Tuesday, December 16, 2014

Wrongful Dismissal Awards - During the Notice Period

Wrongful dismissal 101:  In general, a dismissed employee is entitled to 'notice' of dismissal, and entitled to be put into the position he or she would have occupied had actual notice been given.  In practice, this means pay in lieu of notice, among other things, but is subject to a duty to mitigate - i.e. an obligation upon the dismissed employee to take reasonable steps to obtain replacement employment, which income reduces his/her entitlement to damages.

Here's the trick:  The entitlement to damages accrues upon breach of contract - i.e. upon termination without adequate notice - whereas mitigation occurs in real time.  For longer notice periods, this sometimes has the result that a matter can be adjudicated before the full notice period has run its course:  Suppose I'm entitled to two years' pay in lieu of notice, and I get to a summary judgment motion 12 months into the notice period.  How can I be awarded two years' pay in lieu of notice, when I still have an obligation to mitigate for another 12 months, which could have a substantial impact on my entitlements?

The truth is that this phenomenon is not particularly unique to employment law:  In the field of personal injury litigation, a plaintiff will often seek damages based on a perpetual limitation on earning capacity.  My understanding - though I could stand to be corrected by a PI lawyer - is that this is often resolved by an arbitrary 'discount' to account for the possibility that the plaintiff will earn more than expected at the time of trial.

I've seen that argued in wrongful dismissal contexts.  I've never seen it succeed in Ontario, but that's at least partly because there often isn't a great deal of time left in notice periods at the time of adjudication.  If there are just a couple of months left, a discount seems relatively unnecessary.

This issue arose in the recent case of Donath v. Hughes Containers Ltd..  Ms. Donath was dismissed after 14 years of service as a payroll administrator, at age 64.  The matter was brought to trial 10 months after the dismissal, and she was awarded 12 months' pay in lieu of notice.  (She sought substantially more, and it does seem to me that 12 months is a little on the low-end, given the Bardal factors here.)

So Justice Pollok turned to the question of how to address the not-yet-elapsed portion of the notice period.

The employer argued that an award of pay in lieu of notice was premature, and that the issue of damages should be adjourned and brought back on after the end of the notice period.  After all, she's obligated to mitigate her losses, and awarding the full amount now would effectively relieve her from that obligation.

The plaintiff, by contrast, argued that it was open to the court to find as fact that she would not obtain replacement employment in the remaining two months of the notice period.

Justice Pollak rejected both arguments.  The prospects of re-employment were low, but the evidence didn't establish that re-employment was "not possible", and therefore the employee's pitch couldn't succeed on the evidence.  (Justice Pollak seemed a bit critical of the plaintiff moving so quickly to trial, knowing that she was seeking substantially more notice.)  However, the defendant's argument was regarded as being improper - the trial was complete, and it simply wasn't available to adjourn the issue to a later date.

Instead, Justice Pollak elected to do something similar to Bernier v. Nygard:  In that case, the court awarded the full amount, but impressed the award of damages with a trust - in essence, if the plaintiff earned mitigation earnings, they would be held in trust for the defendant.  In this case, Justice Pollak imposed a continuing obligation to account for mitigation earnings, by ordering judgment be paid at the end of the notice period, less any mitigation earnings.  (Actually, the wording of the endorsement kind of suggests that Justice Pollak may be imposing an ongoing duty to take reasonable steps to mitigate...which is not necessarily an unreasonable order, but has significant practical difficulties.)


I like the result in Bernier v. Nygard.  In the right case, 'impressing the award with a trust' is the right solution, and Bernier was the right case for it.  Donath...probably not so much.  Asking the plaintiff to establish that re-employment during the reasonable notice period is 'impossible' is too high a standard - if the prospects of imminent re-employment are low, and we're down to the last two months of the notice period, then find as fact, on a balance of probabilities, that the plaintiff won't obtain replacement employment.

If we're talking about another 6-12 months, that's more difficult to do, and going down the road from Bernier - in the appropriate circumstance - can make more sense.  It's a compromise solution - effectively relieving the employee of the obligation to seek new employment, while holding the employee to the obligation to account for mitigation earnings.  Even then, it's imprecise, though, because 'mitigation earnings' aren't necessarily something you can nail down simply.

But what highlights that Justice Pollak appears to have been coming at this issue from the wrong angle is the treatment of interest:  It started to accrue only at the end of the notice period.  This is consistent with her treatment of the employer's obligations as only vesting after mitigation efforts are unsuccessful...

...and is straightforwardly incorrect on the law.  Interest can be a tricky issue.  It's often argued to start accruing at the date of breach, or sometimes halfway through the reasonable notice period.  But there's simply no basis for starting it accruing at the end of the reasonable notice period.

It's a minor issue, but it couples with her chastising the plaintiff for bringing the matter to trial so quickly, to really highlight the onus she's placing on the plaintiff to prove damages, as including proving that mitigation was or would be unsuccessful.

It dovetails in some ways with the error that I argued marred Justice Wilton-Siegel's decision in Garcia v. 1162540:  The Supreme Court jurisprudence is quite clear that wrongful dismissal damages flow from the breach of contract itself - that is, the employer's failure to continue employing (and paying) the employee through the notice period - and mitigation is a separate and subsequent analysis, with a different burden of proof.


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

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

Monday, December 15, 2014

Punching a Co-Worker Does Not Necessarily Constitute Just Cause

As I've often said, 'just cause' for dismissal - that is, firing somebody for misconduct, such that they are not entitled to any notice or pay in lieu - is a high threshold, and always depends on the facts.

There's a recent case, Phanlouvong v. Northfield Metal Products (1994) Ltd., which serves as a pretty good cautionary tale for employers:  Mr. Phanlouvong ("Keg") was dismissed following a physical altercation between himself and a co-worker, in which the judge concluded Keg was the aggressor, which culminated in Keg punching the co-worker in the face breaking his glasses...and Justice Broad concluded that just cause was nonetheless not established.


Keg was an immigrant from Laos, who worked as a labourer for Northfield for 16 years.  In the last few years, he had some personal conflict with another worker at his station, Bailey.  Keg claimed that there was some racial animus to the conflict - he alleged that Bailey had once called him a "Chink or Korean", to which Keg replied "no I am Laos".  (Isn't that right out of King of the Hill?)  Another witness alleged that Bailey had once referred to Keg as "f*ing Chinese".

In October 2010, Bailey's elbow came into contact with Keg.  There was some dispute as to whether it was intentional or accidental contact - a 'brush' or a 'jab'.  The judge accepted that it was inadvertent.  When challenged on it, Bailey refused to acknowledge the contact or apologize for it, and the matter quickly escalated with pushing, and then Keg punching Bailey in the nose.

Bailey reported to the first aid station, and per employer policy was sent to Grand River Hospital to be examined.  In the mean time, management began to investigate, but they were pretty sure from early on what the result would be:  It appears that, in all previous incidents involving physical assault, they had terminated the offending employee.  So the Plant Manager's instruction to HR was pretty clear, that if it was confirmed that Keg had, in fact, punched Bailey in the face, he would be fired.

The HR Manager interviewed the witnesses, and then Bailey when he returned from the hospital.  The judge noted in his reasons that the HR Manager determined Bailey's penalty - a one week unpaid suspension - before getting Keg's side of the story.  He then interviewed Keg, who claimed to be acting in self-defence.  Afterwards, the HR Manager presented a termination notice indicated that he had 'discussed his findings' with the management team (even though he actually hadn't met with other members of management since conducting the interviews), and "agreed to terminate your employment as a result of your actions today."

Keg sued the employer in wrongful dismissal, claiming pay in lieu of notice aggravated damages, punitive damages, and a declaration that his Code rights had been violated.  He also sued Bailey personally, alleging assault, battery, and intentional infliction of mental distress.

The Decision

As noted above, the Court rejected Keg's contention that he had been intentionally elbowed or was defending himself.  The earlier contact was unintentional, and it was Keg who picked the fight.

However, Justice Broad is concerned that the employer never really canvassed the availability of lesser penalties than termination, concluding from minute one that, if Keg had in fact assaulted Bailey, he would be fired.

The employer argued that Keg's conduct was aggravated by its breach of the Occupational Health and Safety Act, the fact that he failed to take responsibility for his actions, and the fact that his first lawyer (not his trial lawyer) had allegedly prepared false affidavits for witnesses to bolster his story.

On the first aggravating factor (OHS), the Court concluded that this not eliminate the need for a contextual analysis.  The Court accepted that the second factor was relevant, but not necessarily determinative in this case.  And the third factor is rather unusual, and the judge wasn't persuaded that such an issue was appropriate for consideration as after-acquired just cause.

On the flip side, Keg had a long period of unblemished employment, with no prior discipline at all in his 16 years of service.

"In utilizing a contextual approach, and in applying the principle of proportionality, I find that Northfield has not discharged the onus on it to prove, on a balance of probabilities, there were no other reasonable alternatives to termination of Mr. Phanlouvong's employment without notice, and accordingly I find that Mr. Phanlouvong was wrongfully dismissed."

Keg was awarded pay in lieu of 15 months' notice, less mitigation earnings.  However, the other allegations and claims were not made out.


It's always fun to sensationalize a story by pointing to the worst facts, in isolation, and say "Look, this guy punched his co-worker in the nose, and still couldn't be fired without a package."  But Justice Broad is absolutely right about at least one thing:  Breach of the workplace violence provisions of the OHSA, while probably an important factor, is not determinative, and still calls for a full contextual analysis.

What's most interesting about this decision is the overall sense that the judge is coming at it from a procedural point of view - it's less about whether or not there was an alternative to dismissal under the circumstances, and more about whether or not the employer had adequately considered the possibility.

Despite the increasing case law suggesting an employer's duty to investigate, it strikes me that it would probably still be an incorrect statement of the law to call it a procedural question:  Regardless of whether or not the employer properly investigated, and properly considered all their options, the question for the court is always going to be, simply (or perhaps not so simply), whether or not the employee's actions, in the circumstances, amounted to just cause for dismissal.

However, I don't think Justice Broad got this wrong, nonetheless:  It's an issue of onus, and the subtext of the decision seems to be that, having failed to seriously consider its other options, the employer can't satisfy its onus that termination was the appropriate response.

This is the trend throughout the 'duty to investigate' cases:  The extent of the obligation to investigate aside, the failure to investigate will create a practical bar to satisfying an employer's onus to prove just cause.  Remember Ludchen v. Stelcrete?  "Having failed to thoroughly investigate this matter at the time, Stelcrete now has great difficulty assembling the evidence to prove the alleged misconduct on which it acted more than five years ago."

Lessons to Take Away

The courts are sending a clear message to employers:  When you're faced with allegations of misconduct, and even of very severe misconduct, conduct a proper investigation with an open mind.  Obtain appropriate expert assistance to do so, if necessary.  Because if you have to go to court on a just cause issue - a very expensive proposition, especially if you lose - having covered off your bases at the start is going to be pretty much essential.

Quite frankly, if the employer had been able to come to court saying "We seriously considered whether or not we could continue the employment relationship in light of Mr. Phanlouvong's misconduct, and determined that, given the nature of the incident and the injuries sustained by Mr. Bailey, returning him to the workplace in any capacity would not have been consistent with our obligations under the Occupational Health and Safety Act", then this could have ended very differently.

As for what employees should take away from this case, that's less significant:  This case certainly does not stand for a proposition that first offenders get "one free punch", or anything of the like.  It's a contextual analysis.

However, this case highlights the importance of getting good legal advice after a 'for cause' termination, even if you did what you're accused of doing.  Because just cause is a two-part question:  Firstly, are you guilty of the conduct alleged to constitute just cause?  Secondly, is the misconduct sufficiently serious, in all the circumstances, to warrant summary dismissal?  And, obviously, that second question is never quite as open-and-shut as many employers would like it to be.


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

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

Friday, December 12, 2014

Superior Court Rules that Kumon Franchisee was Entitled to Reasonable Notice

Kumon is a well-established franchise offering after-school math and reading programs.  To my understanding, it has a very successful system for leading its students to excel in advanced content.  And the franchises are all over the place, including two within Newmarket.

But there's a very interesting new case, making new law, dealing with the termination of a Kumon franchise.  The facts are quite unique, as the franchisee (Ms. France) had been operating since before Kumon started using written franchise agreements, and refused to sign the various franchise agreements put to her by the franchisor.  So we're left with the scenario of an oral contract governing a franchise agreement, which is quite exceptional in this day and age.

One of the primary issues for Kumon is that France was resisting shifts to their business model - they've been trying to present a more professional image to the world, including establishing permanent and visible presence in appropriate commercial space, as distinct from - to use France's business as an example - just renting a church basement two nights per week.

With France refusing to sign written franchise agreements, Kumon eventually decided to end the relationship, and provided her with 12 months of notice.  Ms. France sued, taking the position that the contract was 'perpetual' and could not be terminated by the franchisor.  Kumon argued that there was an implied term permitting termination on reasonable notice, and that 12 months was reasonable.

The Decisions

The Court accepted Kumon's argument that a franchise agreement could be terminated on reasonable notice, but found that 12 months wasn't enough, and sought subsequent submissions on the reasonable notice period, rendering a decision on that issue yesterday.

There are some interesting parallels drawn between the franchise relationship and employment relationships, both in finding that Kumon was entitled to terminate the relationship on reasonable notice, and in the assessment of the reasonable notice period, including that franchise agreements are like employment agreements because they "include an element of mutual trust and an element of unequal bargaining power."

And in a context like a Kumon franchise, where many such businesses are run by single operators with minimal employees, it does indeed bear a significant resemblance to an employment relationship, or at least to a dependent contractor relationship.  On the other hand, if you look at a franchisee running, for example, a half dozen Swiss Chalet restaurants, it might be a little bit harder to see the resemblance.

Justice Goldstein assessed the reasonable notice period at 18 months, awarding Ms. France an additional six months' worth of income - quite a modest amount, really.

The judge made new law here, creating a 'test' for the reasonable notice period for terminating franchise agreements, including a non-exhaustive list of factors as follows:

  1. The length of the relationship;
  2. Whether or not there is a history of bad faith or oppressive conduct by the franchisor;
  3. Whether or not the franchisee has a history of poor performance;
  4. Whether the terminating party acted in good faith throughout the relationship; and
  5. Whether there have been violations of the Arthur Wishart Act.

When applying the factors (Ms. France was a 20-year franchisee, with a good history of performing her obligations, and Kumon had met its obligations of good faith to her), Justice Goldstein went on to apply a 'discount' recognizing that "Ms. France was not an employee, but an independent contractor".


Suffice it to say that the test Justice Goldstein has laid out is very different from the employment law test for assessing reasonable notice periods, and in fact is directly inconsistent with that test in certain ways.  Which wouldn't necessarily be a problem, but for two things:  Firstly, he got to the point of applying such a test simply because of the similarities to an employment relationship, and secondly, the application of a 'discount' because she was an independent contractor and not an employee would suggest that the test is somehow supposed to be similar to that in place for employees.  It's also very probably wrong to call her an independent contractor.

In employment law, we look at the Bardal factors, including length of service, age of the employee, character of employment, and availability of replacement employment.  Fundamentally, the test largely addresses the challenges of obtaining new employment.  Performance is arguably irrelevant, so long as poor performance doesn't rise to the level of just cause.  Likewise, employer bad faith no longer factors into the assessment of the notice period in most cases.

Independent contractors are presumptively not entitled to notice.  However, there's an intermediate category of 'dependent contractors', who are treated similarly to employees.  There's little doubt that, if we're going to fit Ms. France into this framework at all, it's as a dependent contractor.

In a circumstance like France's, it's not so difficult to apply the Bardal factors.  As an individual franchisee, her age and ability to obtain similar work are not so difficult to assess.  Again, if we were looking at an owner of several restaurants, that changes things significantly.  But I might suggest that larger and more sophisticated businesses built on the franchise model would require more notice - that the implied term of reasonable notice is designed to give the non-terminating party an opportunity to land on its feet when the agreement is terminated.  So instead of the "availability of replacement employment", you might look at the availability of alternate business arrangements, and the difficulty associated with such a transition.  If you're running a fast food restaurant, and your franchise agreement is terminated, can you turn it into another type of fast food restaurant?  How hard would it take to enter into a new franchise agreement?  How long to physically transition the business and business model to suit the new franchisor?  Is there a non-competition agreement in place?  What long-term liabilities can the franchisee be expected to have?

The way I see it, the analysis has to be premised on the business entity underlying the franchisee continuing to exist and carry on business in some other fashion, and the reasonable notice period should bear the ultimate goal of allowing the franchisee to plan that transition.

Instead, Justice Goldstein seems to want the notice period to balance a series of rewards and punishments for good and bad behaviour in the course of the contract.  I'm not sure I see a principled basis for that.

The reality, though, is that the practical implications of this decision will be limited.  Most franchise agreements these days include detailed written provisions regarding how and when the agreement can be terminated (including fixed term provisions, notice provisions, or both).  This case will be an important precedent only for those few cases where the termination of the contract isn't spelled out in writing.


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

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

Wednesday, October 15, 2014

Costs awards when represented by a lawyer in the family

I noticed an interesting decision a few weeks back, Watkins v. Toronto Terminals Railway, involving a motion in an ongoing wrongful dismissal case where the plaintiff is represented by her husband.  The costs decision was just released, which has some interesting discussion.


The case is a wrongful dismissal case, involving allegations that the plaintiff was harassed.  She's being represented by her husband, Ryan Watkins.

Firstly, I should highlight that, unlike doctors, we lawyers aren't prohibited from rendering professional assistance to family members.  There are professionalism 'red flags' raised by such things in some contexts, but it's something that's not inherently improper.  In a wrongful dismissal context, for a lawyer to represent a spouse can certainly make sense.

However, there's another concern in such a context:  It isn't at all uncommon for a spouse to be a part of workplace interactions, particularly workplace social events, and there is a pretty strict prohibition on lawyers acting as witnesses.  That's how the motion in issue comes up:  The defendant alleged that Mr. Watkins is a potential witness, in part because he attended at least one social event with his wife and the alleged harasser.  Master Muir rejected this argument, however, on the basis that there are no controversial facts arising from that social event, and no "significant likelihood" of Mr. Watkins being called as a witness.

That seems a fair assessment.  It's likely that the defendant made the motion as a tactical matter:  If they could have Mr. Watkins removed from the case, Ms. Watkins would have to start incurring legal fees, and this would lead to pressure to settle.

But the costs decision is far more interesting.


Mr. Watkins does not appear to be charging his wife for work on the file.  This complicates a costs decision, as the primary purpose of a costs award is 'indemnity' - i.e. to compensate a party for the costs being incurred.

However, there are other purposes to costs awards - to deter frivolous litigation, and to discourage unnecessary steps that prolong litigation.

There's a growing body of 'pro bono' case law where a costs award is made even where the client isn't getting charged.  Presumably, this money will go to the lawyer, compensating him or her directly for the time incurred.

Watkins argued that this falls into the same framework.  Master Muir disagreed to some extent:  "the lawyer for the plaintiff is not handling this matter as part of the profession's commitment to ensuring access to justice.  It would appear that he is handling this matter in order to reduce his spouse's legal expenses."

That being said, it remains true that the opposing party should still have to consider, when evaluating what steps to take in the litigation, the risk of having to contribute to the plaintiff's costs if they're unsuccessful.  Therefore, the plaintiff was awarded costs of 25% of what she was seeking - $2,774.10 instead of $11,096.39.


I'm not sure how I feel about this.  I do agree that some costs are warranted, but I'm not sure about the arbitrary reduction.

It does bear noting that self-represented litigants, even lawyers, have a hard time obtaining costs awards at all.  The system does not particularly value the time and energy that self-represented litigants have to spend preparing their own case.

But Mr. Watkins is not the litigant.  He is a professional, rendering professional services for which he is licensed, to a client.  Unlike a self-represented litigant (for whom a license to practice is strictly irrelevant), his assistance to his client in this context requires a licence.  True that he is not charging that client, but I'm not sure I see a basis for devaluing his time on that basis:  The defendant forced him to incur dozens of hours of time to respond to this motion; the internal retainer arrangement between himself and his client would seem to be immaterial to the reasonable amount of costs that the defendant should have to bear for that.  Certainly, as a busy lawyer, he could be turning that time around into billable hours that would line his own pocket (or, rather, his firm's pocket, such that he would be in a better position to negotiate raises and bonuses).


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

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

Tuesday, October 14, 2014

Stranger than Fiction: Litigating a Junior Soccer Tournament

The sports fans among us are very aware of the 'human element' in the officiation and regulation of sports.  Sometimes, there are controversial calls - bad calls on the field, or discipline off the field.  And, for the most part, sports fans (and players) recognize that this is just a reality of the game.  We gripe, then we move on.

So the recent case of West Toronto United Football Club v. Ontario Soccer Association is quite striking.

The Facts

The dispute involves an Under 16 Boys Tier 1 Division soccer team, the West Toronto Cobras 98 (the "Cobras").  On August 23, 2014, they played the semi-final game of the Ontario Cup tournament, against the Woodbridge Strikers.  The Cobras won, though the Strikers had raised some issue about the Cobras allegedly using six players as 'call-ups' improperly.

On August 27, the Strikers made a formal protest in relation to the alleged call-ups.  The OSA's Protest Committee gave the Cobras until noon the next day to respond, and they did, denying the use of any call-ups.

On August 29, the OSA - of its own initiative - raised a new issue, alleging that one of the Cobras players had only been added to the roster on August 12, too late to allow him to play in the Ontario Cup.  This took the Cobras completely by surprise - they were able to speculate that there may have been an administrative error at the Toronto Soccer Association (which couldn't be contacted until after the long weekend), and asserted that the player in question, Tristen, had been on their roster for the entire season.  On September 3, the TSA confirmed to the Ontario Soccer Association that, in fact, there was an administrative error on their end, that Tristen had been accidentally removed from the roster (and placed back on it) on August 12, and had been playing for the Cobras for the whole season.  It was an issue that hadn't come to anybody's attention until the OSA looked at the roster during the process of the Protest.

The Protest Committee, after receiving that information, essentially disregarded the TSA's advice.  They concluded that there was 'no evidence' that his removal from the roster had been accidental, and that therefore he was ineligible and shouldn't have played in the semi-final game.  As a result, it awarded the semi-final game to the Strikers, and they advanced to the final.

On September 5, the Cobras advised all parties that it would dispute the finding of the Protest Committee, but the final match was played (and won) by the Strikers on September 6, and they would advance to the National Club Championships.  The Cobras attempted to file an appeal with the OSA, but the OSA returned the appeal materials, asserting that there was no appeal available from the decision of the Protest Committee.

Therefore, the Cobras brought an application for judicial review to the Superior Court of Justice.


Historically, judicial review was generally regarded as being available to challenge exercises of statutory power:  If I'm empowered by a statute to make a certain decision, I'm obligated to exercise that power in a rational and fair-minded manner, and if I don't, then my discretion can be subjected to a judicial override.

However, there's some case law expanding judicial review beyond exercises of statutory discretion, in appropriate circumstances, and these circumstances called for it:  The OSA controls the playing of competitive soccer in Ontario.  "Put simply, you cannot play competitive soccer in this Province without subjecting yourself to the authority of the OSA."  Justice Nordheimer was satisfied that there must be some fair process available for officials to be able to deprive teenage athletes of their hard-fought win.


On the face of the facts, the Protest Committee's decision was unsustainable.  They'd raised an issue on their own initiative, and were completely unreceptive to reasonable explanations by both the Cobras and TSA confirming the inadvertent nature of the administrative error.  (In fact, even before receiving the information from the TSA and making their decision, they'd already published a schedule for the finals, showing the Strikers playing in it.)

In the absence of some incontrovertible proof, the OSA concluded that there was 'no evidence' supporting the Cobras' position.  Quite the contrary, there was significant evidence supporting the Cobras' position, no evidence to the contrary, and no apparent reason to doubt the veracity of the Cobras' and TSA's evidence.

From a lawyer's perspective, the Protest Committee's decision was clearly unreasonable.  (Bear in mind, of course, that athletic committees don't typically have lawyers in them.)

But here's the rub:  The Strikers have already moved on, already played a final match on the basis of having won the earlier one.

Justice Nordheimer crafted an unusually flexible remedy, ordering that, unless it's impractical to do so, the Final should be replayed between the Cobras and the other finalist, the Panthers.  If that's not practical, then the Cobras should replace the Strikers as winners of the Ontario Cup, and should proceed to Nationals.  Justice Nordheimer concluded that this result would do "no disservice" to the Panthers who already played and lost the Final match.

As it turns out, the OSA proposed a date for a replay, in the tight timeframes, but the Cobras unsurprisingly claimed to be unavailable that date - keeper injuries, and a top player overseas.  Suffice it to say that the Panthers aren't exactly on the same page as Justice Nordheimer's "no disservice" conclusion.

Accordingly, the Cobras were given the title, and advanced to the Nationals, where they won Silver this past weekend, losing 2-1 to Coquitlam.


Firstly, I should say that it's downright lucky that the Strikers won the Ontario Cup final match.  Despite their objections, Justice Nordheimer is right that that fact put the Panthers into a position of having nothing to really complain about.  They played the loser of the Cobra/Striker match, and still lost.  Yes, it's possible that it would have turned out differently against the Cobras, but there's no real reason to think it would have or should have.

Had they beaten the Strikers, that would have been a much more difficult scenario to resolve.  It would be impossible to fairly resolve without a Cobra/Panther match, and even then there would invariably be 'fairness' complaints from the losing side because the short notice wouldn't leave either team at its best.

One might well argue that the Panthers should have been a party to the proceeding, given the potential impact on them of the order sought.  (Incidentally, they were given notice of the proceeding, and didn't appear.  Should they have paid a lawyer to try to secure a rematch?)

This decision is definitely fact-driven to a certain extent.  The OSA's decision-making process was deeply flawed and deeply unfair to the Cobras, and that definitely pushed towards Justice Nordheimer taking jurisdiction:  There has to be some place to go for a remedy, and where if not here?  And, as strange as it is in some ways, I think it's probably the right call.  And, to Justice Nordheimer's credit, he did remark a couple of times that courts should be very reluctant to interfere in sporting results.

Still, I'm a little concerned about floodgates:  Sports organizations have to make decisions about eligibility, disqualifications, or team selections all the time.  And, truthfully, they aren't necessarily very good about making sure that such decisions are fair.  I've seen athletic tournaments - at the high-performance national level - where the person who created the 'draw' (i.e. the schedule of who plays whom) was a competitor in the tournament.  Surprise, surprise - all the stiff competition ended up on the other side of the draw from his team, and he ended up progressing to a level that got him a cash prize.  In my experience, I've seen a number of such issues - people being disqualified from events because of administrative errors without a fair review process, coaches selecting their own juniors for regional rep teams without an objective tryout process, etc.  And they often do have difficult ethical or legal decisions to make, with real consequences:  How to apply the criteria for funding grants to athletes; how to apply eligibility criteria for national representation in international tournaments, etc.

And it's never just about the individual athletes about whom the decision is being made - there are always other athletes affected.  If an athletic organization allows a person with questionable eligibility to represent Canada at the Olympics, for example, that's likely to push somebody else off the Olympic team.  If you waive a requirement for funding eligibility in recognition of somebody's extraordinary circumstances, that will mean that a different athlete doesn't get funded.  It's easy to be sympathetic to somebody asking for special treatment, but it's always sum-zero, with another person being negatively affected by the decision.

I definitely see the need for fair decision-making processes, and I definitely see how certain athletic organizations are lacking in that area, but the prospect of significant athletic litigation worries me.  Every time a decision is made, will the athletes play subsequent matches under threat of judicial intervention?  Will athletes and athletic organizations - already significantly underfunded in most sports - need to start budgeting for substantial legal fees on a regular basis?

But the worst part is that it undermines the finality of games:  Losing is an important part of athletic development.  Losing gives you an opportunity to grow.  Nobody likes to lose, but the ability to accept a loss, learn from the loss, and let it motivate you to train harder and play better next time, is pretty fundamental for a high performance athlete.

If we ever come to the point that a lost athletic match becomes like a lost trial - "Yeah, we lost the match, but we're reviewing our options for an appeal" - then I think we'll have forgotten what sport is really about.


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

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

Monday, October 6, 2014

Must Lawyers Be Nice To Their Clients?

There's an interesting recent case out of the Superior Court of Justice - it's only peripherally related to employment law, but it interests me for a number of reasons, including that it's the first reported decision citing the case of Morland-Jones v. Taerk - you might recall the case where Justice Morgan indicated that litigants required a "rather stern kindergarten teacher", rather than a judge.  And it cites Taerk in context of determining whether or not clients are entitled to be compensated when their lawyers aren't nice to them.

The case is Stewart v. Hosack, and the essential facts aren't particularly complicated:  The defendants are lawyers.  Stewart, her husband (Tank) and their company (JS) were long-time clients of the firm, and in particular of Bob Nightingale (now Justice Nightingale).  On August 12, 2012, a former employee of JS was charged with uttering a death threat to Ms. Reece, and Mr. Hosack, assisted by the firm's criminal lawyer Mike McArthur, accepted a retainer to defend Ms. Reece in the criminal proceedings.

Suffice it to say that Ms. Stewart was not thrilled to discover that her own lawyers were defending the woman who allegedly threatened her life.

More Background

It's a little more complicated than that, of course:  There's some issue as to whether she had any active files into 2012.  There were a couple of real estate files, but the lawyers claim that Stewart's husband was the sole client on those matters.  And then there are some question about the circumstances in which those retainers were terminated.  (It almost sounds like an employment law file:  Why did you fire us as clients?")  The judge ultimately concluded that Stewart was a client on the real estate files, and that the matters were terminated as a result of the Reece file.

And the facts get delightfully convoluted indeed when you bear in mind the 'small town' factor - it all took place in Norfolk County, where I practiced for a time, earlier in my career.  (So yes, I personally know most of the lawyers involved here.  There really aren't many lawyers in town, and very few firms, so conflicts of interest can get a bit tricky.  The reality is that if Hosack and McArthur didn't defend Reece, there were only a few other lawyers in the community to whom she could have gone.)

By way of 'small town' factor elements, the death threat in question was allegedly made at the Norfolk Tavern in Port Dover, of which Hosack is a part owner.  (As an unrelated piece of trivia, I understand that McArthur is a partial owner of a local winery.  Lawyers and alcohol, eh?)  There was an allegation that Hosack "withheld for a time" video evidence of the incident giving rise to the charge(s) against Ms. Reece, on the basis that he had immediate access to the Norfolk Tavern's video surveillance system.  (This appears to me to be likely a frivolous allegation, but I won't go into detail on that at the moment.)

After the Crown threatened to bring a motion to disqualify the firm because of the supposed conflict of interest, the firm helped Reece obtain new counsel.  Later, the charges were withdrawn by the Crown, for "no reasonable prospect of conviction".

Ms. Stewart, for her part, sued the firm, alleging a breach of fiduciary duty.

The Court's Findings

As I noted above, the Court concluded that Stewart was, in fact, an ongoing client of the firm when the firm took on the Reece retainer.  However, on the question of whether or not that generated a conflict of interest, the Court concluded that it did not:  Ms. Stewart was not actually a party adverse in interest: though an alleged 'victim' in the criminal proceedings, victims are not parties, and do not typically have an interest in the outcome of the proceedings.  As well, none of Stewart's confidential information, coming out of the solicitor-client relationship, was relevant in the criminal proceedings.

However, "there is still no doubt that Ms. Stewart has been badly treated by the firm", primarily because they unexpectedly terminated her retainers as a means of circumventing conflict of interest rules, and thus they breached their duty of loyalty, and their duty of candour by "failing to disclose their intention to represent Ms. Reece and allow Ms. Stewart to make her own decisions about continuing her retainer with the firm or going elsewhere."  Justice Lemon concluded that the refusal to act for her, on those circumstances, constituted a breach of fiduciary duty.

However, no damages flowed.  On the facts, she established no damages, and no entitlement to punitive damages:  "If there were a conflict, it was one upon which reasonable people might disagree."  The breach of fiduciary duty was not based on profit, but simply an error of judgment.  In finding that Stewart's emotional consequences were not compensable, the Court quoted the following passage from Taerk:
As I explained to Plaintiffs' counsel at the hearing, a court cannot order the Defendants to be nice to the Plaintiffs.  Litigation must focus on legal wrongs and legal rights - commodities which are in very short supply in this action.  As my colleague Perrell J. put it in High Parklane Consulting Inc. v. Royal Group Technologies Ltd., "[i]t is trite to say that living is a stressful activity and that much of life can be nasty and brutish.  Tort law does not provide compensation for all stress-causing and nasty conduct that individuals may suffer at the hands of another..."
Accordingly, the action was dismissed.  (However, there may be LSUC proceedings ongoing.)


The judge's reasoning on the conflict of interest issue, on the facts as set out, appears to be sound.  I can certainly imagine cases where the issue might fall the other way, though.  It's not hard for me to imagine a scenario where an employer might actually have an interest in the resolution of criminal charges against a former employee, though I'm not sure it's really legitimate to allow that to make the employer an interested party.  In this case, it would be particularly strained, as the employer is discrete from the victim, and the alleged criminal conduct arose post-employment.  Likewise, it isn't hard to imagine a case where a criminal defence might be able to make use of confidential solicitor-client communications involving the victim, but that doesn't appear to have been the case here.

Thus, on these facts, I think the judge is right that there's no conflict.

That being said, I find it difficult to reconcile that finding with the conclusion that there was a breach of fiduciary duty, and in particular of the duty of candour.

Accepting, for a moment, that they were not prohibited by the Rules of Professional Conduct's conflict of interest rules from taking on the Reece retainer, it's hard to see how taking it on would have generated additional duties on the lawyers in connection with Stewart.  If the Reece retainer does not generate a conflict, then no consent is required by Stewart for them to take it on...and as for the finding that Stewart should have had an opportunity to decide whether to stay with the firm in light of the Reece retainer, that can't be right:  The implication would be that a client is entitled to know what new retainers an existing firm is taking on - entitled to know the identities of the firm's other clients.  For the non-lawyers in the audience, the very existence of a solicitor-client relationship is confidential and subject to solicitor-client privilege.  For the firm to tell Stewart, as Justice Lemon seems to think they should have, "We're taking on Reece's defence" would have straightforwardly violated their professional obligations to Reece.

"How do you obtain consent without telling clients about each other?" is an age-old catch-22 for lawyers trying to resolve a conflict of interest.  If I have two clients adverse in interest, then even if I think that they might consent to me acting for both, how do I even approach the subject without breaching the other's confidentiality?  The answer is often "I can't", and therefore I have to stop acting for one or both while telling them nothing beyond "a conflict of interest has arisen".  However, in this case, if there's no conflict of interest, then there's actually no legitimate reason to decline the Reece retainer, and no good faith reason for them to turn Reece down.

The finding that the firm treated their client unfairly is, perhaps, entitled to deference as being mostly a finding of fact (i.e. that they fired a client suddenly and unexpectedly because they took on a different client), but the extension of that to a finding of breach of fiduciary duty is based on the premise that "a law firm should not summarily and unexpectedly terminate a retainer as a means of circumventing the conflict of interest rules".

That premise is sound, but the conclusion does not necessarily follow:  If there was no conflict of interest, then why would the firm need to circumvent conflict of interest rules?  Moreover, that principle seems more apt to a scenario of a new (better?) client walking in the door, and the lawyer firing an existing client with an adverse interest in order to be able to take on the new retainer.  That's kind of different from what appears to have happened here, even on Stewart's theory of the case.


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

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

Friday, October 3, 2014

Divisional Court Upholds Reinstatement Remedy - A Decade Later

There's a new decision out of the Divisional Court, Hamilton-Wentworth District School Board v. Fair, on a judicial review application from the Human Rights Tribunal of Ontario.

The upheld a decision by the HRTO reinstating Ms. Fair, with back pay retroactive to her termination date...in 2004.

This has gotten some media attention in the last few days, because it's so unusual and such a significant sum of money.


This is a case with a long history.  Ms. Fair was employed as a Supervisor, Regulated Substances, Asbestos.  In 2001, she developed generalized anxiety disorder (and later depression and PTSD), in connection with job stress.  She received LTD benefits for a time, which terminated in April 2004.  On July 8, 2004, the school board determined that it could not accommodate her disability, and terminated her employment.

In November of 2004, Ms. Fair made a complaint to the Ontario Human Rights Commission.

As a sidebar, it's important to understand that this was prior to important amendments to the Human Rights Code.  At that time, the process meant that you first complained to the OHRC, which would investigate the complaint and determine whether it warranted a referral to the Tribunal.  There were a number of problems - perceived and real - with that process, and the Commission developed a backlog inconsistent with the purposes of the Code.  So the legislature amended the Code and created what we call a "direct access" model - as of July 2008, if you think your human rights have been violated, you file an application directly with the Tribunal.

However, the question remained as to what to do with the Commission's backlog, and the answer was to create a couple of transitional streams for these issues:  Basically, if you had a live complaint before the Commission, you had until June 2009 to convert it to a transitional application to the Tribunal.  The Tribunal assigned a lot of resources, and created an entirely different set of procedural rules, just to get through this backlog.

Therefore, in 2009, Ms. Fair turned her complaint into a transitional application.  The application form asked her what she wanted, and she sought reinstatement.  This is apparently the first time she indicated that she wanted reinstatement, but the complaint form to the commission apparently didn't require her to specify the remedy being sought.  (It's been a very long time since I've seen one of those forms; I'm unable to independently verify that.  It's also not entirely clear to me whether she would have used the 'self-draft' complaints the Commission started using in October 2004, or an older questionnaire.)

So there's the employer, five years after dismissing her, and suddenly she's seeking a reinstatement remedy.  The important thing to know about reinstatement is that, in the human rights context, it's almost certain to come with full back pay.  In a moment, the school board's monetary exposure expanded exponentially, not to mention the difficulty it might expect to have placing her.

It still took until February 2012 to get a decision on liability - i.e. whether or not the board had discriminated against Ms. Fair - and until March 2013 to get a decision on remedy.  Not particularly ridiculous in terms of legal proceedings generally, but rather slower than the HRTO should be moving.

The HRTO's Decision

The decision on liability is here, and the decision on remedy is here.  In essence, the adjudicator determined that there would have been work positions into which Ms. Fair could have been placed without causing undue hardship, but the employer had failed to make the requisite effort to accommodate her.

On remedy, the Tribunal ordered the school board to reinstate her to "a suitable position", at or equivalent to the level she was at before her dismissal.  The board argued that the passage of time made the reinstatement remedy unfair, but the Tribunal noted that most of the delay wasn't the applicant's fault.  (Not really the board's fault, either - it was a failure of the system itself.)

In terms of back pay, she had made some casual and part-time earnings, but not much, so as of the liability decision date (March 2013), the retroactive back pay was calculated at nearly $420,000(!!!), plus pension and CPP adjustments and compensation for lost medical benefits, and a gross-up for tax, which again is an absolutely huge sum - basically it means that she needs to get the after-tax income she would have received over all those years, despite the fact that she'll be at the very highest marginal tax rate for the year in which she receives the lump sum.

The Judicial Review Application

I received a copy of the Divisional Court's reasons earlier this week, but they were just posted today on CanLII.

The Divisional Court does not hold hearings de novo for such matters.  They aren't going to listen to much, if any, evidence, nor decide which side they believe.  Their job is to decide whether or not the adjudicator made a mistake, and adjudicators are entitled to a lot of deference.

The school board made arguments about sufficiency of reasons, and that the adjudicator's findings were unreasonable in the circumstances.  That's a tough sell to make, most of the time, and the Divisional Court didn't accept it.

The board also argued that the adjudicator shouldn't have allowed her to seek a new remedy of reinstatement - but the fact that she wasn't required to specify the remedy sought in the old process was a full answer to that.

The other argument by the board is, perhaps, the most interesting:  That there was a reasonable apprehension of bias.  The HRTO's hearings are not generally recorded (a fact for which the Ontario Court of Appeal has already chastised them), and there was a disagreement as to something the adjudicator said.  The employer alleged that, at the start of the hearing on remedy, the adjudicator asked if the Board would place Ms. Fair in a senior labour relations role; the Board answered no, and the adjudicator allegedly responded to the effect that she "would write a decision and that the lack of a position would be no excuse for no reinstatement".  (That quotation is from the Divisional Court's description of how the employer's counsel paraphrased it.)

However, in her decision, the adjudicator made it very clear that her caution had been to the effect of what the case would be if (not when) she decided reinstatement was appropriate.  This does not suggest a closed mind.  (Likewise, there was another case recently where a Deputy Judge was accused, unsuccessfully, of bias after encouraging parties to engage in settlement discussions because he was prepared to decide the issue but they may or may not like his decision.  It is a well-recognized reality that adjudication is a hammer that doesn't really allow for the kinds of creative and mutually beneficial settlements parties might be able to craft on their own.)


This is an interesting case.  There aren't many cases dealing with reinstatement at the HRTO, and the transitional applications aren't really supposed to have much precedent value, but a Divisional Court decision upholding the reasonableness of such a decision...will be harder to ignore.

Of course, with stakes this high, it would be really surprising if the school board didn't seek to appeal this further, which will take more time.  In that time, they're still presumably not reinstating Ms. Fair, and their liabilities continue to grow - assuming that they aren't ultimately successful.  Of course, now that they're into the civil courts, there are possible cost consequences, too - whichever party is ultimately successful will likely be entitled to a contribution to their legal fees through the judicial review application and appeals therefrom.

Ultimately, however, while this case does illustrate how badly the system needed to be changed, I'm not sure it's a particularly flattering reflection of the new system, either.  Justice delayed is justice denied - let's assume that she's ultimately successful in another year and a half or so (could be less, could be more), and gets reinstated some 12 years after the termination.  Because of systemic delay, that's 12 years she's been without steady employment, 12 years of wages that the employer has to pay her, plus probably hundreds of thousands more dollars for the tax gross-up...and as nice as it will be for her to get that lump sum, consider that she'll also be returned to work having been out of the workplace for 12 years.  Her skills will be rusty and probably out-of-date.  People will have changed, systems will have changed, the requirements of the job will have changed.  And her best case scenario is being put back into an equivalent position; that's 12 years of career progress she's lost.


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

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

Tuesday, September 30, 2014

Trinity Western v. LSUC: Interveners

Trinity Western is, unsurprisingly, seeking judicial review of the Law Society of Upper Canada's decision not to accredit their law school - a decision with the result that Trinity Western law grads would not be eligible to practice in Ontario.  I previously explained why Trinity Western shouldn't have a law school, and then explained my view on the consequences of LSUC having rejected them.

LSUC is not the only one to reject them.  Other Law Societies that hold their own votes in such matters have, as well - New Brunswick rejected them, and Nova Scotia granted only a 'conditional acceptance' if they don't make their law students agree to their 'community covenant'.  Which is as good as a rejection.  The BC Law Society, after initially voting to accredit them, reviewed the decision, held a binding referendum, and voted down Trinity Western.

TWU's been known to litigate this sort of thing in the past, so nobody's surprised that they're litigating.

First order of business:  Who gets to participate?  In this kind of public interest litigation, lots of folks pop up on both sides wanting to support their cause.

In TWU's corner, we have:
  • The Canadian Council of Christian Charities
  • The Christian Legal Fellowship
  • Justice Centre for Constitutional Freedoms
  • The Association for Reformed Political Action Canada
  • The Evangelical Fellowship of Canada
  • Christian Higher Education Canada
  • Catholic Civil Rights League
  • Faith and Freedom Alliance
  • Gerard P. Charette
In LSUC's corner, we have:
  • Canadian Association of Labour Lawyers
  • Criminal Lawyers' Association
  • Out On Bay Street
  • OUTLaws
  • The Advocates' Society
(It's not 100% clear on the face of the decision which group CALL falls into, but I'm drawing some reasonable inferences here.)

Notice the themes?  Aside from the "Justice Centre for Constitutional Reforms", all the other pro-TWU interveners are religiously affiliated.  (Mr. Charette, the only individual seeking leave to intervene, is a lawyer and a deacon.)  All those on LSUC's side are lawyer associations.

Justice Nordheimer had to decide who gets to participate, and who gets sidelined.  There's no bright-line way of doing this, and he acknowledged that all the parties bring something to the litigation, but there's a lot of overlap between their respective positions and perspectives.

Ultimately, intervener status was granted to Christian Legal Fellowship, jointly to the Evangelical Fellowship of Canada and the Christian Higher Education Canada, and to the Judicial Centre for Constitutional Freedoms...and on the other side of the coin, jointly to Out On Bay Street and OUTLaws, to the Advocates' Society, and to the Criminal Lawyers Association.


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

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

Tuesday, September 23, 2014

Ford v. Keegan: Dependent Contractors, Fiduciary Duties, Restrictive Covenants, and More

The Superior Court of Justice released a decision last month in the case of Ford v. Keegan:  Ford is a safety consulting firm, and had retained Mr. Keegan to provide safety training to its customers.  After Ford terminated the relationship, Mr. Keegan continued to provide such services to Ford's customers and former customers, and Ford sued Keegan to enforce the terms of a non-competition clause.

Keegan counterclaimed in wrongful dismissal.

It's an interesting case, if a lengthy read, covering a number of the more nuanced issues in employment law:  Was Mr. Keegan an employee or an independent contractor?  Is the termination language in the agreement enforceable?  Are the restrictive covenants enforceable?  Was he a fiduciary of Ford?  What is the impact of Keegan's subsequent bankruptcy?

Ultimately, the court determined that Mr. Keegan was not an employee, but rather fell within the 'intermediate category' of a dependent contractor.  The agreement entitled Keegan to 30 days notice of termination, which Ford had provided - the agreement was enforceable and the wrongful dismissal counterclaim was dismissed.  As for the restrictive covenants, they were found to be void, but Keegan was nonetheless found to have breached fiduciary duties owed to Ford, and his resulting liabilities survived the bankruptcy.

So yes, a lot of ground to cover, and I'm going to deal with them in an unusual order, because I think some of the court's conclusions have more impact than others - in particular, I'm struck by the court's assessment of the written contract, because Justice Price expressly declined to follow a persuasive line of cases on the point, dealing with what I call 'formulaic non-compliance'.

The Contractual Termination Clause

The contract contained a term entitling either party to terminate the contract on 30 days' notice.  In an employment contract, this would be problematic, because the Employment Standards Act, 2000 guarantees employees with more than 5 years of service more notice than that.  The established wisdom, up until now, was that such a clause, in an employment contract, would be void ab initio - i.e. it would constitute an unlawful attempt to contract out of the terms of the ESA, and thus be voided, regardless of whether or not it satisfied the employee's actual statutory entitlements at the eventual point of termination.  This conclusion was first reached by the BC Court of Appeal 1998 in Shore v. Ladner Downs, and followed by the Ontario Superior Court in 2011 in Wright v. The Young & Rubicam Group of Companies.  (See my discussion of Wright here.)

Thus, Keegan took the position that the termination clause did not comply with the Employment Standards Act, 2000, even though he did receive more than the minimum notice under the ESA (he'd only been in the job for a little over three years, entitling him to three weeks).

I must remark that I consider the judge's finding that Keegan was not an employee to be a full answer to this submission:  The ESA simply does not apply to independent contractors, and probably not to dependent contractors either.  However, Justice Price instead found that the termination clause "did not violate" the ESA under the circumstances.

The judge referenced Shore v. Ladner Downs, then the Wright case, but declined to follow them:
I respectfully disagree with Low J.’s reasoning in Wright. An employer who prescribes a notice period in a contract of employment must conform to provincial employment standards legislation for the particular employee, in the particular circumstances.  The employer who drafts an agreement prescribing a fixed notice period, rather than one that increases with the employee’s years of service, and who does not negotiate a new employment agreement when the employee’s years of service entitles him/her to a longer period of notice, assumes the risk that the clause will become invalid at that point and that the common law will prevail to determine the period of notice required. It is only invalid at that point and not invalidated from when the contract was initially executed.
I would like to be able to call this obiter, to say that the issue was disposed of by the finding that Keegan was a contractor, but the reality is that I can find no support for that proposition within the text of the decision itself.  As a result, the decision stands both for the highly dubious proposition that dependent contractor relationships are governed by the Employment Standards Act, and also directly creates a schism in the law as to the impact of the ESA on non-compliant formulas.  Until the question is resolved by an appellate court, this will result in significant uncertainty in the law.

(I also have to say that the Shore v. Ladner Downs approach simply made sense to me, as well:  Section 5 of the ESA expressly provides that any attempt to contract out of an employment standard is void - it really is a question of contractual interpretation, of whether or not the language itself is compliant with the ESA.)

Employee versus Independent Contractor

This is an issue I see arise with surprising frequency.  Many parties choose to characterize their relationship as that of an independent contractor.  For the payor, it relieves them of obligations under various employment statutes, including employer contributions to EI and CPP.  For the payee (i.e. the worker), it can have tax advantages - you get to write off expenses.

That said, I've seen a good many cases where workers were sold on the 'you get to deduct your expenses' pitch where there are no legitimate expenses to deduct from your taxes - at least, none the CRA would accept.  This is often the case for the particularly superficial 'independent contractor' designations.

This case was not a superficial attempt to mask an obvious employment relationship with an independent contractor designation.  Keegan had a lot of autonomy in terms of his work, and while he had to comply with Ford's pricing guidelines, the compensation was all a function of his billing.  Keegan was not 'controlled' in the sense that would normally indicate an employer/employee relationship.  While Ford had its own promotional material, Keegan directed where to promote his services.

The strongest indicator of an employment relationship, in this case, was the exclusivity of Keegan's relationship with Ford - not only did he not have business or clients outside of that relationship, but he was unable to do so as a term of the contract.  Justice Price identifies this factor as not being determinative, however - that's probably correct (though I would consider contractual exclusivity deserving of a great deal of weight).  In light of all the other factors, it was not enough to make Keegan an employee.  However, it also created a degree of economic dependence inconsistent with an independent contractor relationship, with the impact that Keegan was deemed to be a 'dependent contractor'.

Restrictive Covenants

The contract included a sweeping restrictive covenant preventing Keegan from providing training to any of Ford's customers for two years, in a territory that covered almost all urban areas in Ontario and Quebec, among others.

The problem with this, the court found, is that Keegan did not have access to a list of Ford's customers.  This made the agreement ambiguous and overbroad, effectively preventing Keegan from offering services to any company which could possibly have been Ford's customer.  That rendered the restrictive covenant unenforceable.

And a court can't generally fix a restrictive covenant.  You can't just interpret it down to something that would be acceptable.

That's pretty well-grounded in the case law.  What's less grounded in the established jurisprudence, however, is where the court went from there.

Fiduciary Duties

"Key employees" can owe fiduciary obligations to their employers - i.e. an obligation to put the employer's needs ahead of their own, including an obligation not to compete unfairly after the end of the employment relationship.

Most often, fiduciary duties are reserved to senior management - people in a position to know and direct the company's activities at a high level.  However, there are cases where more junior individuals who act as the 'face of the company' are found to have fiduciary duties, as a result of the exclusive relationships they develop with clients of the business.  It's a complex area of law, and Justice Price includes a good summary of it from paragraphs 168-179.

Going into the application to the case, however, there are some problems in the analysis.  Not only does Justice Price allow a lot of 'restrictive covenant' cases to influence the analysis of whether or not a fiduciary duty exists, but he misstates the conclusions of a number of cases he relies upon - for example, in at least two of the cases where he states that employees were found to owe fiduciary duties, the contexts were of motions for interlocutory injunctions:  The courts in those cases were not called upon to provide an answer to whether or not a fiduciary duty exists, and did not do so, but rather found (at best) that there was a legitimate argument to be made on the point.

There has been a movement in some quarters (including the New Brunswick Court of Appeal) to scale back the application of fiduciary duties owed by lower-level employees; Justice Price rejected that approach, however, and concluded that, when Ford provided Keegan with a list of customers, it put itself in a position of vulnerability - thus, Keegan owed a fiduciary duty not to unfairly compete using the customer list provided by Ford, and breached that duty.

Respectfully, I think we're looking at two distinct issues here:  A fiduciary duty doesn't arise by virtue of possession of the list.  A fiduciary duty, in this context, can only arise as a result of the nature of the relationship between the customers and the employee.  The list can come tied to other obligations of a non-fiduciary nature - if it's confidential and proprietary (and it probably is), then using the list may amount to a misappropriation of Ford's data.

But there's even more strangeness when looking at the nature of the fiduciary duty, because Justice Price looks to the restrictive covenant, which "while ambiguous and over-broad, and therefore unenforceable as such, is evidence from which I infer that the parties agreed that prohibiting Mr. Keegan from providing training to his customers at Training Services for a period of two years after the termination of the Agreement was reasonable and necessary to protect Training Services from the vulnerable position which it created for itself when it entered into the Agreement."

Justice Price therefore concluded that Keegan was restricted, for a period of two years, from providing services to customers on Ford's list within the geographical zone set out in the restrictive covenant.

In other words, having found that the restrictive covenant was unenforceable because it was ambiguous and overbroad, a defect which the court could not cure, Justice Price used the fiduciary doctrine to resurrect and repair it.

Further Commentary

I'm fairly troubled by the overall conclusions here.  It seems entirely plausible that Keegan violated proprietary interests of Ford, and can be held liable for that...but the finding of a fiduciary duty seems very strained, as do the conclusions regarding the contents of the fiduciary duty.

Indeed, it's not clear to me at all that it's appropriate to hold a dependent contractor to post-employment fiduciary duties in the first place.  He wasn't an employee at all, and yet he satisfies the test for a 'key employee'?  Definitely an element of having your cake and eating it too.

What's particularly alarming, though, is that there's nothing particularly unusual about the case, as 'unenforceable restrictive covenant' cases go - the employee goes off and competes, employer tries to enforce the restrictive covenant, fails because the restrictive covenant was framed too broadly.  It happens all the time, and in all of these cases there's a vulnerability of the employer to the employee (or else the restrictive covenant would have failed for other reasons, too).  If Justice Price's approach - cure the vulnerability with a fiduciary duty, and read the contents of the unenforceable restrictive covenant into that duty - were correct, that would be the resolution of all such cases, with the result that employers don't need to worry about ambiguity and overbreadth of their restrictive covenants.  It's hard to reconcile with the established jurisprudence from the Supreme Court of Canada.  Not to mention that looking to unenforceable terms as evidence of the intentions of the parties is pretty close to the exact reasoning the SCC rejected in the Machtinger case.

I'll let the bankruptcy lawyers weigh in on whether or not the finding that Keegan's liabilities survive bankruptcy is consistent with the objectives of the BIA.


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

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

Tuesday, September 9, 2014

Magnetawan Clerk was a "temporary" worker, not entitled to notice

In early April, 2009, Mr. Free was appointed to the position of CAO/Clerk of the Municipality of Magnetawan, on what Council understood to be a temporary basis.  In July of the same year, another individual was appointed on a permanent basis, and Mr. Free's appointment was terminated.

He sued in, among other things, wrongful dismissal.  The action was recently decided by Justice Gordon, with reasons reported here.

The Evidentiary Issues

There were significant disputes about the nature of the discussions leading up to the appointment of Mr. Free.  At a late stage in the proceedings, Mr. Free sought to introduce into evidence emails suggesting that the contract was for a three-year-term, and sought to increase his claim accordingly.  (I've previously posted about the impact of a fixed term contract on dismissal damages.)

The authenticity of those emails was in question, and Justice Gordon seemed somewhat displeased that there was no forensic evidence entered relating to the emails.

As a side note, I've come across this before:  On a file I had some years ago, the opposing party produced a number of emails which my client denied having received...and which, on close review, seemed not to quite fit with the rest of the timeline.  I managed to identify a number of irregularities in the printouts, and was able to hypothesize as to how those irregularities arose - in a nutshell, they were simply bad forgeries.  In discussing the matter with IT experts, it became clear that it's next-to-impossible to prove the authenticity (or not) of email printouts - a better forgery could easily be generated through a graphic design program.  However, an electronic copy of the email would be possible to analyze:  For example, I can go into Outlook and save an email I received as a .msg file, and send that (as an attachment to another email, or via a USB key) to an IT expert, who can then examine the metadata in the header to determine its authenticity.  Not sure if that would still be possible to forge, but it would be much more difficult.  Of course, if you're right that the printout is a fake, then you'll never actually receive it in .msg format, and instead the other side will just claim something like, "Oops, our email server automatically purges them after a period of time.  That's why we printed them out."  Disproving that becomes a much more onerous task.

Fortunately, in my case, my close review revealed that the date on the face of one of the email printouts was incoherent - the format gave the weekday, and the weekday simply didn't mesh with the remainder of the date.  It would be like a document dated Friday, September 9, 2014:  Sept 9/14 is a Tuesday, and no properly-functioning computer software could ever assign that date to an automatically-generated email header.

So Justice Gordon was faced, on the one hand, with Mr. Free claiming that this was a genuine email exchange, and on the other hand, the other participant, Mr. Evans (who was no longer with the municipality), saying "I never wrote that."

Classic "he said, she said" credibility dispute, in a sense.  Justice Gordon accepted that the emails were not authentic.  (Incidentally, Justice Gordon also noted that, in addition to saying 'I never wrote that, and wouldn't write anything like that anyways', Mr. Evans also opined that the date format in the printout was wrong.  Justice Gordon accepted that evidence, and in my respectful opinion was probably wrong to do so - different software and different settings can generate any number of date formats, and Mr. Evans does not appear to have been an appropriately qualified expert to give that opinion.  However, I don't think that would have changed Justice Gordon's conclusion that he found Mr. Evans to be more credible, which conclusion would be subject to significant deference from an appellate court.)

Therefore, the fixed term contract supposedly established by the emails...wasn't.

What, then, are we left with?

Was the Agreement for "Temporary" Services?

Justice Gordon concludes that the agreement between the parties was 'temporary' in nature - i.e. Mr. Free would fulfil the duties of the CAO/Clerk on a temporary basis until a permanent replacement was found.  "Given the temporary nature of the position, and the expectation it would be brief, I conclude no notice of termination was required."

At common law, there's no particular relevance to an arrangement being referred to as "temporary". An employment relationship is either for a fixed term or for an indefinite term, and are presumptively for an indefinite term - as the Supreme Court has put it: The "pattern of conduct now generally accepted and applied by the courts in the absence of evidence to the contrary is one of employment for an indefinite period terminable by either party upon reasonable notice, but only upon reasonable notice."

Conversely, an independent contractor relationship is presumed to be terminable by either party without notice, absent evidence to the contrary.

So there's no category of temporary service.  An understanding that the relationship is temporary would arguably affect (as an extended Bardal factor) the reasonable notice period for an employee at common law, but would have absolutely no bearing on an independent contractor.

Was Mr. Free an Independent Contractor?

Mr. Free invoiced Magnetawan through a corporation he had incorporated - the relationship was certainly structured as that of an independent contractor.

However, that's not determinative.  There are well-established legal tests for assessing whether an individual is an employee or independent contractor, and the characterization of the relationship by the parties is simply a factor in these tests.  Even where there is a corporation involved in the relationship, that is not determinative.

The courts generally will look to the actual nature of the relationship to determine whose business it really was - chance of profit/risk of loss, control over the work, ownership of tools, etc. - to assess whether the relationship was actually an employment relationship or an independent contractor relationship.

Justice Gordon was surprisingly brief in his assessment of this issue - not only did he not refer to the legal test, but he also didn't refer to the other factors relevant to consideration under the test.  Which surprises me here, because, while I don't think it's necessarily open-and-shut, I might need some convincing that a CAO/Clerk position is really anything other than an employment position.

Justice Gordon determined that Mr. Free was an independent contractor, and thus not entitled to reasonable notice of termination.

To What Damages would Mr. Free be Entitled?

Mr. Free lost, but Justice Gordon went on to assess damages on a 'just in case I'm wrong' basis.

If the contract was for a three year term, his damages would have been $262,800.  If it was an indefinite term employment contract, his damages would be pay in lieu of 4 months, or approximately $31,000.  Notice periods for short service employees are notoriously unpredictable, and this is well within the reasonable range.

However, from the wording and structure of the reasons, it really does look like Justice Gordon may be creating a dichotomy between 'temporary' and 'indefinite' employment which has not historically existed at law, and concluding that a 'temporary' position does not require notice of termination.

If Justice Gordon is correct that Mr. Free was an independent contractor, all bets are off, and Mr. Free is entitled to nothing.  However, if Mr. Free was an employee, then it would be very novel to say "But it was temporary employment, and therefore there was no implied term of reasonable notice."  (It would, perhaps, be more aligned with established law to say "But the indefinite term employment was understood to be short-term, and therefore the reasonable notice period is reduced.")


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

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