and law.What surprisingly doesn't seem to be an issue here is Ciavarella's own role of responsibility for the company's finances. It appears that the expense claims were still subject to his boss' approval, and there doesn't appear to be any allegation that he used his role to cover up the transactions.
Justice Edwards found that it's an issue for the trial judge, and allowed Atlas to make the counterclaim. This is actually somewhat surprising - on Justice Edwards' own summary of the facts, it appears that the breakdown of the employment relationship, however it happened, was triggered by the boss' wife reviewing the company credit card statements and accusing Ciavarella of theft.
Comments on Employee Theft
I never cease to be amazed by employee theft. I've seen a lot of different types over the years, but they generally boil down to a few classes:
(1) Taking petty cash. This is a really low-level and unsophisticated type of theft, and is easily caught. Most larger retailers require cash registers to balance at the end of each shift, but smaller retailers often involve a shared cash register, which is balanced by the manager at the end of the day, and the minimum-wage employees working the cash are often unaware that the cash amounts are even scrutinized. So any employer doing any due diligence in terms of cash will promptly be aware of theft, and will be able to catch the thief pretty quickly.
(2) Manipulating cash receipts. This is a little bit more sophisticated than example 1, and basically involves an employee accepting payment from a customer and then not entering the receipt properly into the bookkeeping software. This can involve sleight-of-hand at the cash register, but that's difficult to pull off safely, and that's still going to be small-scale. For larger-scale thefts, the challenge is that most companies use invoices, which are entered into the books, which prevents the front-line person receiving the cash from being able to take it without it coming back around to the customer as an unpaid account receivable. However, where companies don't maintain books in the way they should, they're exposing themselves to risks here.
(3) Theft by the person tasked with maintaining the books - i.e. the bookkeeper or accountant. This is by far the worst in terms of scale and the most insidious in that it almost always involves a person who was deeply trusted by the employer...and I know a shocking number of cases where it happened or was alleged. In one case I know of, it was discovered because the employer's brother insisted on periodically reviewing the books. In another situation, it was discovered when a second part-time bookkeeper was hired by a related organization. In another, it was discovered only after the thief was fired for unrelated reasons, and a new bookkeeper stepped in. (I have a relative who is a senior manager with a major payroll processing company, who tells stories about the various schemes, some more sophisticated than others, which the employer's administrative staff employ to try to steal...of course, the payroll company is wise to such methods, and has developed ways of blocking it.)
In a case where a thief has taken measures to cover up the theft, it would be a relatively solid argument that the employer couldn't have been expected to discover the theft. However, that doesn't appear to be what's going on in Ciavarella.
I would expect that, in the ordinary course, an expense claim will have an authentication and approval process. That, in my mind, would generally qualify as 'reasonable diligence'. If the employee at the top of the authentication/approval pyramid is exploiting the system, or even in a case where there's a higher manager rubber-stamping claims, abuse by that employee could reasonably go undiscovered. (So if the process for getting an expense approved meant, "Give your receipts to Joe, and he'll process them up the chain for upper management approval", then one could reasonably imagine that Joe could get away with it without being discovered...because he's tasked with reviewing his own receipts. Conflict of interest.)
But I would have a hard time thinking that there's reasonable diligence where there's no scrutiny of claims in the first place, in general. Imagine I'm a front-line worker in a large company, and I start submitting expense claims for my mileage to and from work. In almost every scenario, that will be inappropriate, and even the attempt would be disciplinable. But if the employer just paid them without a second glance, then I would think that the Courts should be loathe to say, if the employer wanted to recoup them years later, that they acted 'reasonably' in not discovering the claims earlier.
Of course, there's a role for 'trust', in the appropriate case, too, in that an employer might reasonably be able to say that little-to-no scrutiny was applied because one might reasonably expect the employee not to make illegitimate expense claims.
That Justice Edwards considered this a question of 'mixed fact and law' is, in my view, quite appropriate. There's no hard-and-fast rule to be drawn about how much scrutiny is appropriate.
Still, where the employee has actually been accused of theft, 'trust' is off the table, and as far as historical trust or rubber-stamped approvals go, it simply makes sense for a prudent employer to conduct a thorough review of its books as far as the alleged thief is concerned, and I would have a hard time accepting that an employer who has already raised the issue of theft can let sleeping dogs lie for seven years until more solid evidence is found.
*****
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.
Wednesday, July 17, 2013
Bill Bishop Disbarred (Further Updated After Appeal)
Not a workplace law post, but I'm really struck by this decision of the Law Society Hearing Panel released last month, revoking William John Franklin Bishop's license to practice law.
Bill Bishop has been a lawyer in Kingston for 40 years. He's an icon, and I've had the pleasure of meeting him on a couple of occasions. I began my own career in Kingston, and he was the 'go-to' person for solicitor-side practice issues in the firm with which I practiced at the time. His office was in North Kingston, in an area where there are a lot of people without much money, and his career consisted largely of helping folks who couldn't afford to pay him, but he had a thriving real estate practice which appears to have paid the bills.
A little over a year ago, he was found to have engaged in professional misconduct "by participating in or knowingly assisting in dishonest and fraudulent conduct by his vendor/purchaser clients and others in obtaining mortgage funds under false pretences in connection with Transactions."
This is typically a capital offence for a lawyer. But there's a reason for that. Real estate fraud is generally really serious: There are a number of different kinds of fraud, but they usually entail a rogue third party tricking the bank into lending the homeowner a lot more money than the house is worth, taking a large cut, then leaving the bank to try to collect against an impecunious homeowner who can't pay the mortgage. There are a lot of variations, but the usual feature is that the bank is left out in the cold without sufficient security and without recourse against the person who actually took the money.
And there are a lot of red flags as to such fraud, which lawyers are supposed to watch out for, so as to avoid being dupes of fraudsters. It's easy for a lawyer to fall into the "I'll do whatever my client instructs", without stepping back and asking "Why does my client require this?"
So a lot of lawyers have been disbarred for participating in real estate fraud or allowing themselves to be duped by fraudsters.
But Bill's case is different.
The Scheme
Bill's misconduct dealt with 14 transactions from 2002 to 2005, during which time he closed thousands of real estate deals. The gist of the 14 transactions in question is that they involved a scheme to avoid the down payment requirements of CMHC insurance that existed at the time.
You get a bona fide purchaser, who can't put down enough money to qualify for a mortgage, looking to buy a home. In steps an 'investor', who purchases the home outright, then turns around and 'flips' it, the same day or shortly thereafter, to the purchaser for a purchase price of 20-30% more, leaving room for (a) transaction fees, (b) a phantom down payment, and (c) profit for the investor. Bill acted for the 'investor'.
Flips are supposed to set off alarm bells. They aren't inherently improper, but one should always question why, in a short period of time, one person is willing to buy for that much more than another was willing to sell. It's not part of the lawyer's job to provide an opinion as to the value of the property, and certainly not the seller's lawyer on the mortgage transaction. In the ordinary course, the purchaser's lawyer will also act for the lender, and so owes obligations to the banks to disclose flags of fraud. The ultimate purchaser's lawyer in these transactions, Sutherland, was disbarred two years ago.
What's Wrong With This Picture?
There may have been some mischief in the transaction that Bill Bishop should have been or was aware of, and he was required to tinker with the Statement of Adjustments to make the numbers jive with the mortgage advance. The fact that there was no down payment means that there were probably laws broken...
...but it's not entirely clear that there was actual fraud, in the sense of material misrepresentations being made. The claim is that the original purchases were of houses being sold below fair market value, and that the subsequent markup put them up to fair market value, as appraised by a realtor, and therefore the banks do have adequate security.
The hearing panel was sceptical of the appraisal, and felt that the 'fair market value' was more accurately determined with reference to the purchase price agreed upon between arms' length parties in the initial transaction. Not an unreasonable approach...I mean, if the original purchaser had to lower the price to that level, why wouldn't the banks have to as well?
But wait...why are we arguing about fair market value in a real estate fraud case? If the purchasers defaulted and the banks had to realize on their security, shouldn't we just be able to point to the bank's shortfall?
The Absence of Loss
And here's the rub: The purchasers didn't default. They made their mortgage payments. Some sold the properties later and discharged the mortgages fully out of the proceeds of the sale. Some still live in the properties and have not only renewed their original mortgages, but they refinanced their mortgages to higher amounts. In other words, the banks aren't too upset about this whole ordeal.
Bill pulled out the big guns in his defence. As an expert witness, he called Sidney Troister. To put this in perspective, when I was learning the ropes of real estate law a few years back, the real estate lawyer in my firm at the time handed me a textbook that Troister had written decades earlier and told me to read it for a good foundation. My understanding is that Troister is the authority on real estate law in Ontario.
Troister's evidence included the following:
The Hearing Panel noted that, nonetheless, there was elevated risk to the banks...and yes, this may well be true, but to the extent that it may be, that really is Sutherland's fault, being the lawyer tasked with protecting their interests. The banks have their own means of valuing properties, and it really is not the job of the vendor's lawyer to help do so. Imagine that I'm selling my house, and I find a foolish purchaser willing to pay 50% more than the value my appraiser gave me...am I under some obligation to tell the purchaser's lender about the lower appraisal value? Absolutely not. Would my lawyer be? Quite the opposite, my lawyer would be prohibited from disclosing it.
The risk in terms of value of security is not, in and of itself, the vendor's problem. The fictional down payment, however, involves misrepresentations by the parties, which Bill likely ought to have been alive to, and does indeed suggest a lack of equity, which means that there's no cushion for the lender...if the property decreases in value, it's underwater.
So yeah, I'm not trying to say that Bill's hands are clean...he didn't do everything he probably should have, and his omissions could hypothetically have contributed to a risk of loss to the banks (or CMHC, as the case may be)...
...but there's an added twist: The entire scheme was designed to facilitate zero-down mortgages, which were illegal at the time. The risk to the bank by reason of Bill's conduct is probably a function of the zero-down nature of the transactions.
And shortly after the transactions at issue, the Federal government loosened regulations on mortgage eligibility, and the banks uniformly leapt to lend money to people who couldn't afford to make a down payment. Good policy? Absolutely not. But the politicians were saying the exact same thing that Bill Bishop said: Helping people of modest means to purchase houses is the right thing to do. And the banks, too, were thrilled to lend to such people. So the trouble with the transactions isn't that the banks wouldn't have lent the money had they known everything, it's simply that they couldn't have lent the money at the time due to regulations which have been changed various times.
Penalty
I would lean towards concluding that the hearing panel was right to find that Bill engaged in professional misconduct.
But disbarment?
After the finding of professional conduct in 2012, I was exchanging emails with a friend of mine who had been a client of Bill's, and who was planning to move, and I inquired if she was planning to use him again or looking for a different lawyer - I know a few - and I remarked of Bill's situation that "It's a case of relatively marginal misconduct in the first place, which will mitigate the penalty...but given that the *usual* penalty for complicity in RE fraud is disbarment, I'm thinking suspension may be on the table despite the fact that nobody suffered a loss."
I'm shocked by the outcome here.
And even more shocked in light of the fact that he really pulled out all the stops in the penalty phase. It looks like the most senior judges in the Kingston area, and a whole line-up of senior Kingston lawyers, testified on his behalf at the penalty hearing. Justice Belch spoke of Bill not having a dishonest bone in his body. Other judges spoke of how important his practice has been for the disadvantaged in north Kingston, and how harmful it would be to the community to shut him down, noting that this was an isolated mistake which was unlikely to recur. Although of limited evidentiary value, there was also a 'resolution' entered into evidence supporting him signed by around a hundred Kingston-area lawyers...and in the Kingston area, that's a lot of lawyers.
The trouble for Bill is that he was up against a legal test that has been established by scores of unscrupulous lawyers who compromised the integrity of their practice in the interests of making a quick buck, causing losses of hundreds of thousands of dollars to innocent third parties. As a result, there's a strong presumption of disbarment for these cases. The majority of the hearing panel concluded that there weren't the 'exceptional circumstances' needed to relieve against that penalty. There was, however, a strong dissent.
In the absence of an exculpatory medical condition, it's hard to imagine a clearer case for relieving against disbarment. Hard to imagine a lawyer with a longer record of spotless service to the community, hard to imagine more compelling evidence of good character, hard to imagine a case where the consequences of the misconduct are less severe, hard to imagine conduct that is less egregious while still constituting the misconduct found.
The message this sends to real estate lawyers is less firm than it is frightening, that there is no room for restraint in penalizing those involved in fraudulent mortgage transactions.
I don't know if Bill's planning to appeal, or will instead decide that it's time to retire. Either way, I wish him the best.
Edited August 7, 2013:
Bill contacted me and advised me that he is planning to appeal, and has obtained permission to practice pending the outcome of the appeal.
Edited May 27, 2014:
The Appeal Panel's decision was released earlier this month. Unfortunately, they dismissed the appeal, and upheld the license revocation. (Which is not effective immediately, and Bill may yet seek recourse at the Divisional Court.)
Edited August 20, 2014:
It appears, from a recent interlocutory decision of the Divisional Court, that Bill appealed, and that the appeal is slated to be heard tomorrow, August 21, 2014. Best of luck, Bill.
*****
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.
Bill Bishop has been a lawyer in Kingston for 40 years. He's an icon, and I've had the pleasure of meeting him on a couple of occasions. I began my own career in Kingston, and he was the 'go-to' person for solicitor-side practice issues in the firm with which I practiced at the time. His office was in North Kingston, in an area where there are a lot of people without much money, and his career consisted largely of helping folks who couldn't afford to pay him, but he had a thriving real estate practice which appears to have paid the bills.
A little over a year ago, he was found to have engaged in professional misconduct "by participating in or knowingly assisting in dishonest and fraudulent conduct by his vendor/purchaser clients and others in obtaining mortgage funds under false pretences in connection with Transactions."
This is typically a capital offence for a lawyer. But there's a reason for that. Real estate fraud is generally really serious: There are a number of different kinds of fraud, but they usually entail a rogue third party tricking the bank into lending the homeowner a lot more money than the house is worth, taking a large cut, then leaving the bank to try to collect against an impecunious homeowner who can't pay the mortgage. There are a lot of variations, but the usual feature is that the bank is left out in the cold without sufficient security and without recourse against the person who actually took the money.
And there are a lot of red flags as to such fraud, which lawyers are supposed to watch out for, so as to avoid being dupes of fraudsters. It's easy for a lawyer to fall into the "I'll do whatever my client instructs", without stepping back and asking "Why does my client require this?"
So a lot of lawyers have been disbarred for participating in real estate fraud or allowing themselves to be duped by fraudsters.
But Bill's case is different.
The Scheme
Bill's misconduct dealt with 14 transactions from 2002 to 2005, during which time he closed thousands of real estate deals. The gist of the 14 transactions in question is that they involved a scheme to avoid the down payment requirements of CMHC insurance that existed at the time.
You get a bona fide purchaser, who can't put down enough money to qualify for a mortgage, looking to buy a home. In steps an 'investor', who purchases the home outright, then turns around and 'flips' it, the same day or shortly thereafter, to the purchaser for a purchase price of 20-30% more, leaving room for (a) transaction fees, (b) a phantom down payment, and (c) profit for the investor. Bill acted for the 'investor'.
Flips are supposed to set off alarm bells. They aren't inherently improper, but one should always question why, in a short period of time, one person is willing to buy for that much more than another was willing to sell. It's not part of the lawyer's job to provide an opinion as to the value of the property, and certainly not the seller's lawyer on the mortgage transaction. In the ordinary course, the purchaser's lawyer will also act for the lender, and so owes obligations to the banks to disclose flags of fraud. The ultimate purchaser's lawyer in these transactions, Sutherland, was disbarred two years ago.
What's Wrong With This Picture?
There may have been some mischief in the transaction that Bill Bishop should have been or was aware of, and he was required to tinker with the Statement of Adjustments to make the numbers jive with the mortgage advance. The fact that there was no down payment means that there were probably laws broken...
...but it's not entirely clear that there was actual fraud, in the sense of material misrepresentations being made. The claim is that the original purchases were of houses being sold below fair market value, and that the subsequent markup put them up to fair market value, as appraised by a realtor, and therefore the banks do have adequate security.
The hearing panel was sceptical of the appraisal, and felt that the 'fair market value' was more accurately determined with reference to the purchase price agreed upon between arms' length parties in the initial transaction. Not an unreasonable approach...I mean, if the original purchaser had to lower the price to that level, why wouldn't the banks have to as well?
But wait...why are we arguing about fair market value in a real estate fraud case? If the purchasers defaulted and the banks had to realize on their security, shouldn't we just be able to point to the bank's shortfall?
The Absence of Loss
And here's the rub: The purchasers didn't default. They made their mortgage payments. Some sold the properties later and discharged the mortgages fully out of the proceeds of the sale. Some still live in the properties and have not only renewed their original mortgages, but they refinanced their mortgages to higher amounts. In other words, the banks aren't too upset about this whole ordeal.
Bill pulled out the big guns in his defence. As an expert witness, he called Sidney Troister. To put this in perspective, when I was learning the ropes of real estate law a few years back, the real estate lawyer in my firm at the time handed me a textbook that Troister had written decades earlier and told me to read it for a good foundation. My understanding is that Troister is the authority on real estate law in Ontario.
Troister's evidence included the following:
Usually invariably, in my experience, mortgage fraud meant mortgage theft, meant money stolen that is unrecoverable. With lenders, as the Law Society program said, the lender is left holding the bag. In my experience on all of the mortgage fraud cases that I saw– and I have seen many – typically, the mortgages go into default within six months because what happens is that the crooks take out the new mortgage. They put enough money in a bank account to cover post‑dated cheques for six months. The money dries up, and by then the crooks are gone. The mortgagee, then, is selling the property and typically selling the property under value for less than they lent.He goes on to highlight that this is not what happened in this case.
The Hearing Panel noted that, nonetheless, there was elevated risk to the banks...and yes, this may well be true, but to the extent that it may be, that really is Sutherland's fault, being the lawyer tasked with protecting their interests. The banks have their own means of valuing properties, and it really is not the job of the vendor's lawyer to help do so. Imagine that I'm selling my house, and I find a foolish purchaser willing to pay 50% more than the value my appraiser gave me...am I under some obligation to tell the purchaser's lender about the lower appraisal value? Absolutely not. Would my lawyer be? Quite the opposite, my lawyer would be prohibited from disclosing it.
The risk in terms of value of security is not, in and of itself, the vendor's problem. The fictional down payment, however, involves misrepresentations by the parties, which Bill likely ought to have been alive to, and does indeed suggest a lack of equity, which means that there's no cushion for the lender...if the property decreases in value, it's underwater.
So yeah, I'm not trying to say that Bill's hands are clean...he didn't do everything he probably should have, and his omissions could hypothetically have contributed to a risk of loss to the banks (or CMHC, as the case may be)...
...but there's an added twist: The entire scheme was designed to facilitate zero-down mortgages, which were illegal at the time. The risk to the bank by reason of Bill's conduct is probably a function of the zero-down nature of the transactions.
And shortly after the transactions at issue, the Federal government loosened regulations on mortgage eligibility, and the banks uniformly leapt to lend money to people who couldn't afford to make a down payment. Good policy? Absolutely not. But the politicians were saying the exact same thing that Bill Bishop said: Helping people of modest means to purchase houses is the right thing to do. And the banks, too, were thrilled to lend to such people. So the trouble with the transactions isn't that the banks wouldn't have lent the money had they known everything, it's simply that they couldn't have lent the money at the time due to regulations which have been changed various times.
Penalty
I would lean towards concluding that the hearing panel was right to find that Bill engaged in professional misconduct.
But disbarment?
After the finding of professional conduct in 2012, I was exchanging emails with a friend of mine who had been a client of Bill's, and who was planning to move, and I inquired if she was planning to use him again or looking for a different lawyer - I know a few - and I remarked of Bill's situation that "It's a case of relatively marginal misconduct in the first place, which will mitigate the penalty...but given that the *usual* penalty for complicity in RE fraud is disbarment, I'm thinking suspension may be on the table despite the fact that nobody suffered a loss."
I'm shocked by the outcome here.
And even more shocked in light of the fact that he really pulled out all the stops in the penalty phase. It looks like the most senior judges in the Kingston area, and a whole line-up of senior Kingston lawyers, testified on his behalf at the penalty hearing. Justice Belch spoke of Bill not having a dishonest bone in his body. Other judges spoke of how important his practice has been for the disadvantaged in north Kingston, and how harmful it would be to the community to shut him down, noting that this was an isolated mistake which was unlikely to recur. Although of limited evidentiary value, there was also a 'resolution' entered into evidence supporting him signed by around a hundred Kingston-area lawyers...and in the Kingston area, that's a lot of lawyers.
The trouble for Bill is that he was up against a legal test that has been established by scores of unscrupulous lawyers who compromised the integrity of their practice in the interests of making a quick buck, causing losses of hundreds of thousands of dollars to innocent third parties. As a result, there's a strong presumption of disbarment for these cases. The majority of the hearing panel concluded that there weren't the 'exceptional circumstances' needed to relieve against that penalty. There was, however, a strong dissent.
In the absence of an exculpatory medical condition, it's hard to imagine a clearer case for relieving against disbarment. Hard to imagine a lawyer with a longer record of spotless service to the community, hard to imagine more compelling evidence of good character, hard to imagine a case where the consequences of the misconduct are less severe, hard to imagine conduct that is less egregious while still constituting the misconduct found.
The message this sends to real estate lawyers is less firm than it is frightening, that there is no room for restraint in penalizing those involved in fraudulent mortgage transactions.
I don't know if Bill's planning to appeal, or will instead decide that it's time to retire. Either way, I wish him the best.
Edited August 7, 2013:
Bill contacted me and advised me that he is planning to appeal, and has obtained permission to practice pending the outcome of the appeal.
Edited May 27, 2014:
The Appeal Panel's decision was released earlier this month. Unfortunately, they dismissed the appeal, and upheld the license revocation. (Which is not effective immediately, and Bill may yet seek recourse at the Divisional Court.)
Edited August 20, 2014:
It appears, from a recent interlocutory decision of the Divisional Court, that Bill appealed, and that the appeal is slated to be heard tomorrow, August 21, 2014. Best of luck, Bill.
*****
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, July 16, 2013
"Canadian Experience" and Human Rights
The Star is running a story today about the Ontario Human Rights Commission's new policy directive, which asserts that demanding "Canadian experience" for job candidates is unlawful discrimination.
By way of background, let me say first that the OHRC's policies are considered to be persuasive interpretations of human rights legislation, and they give "guidance" to adjudicators, but they do not, in and of themselves, have the force of law. Since Ontario's human rights system was revamped several years ago, the OHRC has a very limited mandate - in general, it no longer investigates or adjudicates human rights claims.
That being said, it's clearly correct here, at least on the broad principle. Insisting on "Canadian experience" will have the effect of excluding recent immigrants, which is discriminatory on the basis of place of origin. In order to justify it, one needs to have a bona fide occupational requirement.
Nonetheless, I think there may be a distinction to be drawn, in many cases, between requiring Canadian experience and preferring Canadian experience, and I believe the OHRC's policy may be overbroad in a couple of ways, and in particular where it argues that that employers - writ large - should not assign less weight for foreign work experience or ask questions that may indirectly indicate where their work experience was obtained.
What's the Concern?
The primary concern expressed by the OHRC appears to be that employers may be looking for Canadian experience as an indicator of assimilation, of understanding how Canadians interact with each other, and of 'fitting in'. Offshoots of this debate have included the 'smelly food' argument: Some cultures eat foods with very pungent aromas, and so when you prepare them in the lunchroom, others can be irritated. (This issue has come up in HRTO litigation, and 'smelly food in the law library' was also the subject of a lengthy and passionate email listserv debate in law school.)
This is absolutely right: With very narrow exceptions, it is wholly inappropriate to refuse someone employment simply because they don't get Canadian culture.
It's easy to say as a general proposition, but when you start talking about customer service roles, people might reasonably argue that if you don't know how to deal with the public, you're not suitable to the position. And the argument gets really tricky when you start looking at cultural differences as to respect for diversity, because, let's face it, not every country bothers with this debate at all. In Canada we aim to be inclusive, and this is the point, but many cultural groups have not developed this appreciation for diversity, and some groups are even downright misogynistic, and hiring a customer service representative who hasn't yet come to recognize the inappropriateness of certain conduct...risks inviting Human Rights Applications against the employer based on his or her conduct.
(For example, I recently heard a complaint from a close friend of mine that, when inviting a quotation on a particular service, the service provider suggested that it might be better if he spoke with her husband about it, assuming without justification that she was married [she isn't], and expecting that her husband would have the final say in the matter. Not to say that the person is necessarily a recent immigrant, or that everyone born in Canada is tolerant and inclusive, but this is the kind of issue about which an employer might reasonably worry when hiring recent immigrants from jurisdictions without human rights protections or multiculturalism.)
Still, at the end of the day, it's a problem that an employer can - and should - address through clear policies, training, supervision, and discipline where necessary. Quite frankly, employers who assume that Canadians by birth or naturalization will not act offensively are probably running a greater risk of liability than employers who hire recent immigrants and provide clear training and guidelines as to what kind of conduct is acceptable or unacceptable.
The Need for Transitional Experience
In certain professions, it may well be justifiable to prefer Canadian experience. Law is an easy example, where there are differences across jurisdictions in both substantive law and legal practice: Hiring an experienced New York lawyer to practice Ontario law would be kind of like hiring a very experienced auto mechanic to fix refrigerators: The skill set may be similar, but the experience doesn't entirely carry over. If I'm looking for a competent lawyer who can just pick up files and run with them, right away, then I need to hire someone with experience in the Canadian legal system (and moreover in the specific Province), and no amount of American experience - despite the many similarities in laws and legal systems - will fully equip somebody to do that as well as an experienced Canadian lawyer. (That being said, it's probably also true that it doesn't take much Canadian experience to bring such a lawyer up to a similar level as Canadian peers.)
Indeed, there are some fairly significant mobility constraints across the country, and even within Provinces. The Court system in Toronto, for example, operates somewhat differently from other areas in the Province. That's not a big hurdle to jump (speaking from experience), but it goes to show how easy geographical obstacles can arise.
However, if the New York lawyer has obtained his license to practice Ontario law, then there is no basis whatsoever for excluding him altogether from consideration. He may need to stand beside more junior lawyers when competing for work, but he should still be able to compete - even for lawyers, with vast jurisdictional differences, it would be difficult for a firm to justify a policy of not hiring people without Canadian practice experience. To a large extent, the governing bodies of the professions are responsible for assessing the competency of foreign-trained professionals (which obviously raises its own difficulties)...but the standard is going to be similar to that for entry-level Canadian professionals, which means that while an employer can be satisfied that a foreign-trained Canadian-licensed professional meets the basic competencies...the simple fact remains that the Canadian experience often will be more valuable, if not essential, to the position.
A similar logic probably applies in a lot of industries, and for similar reasons, too: Everyone operates within some sort of regulatory regime, and unless the regulatory regime adheres to an international standard, such standards will often differ from country to country. That's not to say that Canadian standards are 'higher' or 'better' than everyone else's, in all cases, but they are different, so for high-level positions where an individual with limited oversight has to adhere to the Canadian regulatory regime, it simply makes sense that such an individual needs Canadian experience. Which, again, may simply need to be a more junior position.
Imagine hiring an experienced American Human Resources Manager - requirements for paid vacation? Why can't we fire at will? What's CPP? (Indeed, some of these problems do routinely arise when American companies expand into Canada and maintain a centralized American human resources department. Simply put: You need people with experience in the Canadian system.) Or an American tax accountant. Those are the easy ones, but local laws touch on all sorts of industries in different and unique ways. And the more that legal compliance factors into a person's job, the more difficult it will be to do the job without Canadian experience.
The reason I'm using American examples, too, is because they're about as similar to us as anyone, and yet there are still pronounced differences. Go a little bit further and take a Mexican lawyer, and suddenly the differences in legal regimes are much more significant to English Canada.
As well, there are practical differences to many professions in Canada as opposed to elsewhere. The differences in our climate, our population density, our geography, our economy, and our demography, among others, make for substantively different skill sets that get developed here as opposed to elsewhere, in some professions.
The simple reality is that, in many cases, Canadian experience is simply more applicable than foreign experience, and therefore, for a Canadian employer, is actually, objectively, more valuable, with measurable differences in impacts on competencies. Or at least that there's real value in having a threshold amount of Canadian experience. So for the OHRC to argue that employers, in general, should not value foreign experience less...in some cases, that will be true, but in many cases, that will simply be a commercially absurd position to take.
What Should Employers Be Required To Do?
I would argue that refusing outright to consider non-Canadian experience is probably a violation of the Code in most cases, but that requiring employers to consider all experience to be equal would be unreasonable.
Fortunately, there's a middle ground: I think that the reasonable approach to take to this issue, in general, would be to require employers to undertake a bona fide assessment of the applicability of a candidate's foreign experience to the job, without simply jumping to conclusions based on stereotypes. Let's suppose that I'm offering a job which requires somebody to have experience developing products capable of dealing with extreme winter weather. Canadians are more likely than many others to have that experience, but they aren't the only ones. Lots of other countries get winter weather, and perhaps more importantly many companies would work on products which need to function in such countries. So prioritizing "Canadian experience" would have the result that I would prefer a Canadian who has never done this kind of work, over a Norwegian who has, or over a Floridian who has worked on products with significant distribution in northern climes. That is a problem, but simply requiring applicable experience, even if people from certain areas are more or less likely to have that experience, is - to my mind - quite reasonable.
If a candidate isn't licensed to do the job in Canada, that's simple. But if they are, it's prudent to seriously address the question: What am I really looking for in this position, and does this person's experience satisfy my needs? And I think that asking that question in good faith, without tainting the analysis using stereotypes or prejudgment, probably ought to keep an employer on the right path in terms of human rights.
While the OHRC policy does suggest taking a flexible and individualized approach, it isn't clear to me whether or not they would take the position that, hypothetically, a company like Blue Mountain Resort requiring or preferring "ski industry" experience would constitute prima facie discrimination.
The Difficulty of Obtaining Transitional Experience
The OHRC policy highlights that newcomers are in a difficult position because they "can’t get a job without Canadian experience and they can’t get Canadian experience without a job."
Interestingly, if you remove "Canadian" from that quotation, then you end up with exactly the same complaint made by all new entrants to the workforce in recent decades. To quote Great Big Sea: "You can't make nothing out of nothing. Everybody needs a start."
Despite my contention that the policy may be overbroad, I agree that it is an important issue...but I think that the challenges facing recent immigrants in terms of entry to the labour market is similar to the challenges facing many Canadian young people or other Canadians seeking to re-enter the market after a lengthy absence: Too many employers do not want to incur the cost of training people in essential skills and competencies. It's understandable. For the boomer generation, many people stayed with one employer for their entire careers, meaning that the employer really got value for the training they provided at the outset. But that is no longer true, and employers struggle with the idea of paying to train a junior employee and then watching their investment walk away and join the competition.
And with unpaid internships becoming something of a hot-button issue these days - and legitimately so - this issue is only going to become worse unless we develop meaningful policy initiatives to address the whole issue. And not just pigeon-hole elements of it.
Comments on "Fit"
The OHRC has recommended that employers not base hiring decisions on subjective factors such as "fit".
While I understand that 'fit' can be code for "We want to hire people more similar to the existing demographics of the workplace", I think it's unrealistic to discount it entirely, and incorrect to think that it's always discriminatory. For example, different companies have different 'corporate cultures', and a small office with a hands-on owner might legitimately be concerned about hiring someone from a large corporate environment where the individual would have performed similar duties but with limited oversight. Perfectly legitimate, perfectly reasonable, completely subjective.
Digression about Interview Questions and s.23 of the Code
I feel obligated to make an additional remark about questions that 'indirectly' identify candidates by prohibited grounds of discrimination: Such questions are prohibited by s.23 of the Code, but exactly what that means is unclear. Some, such as Professor Doorey, and the OHRC itself, have argued for a broad interpretation of this prohibition, that asking a candidate where they went to school, for example, is improper, because it may reveal information about place of origin, religion, etc. The principle appears to be that the prohibition extends to any question which may call for an answer that could be used to draw inferences about prohibited grounds of discrimination.
I argue that this is absurd: Just about any question has the potential to reveal such information. For example, asking for an individual's name is actually quite likely to provide information from which conclusions might be drawn about race, ancestry, colour, ethnic origin, sex, place of origin, and/or creed. Asking for somebody's job history is likewise likely to provide information from which one might make inferences about age, place of origin, and various other prohibited grounds. The trouble is that if these inquiries are interpreted as being prima facie discriminatory, there's no defence at all for them on a written job application, and very limited defences in an interview setting.
If you're actually using the questions as proxies to gather information about prohibited grounds, then that violates s.23...but if you aren't, then I don't have a problem with it.
So, you might ask me: What does this prohibition actually do? Section 5 of the Code actually prohibits discrimination, so if I'm arguing that there has to be some kind of intention to elicit information on the basis of which one might unlawfully discriminate, doesn't that imply that there would be actual discrimination going on, and therefore, wouldn't the prohibition itself be moot?
Simply put, no. Section 23 of the Code is a practical provision, prohibiting questions which directly or indirectly identify a candidate by a prohibited ground. It makes the question "Do you have kids" illegal not because it's an inherently offensive question (indeed, it's common small talk), but rather because the answer might be used for discriminatory purposes which would be extremely difficult to prove. So it provides a meaningful protection to job candidates by making the question itself illegal. If an interviewer asks me if I have kids, and then doesn't hire me, I might not be able to prove that the hiring decision was based on my answer...so the Legislature has stepped in and said "You can't ask the question at all."
The provision, altogether, is about information gathering, and not use. It functions in the reality where we know that we can't get inside the employer's head as to why they rejected a candidate, and acknowledges that the fact that an employer may have had information about prohibited grounds will not be enough to prove that the hiring decision was based on information about prohibited grounds.
Therefore, establishing that a question was intended to gather information about prohibited grounds - while less likely to be innocuous - still likely doesn't get you to the point of being able to prove a discriminatory hiring decision. That's where the 'indirectly' portion of s.23 comes in. If I ask you for your high school transcripts because I want to know how you did in high school, then at no point am I gathering information about your place of origin, creed, etc., any more than asking you for an interview is gathering information about your sex, colour, etc. On the other hand, if I'm asking for high school transcripts because I want to know where you grew up, that violates s.23, regardless of whether or not that factors into my hiring decision.
And here's where the evidentiary threshold becomes important: Particularly in a scenario where the question seems unusual or unnecessary (let's say I'm asking an experienced lawyer for high school transcripts), and the question is capable of standing as a proxy for a prohibited ground, an inference might be drawn that such was the intention, and I might therefore be called upon to explain why I asked the question.
*****
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.
By way of background, let me say first that the OHRC's policies are considered to be persuasive interpretations of human rights legislation, and they give "guidance" to adjudicators, but they do not, in and of themselves, have the force of law. Since Ontario's human rights system was revamped several years ago, the OHRC has a very limited mandate - in general, it no longer investigates or adjudicates human rights claims.
That being said, it's clearly correct here, at least on the broad principle. Insisting on "Canadian experience" will have the effect of excluding recent immigrants, which is discriminatory on the basis of place of origin. In order to justify it, one needs to have a bona fide occupational requirement.
Nonetheless, I think there may be a distinction to be drawn, in many cases, between requiring Canadian experience and preferring Canadian experience, and I believe the OHRC's policy may be overbroad in a couple of ways, and in particular where it argues that that employers - writ large - should not assign less weight for foreign work experience or ask questions that may indirectly indicate where their work experience was obtained.
What's the Concern?
The primary concern expressed by the OHRC appears to be that employers may be looking for Canadian experience as an indicator of assimilation, of understanding how Canadians interact with each other, and of 'fitting in'. Offshoots of this debate have included the 'smelly food' argument: Some cultures eat foods with very pungent aromas, and so when you prepare them in the lunchroom, others can be irritated. (This issue has come up in HRTO litigation, and 'smelly food in the law library' was also the subject of a lengthy and passionate email listserv debate in law school.)
This is absolutely right: With very narrow exceptions, it is wholly inappropriate to refuse someone employment simply because they don't get Canadian culture.
It's easy to say as a general proposition, but when you start talking about customer service roles, people might reasonably argue that if you don't know how to deal with the public, you're not suitable to the position. And the argument gets really tricky when you start looking at cultural differences as to respect for diversity, because, let's face it, not every country bothers with this debate at all. In Canada we aim to be inclusive, and this is the point, but many cultural groups have not developed this appreciation for diversity, and some groups are even downright misogynistic, and hiring a customer service representative who hasn't yet come to recognize the inappropriateness of certain conduct...risks inviting Human Rights Applications against the employer based on his or her conduct.
(For example, I recently heard a complaint from a close friend of mine that, when inviting a quotation on a particular service, the service provider suggested that it might be better if he spoke with her husband about it, assuming without justification that she was married [she isn't], and expecting that her husband would have the final say in the matter. Not to say that the person is necessarily a recent immigrant, or that everyone born in Canada is tolerant and inclusive, but this is the kind of issue about which an employer might reasonably worry when hiring recent immigrants from jurisdictions without human rights protections or multiculturalism.)
Still, at the end of the day, it's a problem that an employer can - and should - address through clear policies, training, supervision, and discipline where necessary. Quite frankly, employers who assume that Canadians by birth or naturalization will not act offensively are probably running a greater risk of liability than employers who hire recent immigrants and provide clear training and guidelines as to what kind of conduct is acceptable or unacceptable.
The Need for Transitional Experience
In certain professions, it may well be justifiable to prefer Canadian experience. Law is an easy example, where there are differences across jurisdictions in both substantive law and legal practice: Hiring an experienced New York lawyer to practice Ontario law would be kind of like hiring a very experienced auto mechanic to fix refrigerators: The skill set may be similar, but the experience doesn't entirely carry over. If I'm looking for a competent lawyer who can just pick up files and run with them, right away, then I need to hire someone with experience in the Canadian legal system (and moreover in the specific Province), and no amount of American experience - despite the many similarities in laws and legal systems - will fully equip somebody to do that as well as an experienced Canadian lawyer. (That being said, it's probably also true that it doesn't take much Canadian experience to bring such a lawyer up to a similar level as Canadian peers.)
Indeed, there are some fairly significant mobility constraints across the country, and even within Provinces. The Court system in Toronto, for example, operates somewhat differently from other areas in the Province. That's not a big hurdle to jump (speaking from experience), but it goes to show how easy geographical obstacles can arise.
However, if the New York lawyer has obtained his license to practice Ontario law, then there is no basis whatsoever for excluding him altogether from consideration. He may need to stand beside more junior lawyers when competing for work, but he should still be able to compete - even for lawyers, with vast jurisdictional differences, it would be difficult for a firm to justify a policy of not hiring people without Canadian practice experience. To a large extent, the governing bodies of the professions are responsible for assessing the competency of foreign-trained professionals (which obviously raises its own difficulties)...but the standard is going to be similar to that for entry-level Canadian professionals, which means that while an employer can be satisfied that a foreign-trained Canadian-licensed professional meets the basic competencies...the simple fact remains that the Canadian experience often will be more valuable, if not essential, to the position.
A similar logic probably applies in a lot of industries, and for similar reasons, too: Everyone operates within some sort of regulatory regime, and unless the regulatory regime adheres to an international standard, such standards will often differ from country to country. That's not to say that Canadian standards are 'higher' or 'better' than everyone else's, in all cases, but they are different, so for high-level positions where an individual with limited oversight has to adhere to the Canadian regulatory regime, it simply makes sense that such an individual needs Canadian experience. Which, again, may simply need to be a more junior position.
Imagine hiring an experienced American Human Resources Manager - requirements for paid vacation? Why can't we fire at will? What's CPP? (Indeed, some of these problems do routinely arise when American companies expand into Canada and maintain a centralized American human resources department. Simply put: You need people with experience in the Canadian system.) Or an American tax accountant. Those are the easy ones, but local laws touch on all sorts of industries in different and unique ways. And the more that legal compliance factors into a person's job, the more difficult it will be to do the job without Canadian experience.
The reason I'm using American examples, too, is because they're about as similar to us as anyone, and yet there are still pronounced differences. Go a little bit further and take a Mexican lawyer, and suddenly the differences in legal regimes are much more significant to English Canada.
As well, there are practical differences to many professions in Canada as opposed to elsewhere. The differences in our climate, our population density, our geography, our economy, and our demography, among others, make for substantively different skill sets that get developed here as opposed to elsewhere, in some professions.
The simple reality is that, in many cases, Canadian experience is simply more applicable than foreign experience, and therefore, for a Canadian employer, is actually, objectively, more valuable, with measurable differences in impacts on competencies. Or at least that there's real value in having a threshold amount of Canadian experience. So for the OHRC to argue that employers, in general, should not value foreign experience less...in some cases, that will be true, but in many cases, that will simply be a commercially absurd position to take.
What Should Employers Be Required To Do?
I would argue that refusing outright to consider non-Canadian experience is probably a violation of the Code in most cases, but that requiring employers to consider all experience to be equal would be unreasonable.
Fortunately, there's a middle ground: I think that the reasonable approach to take to this issue, in general, would be to require employers to undertake a bona fide assessment of the applicability of a candidate's foreign experience to the job, without simply jumping to conclusions based on stereotypes. Let's suppose that I'm offering a job which requires somebody to have experience developing products capable of dealing with extreme winter weather. Canadians are more likely than many others to have that experience, but they aren't the only ones. Lots of other countries get winter weather, and perhaps more importantly many companies would work on products which need to function in such countries. So prioritizing "Canadian experience" would have the result that I would prefer a Canadian who has never done this kind of work, over a Norwegian who has, or over a Floridian who has worked on products with significant distribution in northern climes. That is a problem, but simply requiring applicable experience, even if people from certain areas are more or less likely to have that experience, is - to my mind - quite reasonable.
If a candidate isn't licensed to do the job in Canada, that's simple. But if they are, it's prudent to seriously address the question: What am I really looking for in this position, and does this person's experience satisfy my needs? And I think that asking that question in good faith, without tainting the analysis using stereotypes or prejudgment, probably ought to keep an employer on the right path in terms of human rights.
While the OHRC policy does suggest taking a flexible and individualized approach, it isn't clear to me whether or not they would take the position that, hypothetically, a company like Blue Mountain Resort requiring or preferring "ski industry" experience would constitute prima facie discrimination.
The Difficulty of Obtaining Transitional Experience
The OHRC policy highlights that newcomers are in a difficult position because they "can’t get a job without Canadian experience and they can’t get Canadian experience without a job."
Interestingly, if you remove "Canadian" from that quotation, then you end up with exactly the same complaint made by all new entrants to the workforce in recent decades. To quote Great Big Sea: "You can't make nothing out of nothing. Everybody needs a start."
Despite my contention that the policy may be overbroad, I agree that it is an important issue...but I think that the challenges facing recent immigrants in terms of entry to the labour market is similar to the challenges facing many Canadian young people or other Canadians seeking to re-enter the market after a lengthy absence: Too many employers do not want to incur the cost of training people in essential skills and competencies. It's understandable. For the boomer generation, many people stayed with one employer for their entire careers, meaning that the employer really got value for the training they provided at the outset. But that is no longer true, and employers struggle with the idea of paying to train a junior employee and then watching their investment walk away and join the competition.
And with unpaid internships becoming something of a hot-button issue these days - and legitimately so - this issue is only going to become worse unless we develop meaningful policy initiatives to address the whole issue. And not just pigeon-hole elements of it.
Comments on "Fit"
The OHRC has recommended that employers not base hiring decisions on subjective factors such as "fit".
While I understand that 'fit' can be code for "We want to hire people more similar to the existing demographics of the workplace", I think it's unrealistic to discount it entirely, and incorrect to think that it's always discriminatory. For example, different companies have different 'corporate cultures', and a small office with a hands-on owner might legitimately be concerned about hiring someone from a large corporate environment where the individual would have performed similar duties but with limited oversight. Perfectly legitimate, perfectly reasonable, completely subjective.
Digression about Interview Questions and s.23 of the Code
I feel obligated to make an additional remark about questions that 'indirectly' identify candidates by prohibited grounds of discrimination: Such questions are prohibited by s.23 of the Code, but exactly what that means is unclear. Some, such as Professor Doorey, and the OHRC itself, have argued for a broad interpretation of this prohibition, that asking a candidate where they went to school, for example, is improper, because it may reveal information about place of origin, religion, etc. The principle appears to be that the prohibition extends to any question which may call for an answer that could be used to draw inferences about prohibited grounds of discrimination.
I argue that this is absurd: Just about any question has the potential to reveal such information. For example, asking for an individual's name is actually quite likely to provide information from which conclusions might be drawn about race, ancestry, colour, ethnic origin, sex, place of origin, and/or creed. Asking for somebody's job history is likewise likely to provide information from which one might make inferences about age, place of origin, and various other prohibited grounds. The trouble is that if these inquiries are interpreted as being prima facie discriminatory, there's no defence at all for them on a written job application, and very limited defences in an interview setting.
If you're actually using the questions as proxies to gather information about prohibited grounds, then that violates s.23...but if you aren't, then I don't have a problem with it.
So, you might ask me: What does this prohibition actually do? Section 5 of the Code actually prohibits discrimination, so if I'm arguing that there has to be some kind of intention to elicit information on the basis of which one might unlawfully discriminate, doesn't that imply that there would be actual discrimination going on, and therefore, wouldn't the prohibition itself be moot?
Simply put, no. Section 23 of the Code is a practical provision, prohibiting questions which directly or indirectly identify a candidate by a prohibited ground. It makes the question "Do you have kids" illegal not because it's an inherently offensive question (indeed, it's common small talk), but rather because the answer might be used for discriminatory purposes which would be extremely difficult to prove. So it provides a meaningful protection to job candidates by making the question itself illegal. If an interviewer asks me if I have kids, and then doesn't hire me, I might not be able to prove that the hiring decision was based on my answer...so the Legislature has stepped in and said "You can't ask the question at all."
The provision, altogether, is about information gathering, and not use. It functions in the reality where we know that we can't get inside the employer's head as to why they rejected a candidate, and acknowledges that the fact that an employer may have had information about prohibited grounds will not be enough to prove that the hiring decision was based on information about prohibited grounds.
Therefore, establishing that a question was intended to gather information about prohibited grounds - while less likely to be innocuous - still likely doesn't get you to the point of being able to prove a discriminatory hiring decision. That's where the 'indirectly' portion of s.23 comes in. If I ask you for your high school transcripts because I want to know how you did in high school, then at no point am I gathering information about your place of origin, creed, etc., any more than asking you for an interview is gathering information about your sex, colour, etc. On the other hand, if I'm asking for high school transcripts because I want to know where you grew up, that violates s.23, regardless of whether or not that factors into my hiring decision.
And here's where the evidentiary threshold becomes important: Particularly in a scenario where the question seems unusual or unnecessary (let's say I'm asking an experienced lawyer for high school transcripts), and the question is capable of standing as a proxy for a prohibited ground, an inference might be drawn that such was the intention, and I might therefore be called upon to explain why I asked the question.
*****
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, July 15, 2013
Small Claims Court Decision Shows Challenges of Low-Value Wrongful Dismissal Claims
CanLII has recently started maintaining a database of Ontario Small Claims Court decisions. There aren't too many judgments going in - most of the decisions being reported are by Deputy Judge Richard Campbell so far - but I think it's a positive step in making Small Claims Court more accessible, to give people a better sense of what to expect.
At the same time, while a great many wrongful dismissal cases will realistically fall within the Small Claims Court's $25,000 monetary jurisdiction, I've long been of the view that the Small Claims Court is not well-equipped to deal with these claims.
In Small Claims Court, the 'judge' is usually a senior lawyer, who sits in the Small Claims Court a couple days per month or so. So they don't hear cases of all shapes and sizes, like many Superior Court judges do, and they often have their own specific area of practice.
Employment law is a pretty niche area of law. Those of us who regularly practice in it, know it well. Yet other senior litigators may not even know the first thing about wrongful dismissal claims. I have known senior litigators and deputy judges who were unfamiliar with the term "Bardal factors" - literally, employment law 101. This doesn't reflect on the skill, experience, or knowledge of deputy judges; rather, it reflects the specialized reality of senior litigators.
Worse, in Small Claims Court, you very often get self-represented litigants on one or both sides. So you get a niche employment dispute with specialized legal considerations, argued by two non-lawyers, and presided over by a lawyer who may not know anything about the area of law. Not exactly ideal.
But even when lawyers enter the picture, that doesn't necessarily solve the problem.
Consider the recent case of Nelson v. 977372 Ontario Inc., involving a general labourer with five years of service, making $17/hour, 40 hours per week. His wife had been employed with the same company, but after she quit, there was a dispute, and the employer claims that the employee quit, but the employee alleges that the employer kicked him out, effectively firing him. (There was also an allegation of just cause: The wife was paid on a piecework basis, and the husband, being paid hourly, often helped her with her work. This was alleged to be 'double-dipping'.)
Allow me to say firstly that I've met both the lawyers on this file, and they're both experienced and skilled.
On the findings of fact, the deputy judge is perfectly well-equipped to make such findings. He found that the employee had been fired. For all intents and purposes, that's pretty well written in stone now - it's very hard to appeal a finding of fact.
Just Cause
The findings on the law are a little more varied, however. Let's start with one that the Deputy Judge definitely got right: Just cause. He concluded that, while there may have been double-dipping going on, the employer was always aware of it, and condoned it. Accordingly, the employer can't rely on it as just cause. That's correct, and straightforwardly so.
Reasonable Notice
Next, there's the question of reasonable notice, which is kind of iffy. The defence was arguing for 10 weeks; the plaintiff was arguing for 5 months. Without knowing the employee's age, I can't say where I think it should be, but for the length of service and character of employment, I'd say that both pitches seem a bit ambitious. You very seldom see notice periods less than 3 months, even with short-service employees (and five years isn't really a short-service employee anymore). However, the Deputy Judge accepted the defence submissions on the point, and awarded damages based on a notional notice period of 10 weeks. So, a pretty skinny award, on its face, but what concerns me more is the way they got there:
This is why short-service cases are so difficult: Length of service is important for mid-to-long service employees, and the 'rule of thumb' approach actually presents some guidance at those levels, in a nuanced way, but it is less significant for short-service employees. (If you put it in those terms, there have been cases where employees have gotten over twelve months per year of service...which just seems absurd when cast in that light.)
Mitigation
Then the judge concluded that there should be a discount for failure to mitigate: "The evidence of efforts to find work is skimpy at best, and Mr. Nelson was vague about what exactly he did."
Here's the problem: The onus is not on the employee to prove mitigation. Proving failure to mitigate is an obligation of the defendant. In the absence of clear evidence one way or another, unless the employee was so unresponsive on cross-examination as to warrant an adverse inference, the default presumption is against the defendant. This is why employers so seldom succeed when arguing failure to mitigate - and this should be even more true at Small Claims Court, with limited disclosure obligations.
I read the Deputy Judge as possibly having improperly reversed the onus, putting it on the employee to prove satisfactory mitigation efforts.
And here's the other quirk: He cut the damages in half, to five weeks - for an employee with just under five years of service, four weeks would have been the statutory minimum, which isn't subject to mitigation anyways, which means that the reduction is almost as severe as it possibly could have been.
So the employee received $3400 in pay in lieu of notice, plus $1504 in outstanding wages and vacation pay, plus...
Punitive Damages
The appellate-level Courts have been extremely reluctant to award punitive damages. There's been something of a move away from this in the lower Courts, as judges have looked to another mechanism to express displeasure with employer conduct now that Wallace damages are generally unavailable...but it's still hard to make out a claim for such. In this case, based on the employer's failure to pay out the outstanding wages (and issue an ROE), the Deputy Judge awarded $3000 in punitive damages.
Costs
The judge tentatively fixed costs at $1500, all in, subject to an opportunity for counsel to make submissions. That sounds about right, because, by default, legal fees are capped at 15% of the claim. So where the plaintiff obtained a judgment for $7904, he's limited to $1185.60, plus certain disbursements.
However, there's a prospect of the defence asking for costs: The defence was aiming for 10 weeks. They couldn't have known that they would win on mitigation, and so if they anticipated a serious risk of losing on the factual disputes, they may well have made an offer equal to or greater than their '10 week' scenario. Include the outstanding wages that they didn't seriously dispute were owing, and the offer may well have exceeded their ultimate liabilities, even including punitive damages.
Overall
The plaintiff's ultimate award, assuming costs don't change, is $9089.60. I'd be surprised if he didn't incur more costs than that to bring it to trial...meaning that the win is actually a loss.
Yes, that's right, with his employer refusing to pay outstanding wages and vacation pay, and anything in respect of pay in lieu of notice, he would likely have been better off to do nothing than to sue in Small Claims Court. This is the real tragedy of low-value claims. He could have made an employment standards claim for outstanding wages and statutory minimum notice, instead, but in doing so he would have forfeit any entitlement to common law damages. (In hindsight, that may have been best...but, well, hindsight is 20/20.)
Though that brings me back to the punitive damages: It seems like a slap on the wrist to me. If conduct meets the high threshold for punitive damages, then it should be a sufficiently significant sum to make employers think twice before doing it. The message that this award sends, overall, is that it's not worth suing the employer in this kind of scenario. And the corresponding message to employers is that they should continue to employ these kinds of tactics, because, even with the prospect of a modest punitive damage award, rational employees won't pursue such claims - or may pursue only ESA claims, protecting the employer from common law liabilities.
*****
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.
At the same time, while a great many wrongful dismissal cases will realistically fall within the Small Claims Court's $25,000 monetary jurisdiction, I've long been of the view that the Small Claims Court is not well-equipped to deal with these claims.
In Small Claims Court, the 'judge' is usually a senior lawyer, who sits in the Small Claims Court a couple days per month or so. So they don't hear cases of all shapes and sizes, like many Superior Court judges do, and they often have their own specific area of practice.
Employment law is a pretty niche area of law. Those of us who regularly practice in it, know it well. Yet other senior litigators may not even know the first thing about wrongful dismissal claims. I have known senior litigators and deputy judges who were unfamiliar with the term "Bardal factors" - literally, employment law 101. This doesn't reflect on the skill, experience, or knowledge of deputy judges; rather, it reflects the specialized reality of senior litigators.
Worse, in Small Claims Court, you very often get self-represented litigants on one or both sides. So you get a niche employment dispute with specialized legal considerations, argued by two non-lawyers, and presided over by a lawyer who may not know anything about the area of law. Not exactly ideal.
But even when lawyers enter the picture, that doesn't necessarily solve the problem.
Consider the recent case of Nelson v. 977372 Ontario Inc., involving a general labourer with five years of service, making $17/hour, 40 hours per week. His wife had been employed with the same company, but after she quit, there was a dispute, and the employer claims that the employee quit, but the employee alleges that the employer kicked him out, effectively firing him. (There was also an allegation of just cause: The wife was paid on a piecework basis, and the husband, being paid hourly, often helped her with her work. This was alleged to be 'double-dipping'.)
Allow me to say firstly that I've met both the lawyers on this file, and they're both experienced and skilled.
On the findings of fact, the deputy judge is perfectly well-equipped to make such findings. He found that the employee had been fired. For all intents and purposes, that's pretty well written in stone now - it's very hard to appeal a finding of fact.
Just Cause
The findings on the law are a little more varied, however. Let's start with one that the Deputy Judge definitely got right: Just cause. He concluded that, while there may have been double-dipping going on, the employer was always aware of it, and condoned it. Accordingly, the employer can't rely on it as just cause. That's correct, and straightforwardly so.
Reasonable Notice
Next, there's the question of reasonable notice, which is kind of iffy. The defence was arguing for 10 weeks; the plaintiff was arguing for 5 months. Without knowing the employee's age, I can't say where I think it should be, but for the length of service and character of employment, I'd say that both pitches seem a bit ambitious. You very seldom see notice periods less than 3 months, even with short-service employees (and five years isn't really a short-service employee anymore). However, the Deputy Judge accepted the defence submissions on the point, and awarded damages based on a notional notice period of 10 weeks. So, a pretty skinny award, on its face, but what concerns me more is the way they got there:
"Mr. Embree argued that Mr. Nelson should be awarded one month notice for every year of employment – five months notice....
Mr. Tousenard suggested that an appropriate notice calculation would be 2 weeks per year, for a total of 10 weeks.
...I agree with Mr. Tousenard that two weeks per year is an appropriate award of pay in lieu of notice, and I assess Mr. Nelson’s damages, notionally, at ten weeks...."Calculating notice periods by looking at x per year of service isn't an uncommon way of regarding them informally, but it is not correct at law. This is very similar to the 'rule of thumb' approach which the Court of Appeal expressly rejected in Minott v. O'Shanter in 1999. It puts too much importance on one factor, to the detriment of the others. (NB: Employment contracts still often base a formula wholly on length of service, and certain administrative tribunals have adopted 'rule of thumb' type practices nonetheless for income replacement in certain contexts, but when looking at common law reasonable notice, it's settled law that it is wrong.)
This is why short-service cases are so difficult: Length of service is important for mid-to-long service employees, and the 'rule of thumb' approach actually presents some guidance at those levels, in a nuanced way, but it is less significant for short-service employees. (If you put it in those terms, there have been cases where employees have gotten over twelve months per year of service...which just seems absurd when cast in that light.)
Mitigation
Then the judge concluded that there should be a discount for failure to mitigate: "The evidence of efforts to find work is skimpy at best, and Mr. Nelson was vague about what exactly he did."
Here's the problem: The onus is not on the employee to prove mitigation. Proving failure to mitigate is an obligation of the defendant. In the absence of clear evidence one way or another, unless the employee was so unresponsive on cross-examination as to warrant an adverse inference, the default presumption is against the defendant. This is why employers so seldom succeed when arguing failure to mitigate - and this should be even more true at Small Claims Court, with limited disclosure obligations.
I read the Deputy Judge as possibly having improperly reversed the onus, putting it on the employee to prove satisfactory mitigation efforts.
And here's the other quirk: He cut the damages in half, to five weeks - for an employee with just under five years of service, four weeks would have been the statutory minimum, which isn't subject to mitigation anyways, which means that the reduction is almost as severe as it possibly could have been.
So the employee received $3400 in pay in lieu of notice, plus $1504 in outstanding wages and vacation pay, plus...
Punitive Damages
The appellate-level Courts have been extremely reluctant to award punitive damages. There's been something of a move away from this in the lower Courts, as judges have looked to another mechanism to express displeasure with employer conduct now that Wallace damages are generally unavailable...but it's still hard to make out a claim for such. In this case, based on the employer's failure to pay out the outstanding wages (and issue an ROE), the Deputy Judge awarded $3000 in punitive damages.
Costs
The judge tentatively fixed costs at $1500, all in, subject to an opportunity for counsel to make submissions. That sounds about right, because, by default, legal fees are capped at 15% of the claim. So where the plaintiff obtained a judgment for $7904, he's limited to $1185.60, plus certain disbursements.
However, there's a prospect of the defence asking for costs: The defence was aiming for 10 weeks. They couldn't have known that they would win on mitigation, and so if they anticipated a serious risk of losing on the factual disputes, they may well have made an offer equal to or greater than their '10 week' scenario. Include the outstanding wages that they didn't seriously dispute were owing, and the offer may well have exceeded their ultimate liabilities, even including punitive damages.
Overall
The plaintiff's ultimate award, assuming costs don't change, is $9089.60. I'd be surprised if he didn't incur more costs than that to bring it to trial...meaning that the win is actually a loss.
Yes, that's right, with his employer refusing to pay outstanding wages and vacation pay, and anything in respect of pay in lieu of notice, he would likely have been better off to do nothing than to sue in Small Claims Court. This is the real tragedy of low-value claims. He could have made an employment standards claim for outstanding wages and statutory minimum notice, instead, but in doing so he would have forfeit any entitlement to common law damages. (In hindsight, that may have been best...but, well, hindsight is 20/20.)
Though that brings me back to the punitive damages: It seems like a slap on the wrist to me. If conduct meets the high threshold for punitive damages, then it should be a sufficiently significant sum to make employers think twice before doing it. The message that this award sends, overall, is that it's not worth suing the employer in this kind of scenario. And the corresponding message to employers is that they should continue to employ these kinds of tactics, because, even with the prospect of a modest punitive damage award, rational employees won't pursue such claims - or may pursue only ESA claims, protecting the employer from common law liabilities.
*****
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, July 9, 2013
Amodeo v. Craiglee Update
On October 5, 2012, I made yet another entry about Bill 168 reprisal cases at the OLRB, and noted a then-recent decision by Vice-Chair Kelly which dismissed an application based on a finding that the definition of harassment could not include the conduct complained of by Ms. Amodeo.
I expressed some doubts about this analysis:
Ms. Amodeo then hired counsel, who sought reconsideration on a series of grounds. (Hiring a lawyer is prudent, but hiring it after the decision has been made...kind of ties the lawyer's hands.)
The reconsideration request appears to have raised a similar concern to the one I raised, arguing that Vice-Chair Kelly improperly focused on whether or not harassment occurred, rather than whether or not there was reprisal to a complaint of harassment. In fact, there's a reason that the decision was vague on the specifics of the email to management: Neither party had provided it to the Board. So the Vice-Chair, after receiving the reconsideration request, asked the parties for a copy.
In February 2013, Vice-Chair Kelly released a reconsideration decision, acknowledging the error I highlighted earlier, but, upon review of the correspondence argued to be a complaint, found that there was nothing in it to engage the anti-reprisal mechanism, nothing to put the employer on notice that rights under the Act might be engaged, nothing that could "reasonably be interpreted as having raised a complaint of harassment or any other health and safety concern." Accordingly, the reconsideration request was dismissed.
It's a good analysis, and it could be very important if the OLRB eventually does decide that a complaint of harassment triggers the anti-reprisal provisions of the Act. The statutory definition of harassment is incredibly broad, and so the subjectivity of traditional anti-reprisal analyses (i.e. that they're engaged if you stand on good faith, albeit incorrect, beliefs as to your rights) leaves a significant concern, that just about any complaint could retroactively be cast as being a complaint of 'unwelcome conduct or comment', and therefore trigger reprisal protection, even though nobody was really thinking 'harassment' at the time. And that just can't be right.
No, the Vice-Chair has it right this time: There needs to be something in the complaint itself that references the Act, or references harassment, or engages a reasonable understanding of harassment.
*****
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.
I expressed some doubts about this analysis:
However, this decision is...concerning. The specifics of her email to management aren't clear (i.e. whether or not she was specifically alleging harassment or raising concerns simply about the instructions themselves), nor whether or not the employer has the required policy and program, nor whether or not this email complied with such a policy. So it's hard to extrapolate much from the decision, but...
...let me say firstly that, if the email couldn't fairly be characterized as a complaint of harassment, that would be fatal to the Application. I've made this distinction before in my earlier posts: The OLRB's power under s.50 of the Act gives it power to hear complaints of reprisals to, among other things, exercises of rights under the Act. Even under my interpretation of the Act that an employer has a substantive obligation to provide an environment free from harassment, simply saying to the Board "I was harassed" isn't enough to generate a remedy. What generates the remedy - under my argument - is mistreatment by the employer after and because of a prior complaint of harassment. So if there was no prior complaint, there's no reprisal protection, and no case - at least, not under s.50 of the Act.
However, if one assumes that the email was a complaint of harassment, then to my mind this decision is simply wrong. Under any anti-reprisal regime where you are protected for standing on your rights, including the Occupational Health and Safety Act, you need not prove that you were objectively correct in the first place. If I genuinely and in good faith believe that a working condition is unsafe, then I can refuse the unsafe work. Whether or not this refusal is protected by s.50 does not turn on whether or not the Ministry agrees with me that the conditions are unsafe. It is not the case that, if the Ministry determines that the working conditions are acceptable, the employer is able to turn around and fire me for refusing what I had perceived as unsafe work. The very point of these anti-reprisal provisions is that an employee can stand on his or her rights without being afraid that the employer will turn around and dismiss him or her.
Similarly, whether or not a reprisal complaint for harassment can succeed can not turn on whether or not there was harassment in the first place; simply on whether or not there was a good faith complaint of harassment.
Ms. Amodeo then hired counsel, who sought reconsideration on a series of grounds. (Hiring a lawyer is prudent, but hiring it after the decision has been made...kind of ties the lawyer's hands.)
The reconsideration request appears to have raised a similar concern to the one I raised, arguing that Vice-Chair Kelly improperly focused on whether or not harassment occurred, rather than whether or not there was reprisal to a complaint of harassment. In fact, there's a reason that the decision was vague on the specifics of the email to management: Neither party had provided it to the Board. So the Vice-Chair, after receiving the reconsideration request, asked the parties for a copy.
In February 2013, Vice-Chair Kelly released a reconsideration decision, acknowledging the error I highlighted earlier, but, upon review of the correspondence argued to be a complaint, found that there was nothing in it to engage the anti-reprisal mechanism, nothing to put the employer on notice that rights under the Act might be engaged, nothing that could "reasonably be interpreted as having raised a complaint of harassment or any other health and safety concern." Accordingly, the reconsideration request was dismissed.
It's a good analysis, and it could be very important if the OLRB eventually does decide that a complaint of harassment triggers the anti-reprisal provisions of the Act. The statutory definition of harassment is incredibly broad, and so the subjectivity of traditional anti-reprisal analyses (i.e. that they're engaged if you stand on good faith, albeit incorrect, beliefs as to your rights) leaves a significant concern, that just about any complaint could retroactively be cast as being a complaint of 'unwelcome conduct or comment', and therefore trigger reprisal protection, even though nobody was really thinking 'harassment' at the time. And that just can't be right.
No, the Vice-Chair has it right this time: There needs to be something in the complaint itself that references the Act, or references harassment, or engages a reasonable understanding of harassment.
*****
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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