Monday, March 31, 2014

The Corporate Veil: Which Company is the Employer

Interesting case out of the Ontario Superior Court of Justice - King v. 1416088 Ontario Ltd.

Jack King worked in basically the same job for 38 years, doing accounting and bookkeeping for the liquidation/auction business generally known as "Danbury".

What makes this a tricky case is that the business has not been the same legal entity through all that time.  The trade name "Danbury" was owned and/or used by about 8 different corporations over time.  In the past, the business was owned and operated by Bernie Weinstein, though it has passed to Bernie's son-in-law (David Ordon).

In other words, while there have been a number of corporate shells carrying on Danbury's businesses, it has been a family business that whole time, and Mr. King's job was related to all of them.  It isn't unusual for someone in Mr. King's position to work for a parent company.  In this case, however, there was no parent company, and so he was nominally employed by, from time to time, five of the eight corporations.

In 2011, the corporations carrying on business under the Danbury name wound up, apparently due to financial difficulties, and all employees - including Mr. King - were dismissed.

Now here's where it gets tricky.  In 1992, David Ordon had incorporated a company named 986866 Ontario Ltd. (let's call it "866").  In 1995, with the hope that his grandchildren might one day take over the family business, Bernie Weinstein's company granted 866 a 75-year license to use the Danbury name.  It doesn't appear that 866 did anything other than hold the license until 2011, by which time David had conveyed all the shares of the company to his son Jonathan.  Then, after the Danbury businesses wound up, Jonathan started 866 into the auction and liquidation business, using the Danbury name.

King had done a bit of work related to 866, including setting up its payroll account (etc.) shortly before being dismissed, but 866 had never been his nominal employer.

Within a few months, 866 had hired back most of Danbury's employees, but not Mr. King.

The Action

King had two significant claims:  Wrongful dismissal, and retirement compensation.  His wrongful dismissal claim was clearly going to be at the high end of the spectrum, and there was no dispute that he was entitled to 24 months' compensation, worth just under $150,000.  As well, in 1981, King and his employer at the time had entered into a "Retirement Compensation Agreement", that if he worked for them until he was 65, then he would be entitled to a monthly pension until he died (and for a minimum of ten years, with survivor benefits) of $736.60.  Not a huge value, but minimum benefits over ten years of over $88,000, and potentially much higher.

The pension hadn't been discussed after 1981.  David Ordon had forgotten about it.  Jonathan Ordon never even knew about it.  Nobody remembered what led to it being signed in the first place.

The Court found no reason not to uphold the Retirement Compensation Agreement, so King was entitled to that as well.  Furthermore, in light of the Supreme Court's decision in Waterman, the pension was effective as of the termination date, overlapping with his pay in lieu of notice.

But the major issue is this:  Who owes King the money?  None of King's nominal employers were carrying on business anymore, and most were long-defunct, so the probability of collecting a six-digit compensation award and ongoing pension from any of them was...pretty slim.  The only company carrying on business at this point in time was 866.

So this case raises the question of what makes a 'related employer':  There's a doctrine allowing employees to claim around the corporate veil, to prevent companies from escaping employment liabilities by doing their hiring through impecunious shell corporations, or doing other nasty tricks to hide behind the corporate veil.

Where there is "a sufficient degree of relationship between the different legal entities who apparently compete for the role of employer, there is no reason in law or equity why they ought not all to be regarded as one for the purpose of determining liability for obligations owed to those employees who, in effect, have served all without regard for any precise notion of to whom they were bound in contract."  The courts look fundamentally at whether or not there is "common control" of the different corporations, with an admonition from the Court of Appeal that complex corporate structures should not be used to work an injustice in the realm of employment law.

In this case, the Ordons argued that 866 was not a "phoenix" company.  It's a very unique feature of this case that 866 had not only existed prior to the winding up of the other businesses, but had actually owned the naming rights necessary to begin carrying on business.  Most of the time, as OldCo winds up its business, it has to convey something, if only goodwill and trade names, to NewCo.  In this case, OldCo simply wound up its business, and NewCo simply started up a new one without requiring any conveyance or transfer from OldCo.

However, as unique as that is, the judge still considered 866 to have "too many attributes in common with other companies who have traded under the Danbury name".

Using the same name, same offices, same chairs, same desks, etc., may or may not have been sufficient to find that the employers were 'related'.  However, what appears to have been fatal to the defence was the fact that - to the extent that they didn't keep everything the same (using new computers, new credit card terminals, and of course new corporate accounts) - there was a rolling transition.  The fact that Mr. King himself actually did work setting up the accounting framework for NewCo probably hurt their case a lot, but the fact that they were setting up the accounting framework there already before OldCo stopped carrying on business is, on my read of the judge's reasons, the lynchpin in the case.

The Lesson for Employers

What makes this result so inherently palatable is this:  While it might make things more difficult for companies (and their lawyers!) trying to set up a new corporate entity in such a way as to insulate it from employment claims of the old company, I don't really think it changes anything for arms-length sales of businesses.  If you're buying the assets of another company in such a way that your business will be indistinguishable to the public from the old one, in general you have to deal with responsibility for employment obligations in the agreement of purchase and sale itself.

(Note this well, small business owners.  I can't tell you how many times I've had professionals or other small business owners say "I bought this business, and hired this employee who has worked here for decades, but now I'm finding I don't really get along with the employee."  Depending on the specifics, you can be on the hook for a very significant amount of money.  That's why you need to pay attention to employment issues at the front end, in the agreement itself, rather than waiting until it becomes an issue to start thinking about it.)

I have very seldom come across cases where there was what I will call 'succession of convenience', where there's no transaction between OldCo and NewCo, but NewCo just happens to be in the right place at the right time to pick up OldCo's dropped business (and leases, and employees, etc.).  (In those cases, it would still be nearly unheard of for OldCo to use the same name.)  It might be worth paying attention to the King case for NewCo in such a situation, but I don't anticipate that they will generally be dealt with similarly.  Without the rolling transition, or the relationship of the owner of NewCo to OldCo, King may well have been decided differently.

Nonetheless, people buying businesses need to be alive to these issues, and get good legal advice on the point, because of the scale of liabilities that can come with them.


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, March 25, 2014

BlackBerry's Executive Vice President isn't allowed to leave

As we all know, BlackBerry's hit some rough times lately.  (That's aside from my own BlackBerry Torch's soon-to-be-hard-times, as it gets thrown against a brick wall and replaced by an Android or iPhone, if I can't solve the problem that it stopped accessing my new email account.  But look at me, one sentence in, and already digressing.)

The Struggling Tech Company Formerly Known As RIM ("BB") acquired a company called QNX in 2010, and with it came a certain employee, Sebastien Marineau-Mes.  It seems that they liked Mr. Marineau-Mes, and as of early 2013 he was a Senior Vice-President, right near the top of the management hierarchy.

However, as we know, the top of the management hierarchy has gone through some changes lately, with Thorsten Heinz succeeding Jim Balsillie and Mike Lazaridis in January 2012, and then stepping down to be replaced by John Chen in November 2013.  And, when the top dog changes, that often creates problems for those who answer to the top dog.  When they met, it began to appear to Marineau-Mes that his role with BB, as Justice McEwen put it, "might ultimately be narrower in scope than originally contemplated".

In the same time frame, Marineau-Mes was talking with Apple about possibly going over to them, and Apple offered him a job as "Vice President Core OS", entailing oversight of the software development of iOS.  Marineau-Mes gave BB his Notice of Resignation on December 23, 2013, and advised them the next day that he would joining Apple in California in two months.

The problem is this:  Under the terms of his contract, he was obligated to give BB six months' notice of resignation.  (Though BlackBerry appears to have sent him home, not requiring his services since January 6, 2014.)

You see where this is going.  BB brought an Application for a declaration that the contractual termination clause is enforceable.  Here's the decision.

Incidentally, BB wasn't looking to actually enforce the contract, and instead merely sought a declaration that it was enforceable and that Marineau-Mes was bound to its terms.  There's a big difference, for a couple of reasons I'll go into in a minute.  Presumably, the application was intended to pre-empt a position being taken by Marineau-Mes' lawyer that the contract couldn't be enforced, based on four arguments.

Argument 1:  Non-Compliance with the ESA

There's a broad requirement on contracts to comply with the Employment Standards Act, 2000, and non-compliance can easily void provisions of the contract.

This is a relatively nuanced and complicated contractual interpretation argument, but the key is this:  The resignation provisions in the contract terminate his entitlement to vacation pay as of his 'last day worked', being distinct from the end of his employment, whereas under the statute vacation pay is still owing for 'inactive' periods of employment.  (As it happens, Marineau-Mes is still being paid, including vacation pay, but that doesn't go to the heart of the question of whether or not the contractual provision is ESA-compliant.)

Justice McEwen didn't agree that Marineau-Mes' last day worked has necessarily passed - in essence, BB is holding him in their employment, and paying him, and reserving the right to consult with him, and so the contractual termination date still hasn't passed.

Respectfully, I might argue that Justice McEwen missed the point:  The question isn't simply a factual one, of whether or not the contract purports to disentitle him to vacation pay...but rather, whether or not it could.  There's solid case law standing for the notion that formulaic non-compliance is sufficient to void a provision, and I think I agree with Marineau-Mes' counsel that the fact that the contract disentitles an employee to vacation pay from the last day worked to the end of his notional employment is probably a violation of the ESA.

Justice McEwen went on to note, in obiter, that even were it otherwise he still wouldn't see the provision as voiding the whole resignation clause:  "In my view, a fair reading of [the case law] leads to the conclusion that the offending term would be considered to be null and void, but not the entirety of the section."

That's a complex issue, and one not considered in a large number of cases - the question is one of 'severability', and the question is usually whether or not the offending provision can be removed while leaving the surrounding context intact.  The relevant contractual provisions are produced in full here, and it is difficult for me to see how you would 'blue pencil' the entitlements language out of the Notice clause while leaving the rest of the Notice clause intact.

Argument #2:  Marineau-Mes Never Assumed his EVP Duties

Not much had happened with the promotion, including its announcement, before Marineau-Mes left. His pay raise happened, however.  The judge was satisfied that this was enough for the EVP contract to be seen as effective.

Argument #3:  The Six-Month Notice Period Amounts to a Non-Compete Clause

Justice McEwen rejected this argument for a few reasons, the most compelling of which in my view is this:  Marineau-Mes is still getting paid by BlackBerry.  That alone makes it very different from a post-employment non-comp clause.

Argument #4:  Marineau-Mes Had "Good Reason" to Terminate the Employment Contract

Did the conversation with Chen, suggesting that his role might not be what was anticipated, give him "Good Reason", within the meaning of the contract?  Justice McEwen is probably right to find that that isn't enough.

But what about sending him home after he gave Notice of Resignation?

Here's the crux:  There's a very-seldom-raised scenario where a senior employee resigns, and then gets told to sit in an empty office and do nothing for 8 hours per day throughout the notice period.  Is this a constructive dismissal?  My thoughts:  Probably.  The departing employee is probably entitled to say, "Yeah, that's not going to happen", and walk out the door.

How about the much more common scenario of notice being 'waived'?  Is that a termination?  Or does it notionally continue the employment relationship on the basis of "We'll pay you to stay home".  And if it's the latter, is that a constructive dismissal?

These are interesting questions, not significantly addressed in the case law, because they don't typically matter...but they're relevant here.  Having given notice, and having been stripped of all of his duties, is Marineau-Mes now entitled to treat the employment relationship as being at an end?

Justice McEwen looks at the question very much from BlackBerry's perspective, that it's "not surprising" that they changed the nature of his duties following him submitting Notice of Resignation.  Respectfully, whether or not it's surprising does not really touch on the question of whether or not they're contractually entitled to make those changes.  Simply, it's a question of whether or not the nature and scope of the changes they made to his duties would create "good reason" to resign within the meaning of the contract, and the fact that he had given notice of resignation is kind of a red herring.  It's not like a residential tenancy arrangement, where my landlord is suddenly allowed to walk new prospective tenants through on next-to-no notice because I told him I'm leaving.

If I give six months' notice of resignation, then yes, I expect to be transitioning my work to someone else, but I also expect to be doing a substantial amount of that work through a substantial period of the notice period, and if somebody takes all the work off of my plate, the message that sends is "This employment relationship is over."

Nonetheless, Justice McEwen allowed BB's application, finding that the contract is enforceable.

What Does That Mean for Marineau-Mes?

Well, here's the rub.  Marineau-Mes argued that BlackBerry isn't entitled to a declaration - basically, that if the contract is enforceable, then they're limited to suing him for their actual damages.  And, given that they've had him sitting at home for almost three months, it doesn't seem that they'd suffer much damages by not having his services anymore.

Justice McEwen rightly assessed that the question of the entitlements flowing from breach don't change whether or not BB is entitled to that declaration, so he didn't really answer that question.  So the next issue is this:  If Marineau-Mes starts working for Apple anyways, what can BlackBerry do about it?

My suspicion is this:  Fire him for cause.  But that would basically put Marineau-Mes where he wants to be.

There are other possibilities as well, of course.  He's probably a fiduciary, so if there's reason to think that he's competing unfairly, there might be a remedy for that.  But the availability of any sort of injunctive relief is fairly dubious in this scenario - again, it's not a non-compete clause.

So BlackBerry completely won on this application.  But it remains unclear to me exactly what they won.


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 Nadon Reference: Surprising, but not "Wrong"

There's been a lot of criticism in recent days about the Supreme Court's decision on the Supreme Court Act reference, determining whether or not Marc Nadon is eligible for appointment to the Supreme Court.


Justice Nadon was admitted to the Barreau du Quebec in 1974, and practiced as a Quebec lawyer (though with a stint in his firm's London England office) for 19 years, until he was appointed to the Federal Court in 1993.  In 2001 he was appointed to the Federal Court of Appeal, and he became supernumerary (semi-retired) in 2011.

He was appointed to the Supreme Court of Canada last October, to replace Justice Morris Fish.  However, a challenge to his eligibility was mounted, so he stepped down pending its resolution.

The challenge is based on s.6 of the Supreme Court Act, which requires three of the judges on the Supreme Court of Canada to be "appointed from among the judges of the Court of Appeal or of the Superior Court of the Province of Quebec or from among the advocates of that Province."

This isn't about appeasing Quebec.  At least, not entirely.  Most of Canada follows the English tradition of "common law"; however, Quebec's legal system is based in the continental European "civil law" system.  It's different.  And it's important that the differences be acknowledged and recognized at the Supreme Court level, and that judges be appointed with civil law education and expertise.

As a further point of background, it's important to note that s.5 of the Supreme Court Act provides that a person is eligible for appointment to the Supreme Court if he or she "is or has been a judge of a superior court of a province or a barrister or advocate of at least ten years standing at the bar of a province."  [My emphasis]

So there's no question that Justice Nadon is eligible to sit on the Supreme Court, under s.5, but the question is whether or not he's able to fill one of the mandatory Quebec seats on the Court, as required by s.6.  Since he's replacing Justice Fish, he needs to meet that criterion.  And the problem is obvious:  He is not a judge of the Court of Appeal or of the Superior Court of the Province of Quebec, and he also isn't among the the advocates of that Province.  (Technically, it's common to perceive a judge as still being a lawyer.  However, the treatment of lawyers and judges is distinctly different within the context of the Supreme Court Act.)

The further question is whether or not the Federal government has the power to unilaterally amend the relevant provisions of the Supreme Court Act to make Justice Nadon eligible.

The Decision

The majority of the Court decided against Justice Nadon's eligibility.  They further decided that the government can't amend s.6 without unanimous consent of the Provinces.

From a 'constitutional law' perspective, the decision on the amendment of s.6 is the most interesting.  But that's a far more complex matter, and not the one that has occupied much of the public's attention.

The majority applied a 'plain reading' literal approach to the language of s.6:  It says "from among", which implies that the appointment has to currently be part of that group.  It's really a very simple argument, especially from a linguistic perspective.  They highlight that the drafters of the language intended 'former members' to be eligible for appointment under s.5, and omitted any reference to former members in s.6.  This is a legitimate application of the principles of statutory interpretation:  If those who drafted the provision intended former Quebec lawyers to be eligible for appointment, why would they have used similar language to that in s.5?

The majority further argued that there was an enduring intention, since 1875 when the provision was first enacted, to exclude former members of the Quebec bar.  Justice Moldaver picks up on this, and attacks it as an assertion without any historical foundation, but likewise I have not seen any indication of any other former members having been appointed to the Supreme Court.  In other words, while the majority may have overstated the point when purporting to be upholding a historical consensus, it's more accurate to say that the question appears to have never arisen in the past.

Justice Moldaver wrote a lone dissent.  In a nutshell, he argues that sections 5 and 6 are "inextricably linked", such that the requirements in s.6 referentially incorporate the 'past member' eligibility in s.5.  (Put simply, he's saying that the intention behind s.6 is say that, for three of the judges on the Court, the "Province" referred to in s.5 must be Quebec.)

The Criticisms

The legal community is surprised.  I can say that I expected the majority decision to be along the lines of Justice Moldaver's dissent.  That was probably a widespread expectation.

Grant Huscroft, a constitutional law professor from the University of Western Ontario, claims that this decision is "as bad a decision as the Court has made in recent memory."  That's a pretty bold claim, and almost certainly well into the realm of hyperbole.  Columnist Andrew Coyne calls the decision "flaky", and argued that it amounted to judicial activism.  In the House of Commons, Peter Mackay impliedly attacked the timing of the release of the decision, during the Quebec election campaign.


As I said, I'm surprised by the outcome.  It has the result that an appointment to the Federal Court is probably not a track to possible appointment to the Supreme Court for Quebec lawyers, and that from the Federal Court only non-Quebec judges are likely to be considered for Supreme Court appointments, essentially treating Federal Court judges from Quebec as being without a Province.

It's a pretty arbitrary result.  Nobody suggests that Marc Nadon isn't a good enough judge, and nobody suggests that he's no longer a Quebecer in any particular sense, or no longer understands the tenets of Quebec's Civil Code.

That's why we expected the Supreme Court to move along the lines of Justice Moldaver's dissent:  It's a bit of a forced reading of the language, but it's a results-driven logic, and the result makes sense.

The majority, instead, took a literal reading of the language.

But the criticisms against them for doing so are totally unfounded - indeed, they're a reversal of the usual criticisms of judicial activism.  Normally, the Court takes more heat for not standing to the literal, and for engaging in forced and results-driven analyses to get to the conclusion they want.  There is no question in my mind that the majority's interpretation is cogent and available on the wording of the statute.  I don't think it's the only possible interpretation, nor do I think it's the best one, but I'll save my criticisms for decisions that deserve them.


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

Thursday, March 20, 2014

Employer Ransacks Former-Employee's House Searching for Documents

In law, there's a powerful tool we call an "Anton Piller Order", or "APO" - the easiest way of understanding it is as a 'civil search warrant', an order enabling a party to search for and seize documents in the possession of another party.

The purpose is to prevent the destruction of incriminating materials.  It's absolutely not about procuring evidence to bolster one's case, and is reserved for cases where the court is satisfied that there's a real risk of the materials being destroyed if the other party has notice.

APOs have been referred to by the courts as "draconian", and as "a nuclear weapon".

And in the recent case of Irving Shipbuilding Inc. v. Schmidt, it was used by an employer against its former employee.

The facts are fairly simple, and relatively run-of-the-mill, even on the worst allegations made by the employer, ISI:  Basically, Schmidt had been a senior employee of ISI, and he departed to go work for another company (allegedly their competition), and allegedly downloaded some 7000 pages of confidential documents before leaving.

I've talked about such cases before.  They happen.  Taking confidential and proprietary information over to a competitor is a very bad idea.  Non-compete agreements are hard to enforce, and even fiduciary duties - where applicable - have their limitations, but misappropriation of confidential information to use with a competitor will always mean trouble for the employee.

And the usual course of action is this:  The employer commences an action against the employee, brings an ex parte motion (i.e. without the other party showing up) on an urgent basis, seeking an injunction for the return and destruction of all confidential information, and prohibiting the employee or competitor from using the information in any way.  In theory, the motion's supposed to come on again for full argument, on full notice, within ten days afterward, but in practice there are usually adjournments, as preparing for a full hearing can take longer than that.

But ISI took this to a whole other level, seeking an Anton Piller Order.

The Sequence of Events

Schmidt resigned on July 29, 2013, claiming that it was for health reasons.  In fact, he had already accepted a position with Chantier Davie Canada Inc. ("Davie"), of which he advised other ISI employees by email on August 16.  Davie had recruited a number of ISI employees previously, and Schmidt was recruited by another former-ISI employee at Davie.  The extent to which Davie and ISI are actually competitors, commercially speaking, is disputed, however:  Schmidt's position is that they address different market segments of the shipbuilding industry, with ISI dealing primarily with the Canadian Navy, whereas Davie builds for offshore and commercial clients, mostly supply vessels for offshore oil platforms and ferries for the Province of Quebec.

Still, after finding out that Schmidt had gone over to Davie, ISI started an investigation, and concluded that, shortly prior to his departure, Schmidt had downloaded 7000 pages of confidential and proprietary documents from offsite locations.

On August 20, 2013, ISI's counsel sought a hearing date from Justice Beaudoin on an urgent basis, for an APO to seize and secure ISI documents in Schmidt's possession (and, strangely, Schmidt's employment contract with Davie).  It was scheduled for August 23.  ISI provided Justice Beaudoin with motion materials, and further requested a closed hearing and a sealed court file because of concerns that the documents would be destroyed if they came to Schmidt's attention.

As I was reading the case, it seemed like a strange thing from the outset:  Electronic downloads leave the original documents intact.  There's no reason to think that Schmidt went in and deleted the documents from ISI's records, but rather it seems that they had copies.  And they seemed to have records establishing what he accessed and when.  So why are they so concerned about possible destruction?  In the usual injunction, destruction is sought by the moving party.  And asking for a closed hearing, with no notice to other parties, for an order allowing a party to search Schmidt's's a pretty dark scenario.

They convinced the judge that the APO was appropriate, alleging that ISI and Davie were competing for a particular contract, the "Terry Fox" bid, and that Davie having access to ISI's materials would be catastrophic.

It's not entirely clear how they convinced the judge that their interests couldn't be protected by a less intrusive order.  The 'risk of destruction' was warranted because of Schmidt's deception regarding his new job, and his offsite downloads at strange hours.

So, the first thing Mr. Schmidt heard of the case was on August 23, 2013, when a search party showed up at his door with the APO in hand.  They told him he could contact a lawyer (within an hour...of course, he doesn't have a lawyer lined up), and then they searched his house for relevant materials, searching his computers, seizing USB keys, etc.

The Reality of the Documents

Following the search, Deloitte was retained to audit the materials, and found that their suspicions and fears of improper use of confidential information were unfounded.

Schmidt had, over the course of his employment, accumulated some ISI documents in his possession.  That's normal.  But most had no proprietary information at all, and nothing that was commercially sensitive.  As well, without any real basis, the APO included Schmidt's employment contract with Davie.  (So now, apparently, ISI knows the details of what Davie is offering its employees to induce them to depart ISI.)

Only two USB keys with ISI information had been plugged into computers after Schmidt's resignation, limited to contact information, biographical information, and a Teaming Agreement with no particular commercial sensitivity.

An Improper Purpose?

Schmidt alleges that the reason that ISI proceeded for an APO was to 'make an example' of him, to show its employees what would happen if they went over to Davie.  Immediately after the APO was granted, despite the sealing of the record and the absolute secrecy it had demanded, ISI proceeded to distribute the APO to other former ISI employees.  Without actually making a factual finding of improper purpose, the judge noted that these actions "lend credence to Davie's and Schmidt's arguments that this APO was obtained to send a message to Davie and to intimidate departing ISI employees."

Final Disposition of the Motion

When the motion comes back on for a full hearing, the main question on a motion like this is whether the order should have been granted in the first place.  It's a hearing de novo, meaning that the court gets to look at all questions with fresh eyes, but the results of the search aren't really material to whether or not it was appropriate to permit the search in the first place.

Schmidt raised a lot of challenges to the APO.  He didn't succeed on all bases, but he was successful enough:  Notably, he persuaded the court that ISI had materially misrepresented the facts in respect of the Terry Fox bid.  ISI had stated as an unequivocal fact that they were competing for the bid.  In fact, they merely suspected that Davie was planning to make a bid for the contract, and never disclosed that it was merely a suspicion, nor the basis for that suspicion.  Furthermore, as it turns out, the Terry Fox bid was a million-dollar contract, which in context was pretty insignificant.

Furthermore, ISI breached the terms of the very order it had sought by serving others with the APO before it was confirmed.  On an ex parte motion, the moving party has an obligation of 'full and frank disclosure', and breaching that obligation is sufficient to set aside the order.

As well, ISI failed to establish 'serious damage' that would result from destruction of the evidence in question.  The serious damage can be procedural (i.e. If it's destroyed, we won't be able to prove our case) or financial (i.e. If it's destroyed, we're going to lose a huge amount of money).  The trouble for ISI is that they (a) had all the documents and (b) still knew exactly what documents were alleged to have been misappropriated.  They claimed that the APO prevented Schmidt from just handing off the documents to someone else, but there is other relief effective to address such concerns.

Next Steps

Now, having established that the APO shouldn't have been granted in the first place, Schmidt gets to chase ISI for two things:  Damages, and costs.

And, frankly, I think ISI has a pretty heavy exposure here.  The overbreadth of the APO to capture the the employment contract could be a problem for ISI, but the far bigger and more concerning aspect of this is the search:  It's a deep invasion of Schmidt's privacy, just showing up at his door with an order to search his house, which can call for fairly significant general damages on its face.  Intrusion upon seclusion, trespass, conversion...  Add to that the fact that ISI knew that Schmidt has personal health issues, and that as an employer ISI owed Schmidt a duty of good faith and fair dealing, and you could potentially be looking at aggravated and/or punitive damages as well.  And costs...well, I expect that they'll be fairly far into the five digit range as well.

Additional Comments

Anton Piller orders are pretty exceptional.  In employment relationships, I would think they'd be even moreso.  There were other avenues, which are adequate and frequently pursued in parallel situations, available to ISI, and that fact alone means that they should have gone down that road.

But I don't see why this was granted in the first place.  On an ex parte motion, there's a high burden on the moving party to make frank and full disclosures, but there's also an elevated burden on the court itself to satisfy itself that everything appears to be proper, and it's not clear to me how ISI could ever have convinced the judge that lesser injunctive relief - return/destroy all confidential information, make no use of any confidential information, etc. - would have been inadequate.  Heck, an injunction restraining Davie from bidding on the Terry Fox contract might even have been appropriate, based on the facts being alleged.  But an Anton Piller Order seems to be missing the mark entirely in terms of purpose.

As well, I'm growing increasingly concerned about framing in these 'download' cases, about lawyers and judges dealing with highly technical IT issues in the absence of a full record.  Plaintiff lawyers keep going on about high numbers - number of pages, number of documents, number of files - which were downloaded.

Here's the thing:  The instant you clicked on the link that brought you to this blog, you downloaded its contents.  Pages of content, probably multiple files.  That's how the internet works.  We think of downloading as 'copying', and technically it is, but it's not necessarily active or intentional copying.

So whenever an individual does work from home, the contents of the files being worked on end up downloaded and temporarily stored to the individual's hard drive.  In my current office, there's a law clerk who works from home once a week, accessing the server remotely.  If she were to depart employment, we could get IT people to come in, look at the history, and say truthfully that, in her last few weeks here, she "downloaded" hundreds of files, with thousands of pages, containing confidential and privileged client information, litigation strategies, billing practices, and other confidential and proprietary information.  This would all be strictly true, simply on the basis of her acting in the ordinary course of her duties, yet it could be cast or characterized in such a way that a listener would assume that she misappropriated the information for sinister purposes.

I've seen clearer cases, where the employee was accessing sensitive information he had no business accessing in the course of his duties, or where the employer's IT records can establish distribution of the information - i.e. download to a USB key, or emailing to somebody else outside the organization.

But in the absence of those indicia, we need to be careful about exactly what is being described, distinguishing, in a meaningful way, a download for the purpose of misappropriation, versus simply accessing it for use in performing one's job.


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, March 19, 2014

Ontario Court of Appeal Says Duty to Mitigate Only Triggered After Dismissal

There's a very interesting case out of the Ontario Court of Appeal, Farwell v. Citair, Inc.  Hat tip to @LancasterCanada for tweeting about it.

In many ways, it's a typical Mifsud-type constructive dismissal case:  Mr. Farwell was a senior and long-service employee, and he was transferred to a different position - it was effectively a demotion to a position he had held many years earlier.  He refused the demotion and took the position that he had been constructively dismissed.

Farwell was found to have been constructively dismissed, and awarded 24 months' pay in lieu of notice.

Citair argued that, despite the constructive dismissal, Farwell was obligated to mitigate his losses by accepting the newly offered position:  Essentially, that the absence of an atmosphere of hostility, stigma, or loss of dignity meant that he had no excuse not to stay.  The trial judge found otherwise, but there is some reason to think that there may have been subjective considerations informing the analysis, whereas the test is actually objective - not whether Farwell felt that there would be stigma, but whether a reasonable person would have felt that there would be stigma.  (Put another way:  Was Farwell's perception of stigma 'reasonable'?  It's a question that it isn't entirely clear the trial judge considered properly.)

So it's conceivable that the Court of Appeal may have allowed the appeal and sent the question back down for a trial of that issue, if it were just that.

But the Court of Appeal dismissed the appeal and upheld the trial decision on a different basis:  The duty to mitigate is only triggered after the termination event.  The termination occurred in this case when he refused the demotion and took the position that he had been constructively dismissed, and there was no clear offer of re-employment after that time.

Why is this important?

In this case, the general issue of constructive dismissal mitigation intersects with the 'timing' issue I've addressed on a number of occasions recently.

There have been a number of cases where employees have been offered modified terms of employment, have refused, and have then been dismissed.  In the Silva v. Leippi case, the British Columbia Court of Appeal considered such an individual to have failed to mitigate - Silva's employer was selling the business, the new business owner offered a position to Silva, Silva tried to negotiate terms, and the new owner decided "We don't want this guy after all", and he was then dismissed.  The BC courts felt that Silva had failed to mitigate by not accepting the offer from the new owner.  Which seemed strange to me.  I remarked about that case while discussing the Bannon v. Schaeffler case from the Ontario Superior Court of Justice, which was similar:  Mr. Bannon was offered a demotion to his old position, which he didn't feel he was able to perform anymore, so he refused.  He was then dismissed.  The court felt that his decision was reasonable in the circumstances, and awarded pay in lieu of notice, but rejected any notion that the duty to mitigate wouldn't have been engaged otherwise, because the contract had already been 'effectively repudiated'.

This doctrine seemed very odd.  It's well-established law that an employee faced with a unilateral change by the employer to fundamental terms of employment has three options (aside from simply acquiescing):

  1. Subject to the duty to mitigate, the employee can treat the contract as having been terminated, and seek pay in lieu of notice.
  2. The employee can make it clear that he is not accepting the change, but stay in the position to mitigate his damages and sue the employer for any additional losses.
  3. The employee can reject the change outright.  In that case, the ball is in the employer's court:  The employer can dismiss the employee, or can continue to employ the employee on the same terms as before.
The third option isn't practically available in all scenarios, but it's really the one we dealt with in Bannon.  The Silva issue is even more troubling, because that's a common scenario when selling businesses.  The problem is that mitigation is a doctrine which addresses breach of contract (or tort, but that's unrelated) - there is no duty to mitigate until and unless the contract has been breached.  On first principles, there's simply no basis for saying that Mr. Silva had an obligation to mitigate at the time of the negotiations with the purchaser, nor that Mr. Bannon had a duty to mitigate when asked to accept a demotion, because there's no basis for saying at that point that the employer had already repudiated the contract.

In discussing the Loyst v. Chattens appeal recently, I suggested that the Court of Appeal's findings there were more in line with my argument - that Silva v. Leippi is not good law in Ontario.  After all, Loyst was the same "third option" kind of case as Bannon:  Chattens asked Loyst to accept changed terms of employment; she refused; she was dismissed.  The employer argued failure to mitigate, and the Court of Appeal rejected the argument on the basis that Chattens took away the opportunity to stay in the workplace by firing her.

Farwell makes that even clearer:  Mitigation duties are only triggered by the termination event.

But does it make sense here?

It still seems a little strange to me, though, because it does not appear to me that Farwell is a 'third option' case.  It looks like Farwell chose the first option, treated the contract as being terminated, and sought pay in lieu of notice.

It looks like the Court's guidance to employers is this:  If you transfer an employee, and they refuse and claim constructive dismissal, you're supposed to make a formal offer of employment in the modified position.  Kind of jumping through hoops.  And I'm not sure it's appropriate here, because when the employee chooses option 1, it means that he's taking the position that the contract has already been breached, and that lost income flows from the actions already taken by the employer.  It makes all the sense in the world to me that the duty to mitigate would be triggered in such a scenario.

On the other hand, there are practical realities in play, which the courts don't typically recognize, making option 2 undesirable for most employees:  Is it really practical to continue an employment relationship with an organization that you're suing?  So if the option is really on the table to continue the employment relationship after the employee has called out the employer and threatened to sue on its breach of contract, maybe it really should be incumbent on the employer to make an express offer before it can say that 'not coming to work was a failure to mitigate'.  Require the employer to hold out an olive branch, as it were.

Farwell is a big change to the terrain of constructive dismissal, requiring - for the first time - active steps by an employer to be able to avail itself of the mitigation argument which has been so effective in recent years.

With good legal advice at the outset, it's not a big hurdle to overcome, however.

On another note, I should say that the fact pattern in Farwell highlights some of my concerns with the application of the Mifsud doctrine generally:  Mitigation is typically a low threshold.  If I'm dismissed from my executive-level position, I'm entitled to look for another executive-level job.  I don't have to look for middle-management positions, nor do I have to accept one if it's offered to me.  Which is precisely what happened in Farwell:  There is no way that Farwell would have been expected to take that position with a different employer, and yet it turns out to be a close case when it's being offered by the organization which repudiated his contract in the first place.  Seems odd, no?


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

Thursday, March 13, 2014

Small Claims Court - Just Cause Defence Fails

There's a new case out of the St. Catharines Small Claims Court, Schalk v. Sitel, dealing with an employee in an outsourced customer service company (think: inbound call centre), who was dismissed due to personal use of company equipment.

The employee was there for just shy of 10 years, and had generally positive reviews.  In early 2011, she and two colleagues were disciplined (not dismissed at that point) for regularly using company email for personal purposes.  Her evidence, which the Deputy Judge accepted, was that her previous manager had permitted the practice.  The Deputy Judge highlights:  "Nevertheless Ms. Schalk and her colleagues were disciplined."

(It's not entirely clear to me what significance the Deputy Judge places on the discipline.  Having accepted that it was previously condoned, it's not properly disciplinable and not at all culpable, so the appropriate treatment of the purported discipline would be that it stood as a direction that - regardless of previous practices - that was no longer permitted.  But the evidence is that Ms. Schalk stopped using her email for personal purposes afterwards.)

Some twenty months later, she was dismissed without notice, and the employer took the position that the dismissal was for just cause, because Ms. Schalk was taking personal phone calls on the company phone line.  To Sitel's client, Cox Communications, this is a capital offence.

The evidence was that Ms. Schalk never made personal calls on company lines, but received several calls, particularly from the sister of a co-worker. [Edited:  In the original post, I mistakenly posted that it was Schalk's own sister.]  This violated company policy.

There was a logistical problem in the company policies:  When Ms. Schalk's line rang, she was required to answer it.  That was her job.  She didn't know who was calling until she answered it.  The phone number was publicly available (and her uncontradicted evidence is that she never gave it out).  The transcript of one call, from her co-worker's sister, was led in evidence, and the trial judge considered her to have dealt with it quickly.  The defence argued that she should have hung up as soon as she realized that it was not a client-related call.

The Deputy Judge concluded that it may have been appropriate of Sitel to "discipline Ms. Schalk in a more minor way", but that, particularly in light of her long service and positive performance, just cause was not made out without progressive discipline.

This makes a great deal of sense to me.  Receiving a personal phone call, in that kind of role, might even be fairly serious misconduct.  But without prior discipline on the point, clarifying the "hang up immediately" expectation, and the consequences that will flow from subsequent violations, it's unlikely that just cause will be made out in such a case.

That said, I think the Deputy Judge may have put a bit too much emphasis on her positive performance review after the 2011 discipline, suggesting that the employer was sending mixed messages.  While positive reviews might weigh against just cause in a general sense, it makes sense that an employee who engages in disciplinable misconduct yet otherwise does her job well might have a disciplinary record alongside positive performance reviews.  (However, because I don't really think the prior discipline matters, I don't think this should change the analysis.)

Reasonable Notice

So how much notice should Ms. Schalk have received?  The employer led case law, mostly quite dated, arguing for a notice period of 4-6 months.  Schalk argued for a notice period in the range of 7-10 months.  (She earned under $30,000 per year; more than ten months would put her over the Small Claims Court cap.)

The employer's position was ambitious, without a doubt.  The Deputy Judge recognized it as such, and awarded 10 months in lieu of notice, granting judgment for just under $24,000.


Ms. Schalk's mitigation evidence was pretty sparse.  She applied for a grand total of five jobs between the termination and the trial, though her evidence was that she spent a lot of time looking for jobs, and her lack of education meant that she wasn't qualified for many, so she started taking online courses to further her education.

Her evidence on the unavailability of other jobs within her expertise was unchallenged; the onus is upon the employer to prove failure to mitigate, and the employer did not meet this onus.


I have occasionally commented about the limits on Small Claims Court as a venue for wrongful dismissal.  This is not a case that really highlights my concerns.  This is a good decision, right on the law in all material ways (though I'm a little surprised by how the Deputy Judge got there in some ways).  Both sides were represented by counsel.

The plaintiff's lawyer is pretty junior - a third year associate with a full-service firm in the Niagara and St. Catharines area.  But her bio indicates that she only practices labour and employment law, and she clearly served her client's interests well in this case, and probably relatively affordably.

I know the defendant's lawyer personally; he was a year behind me in law school.  I can say firsthand that he's a good advocate (and not a bad softball player, either).  If there's such a thing as a 'good loss', this is it:  It was an uphill battle, and he appears to have fought it well.  I've dealt with his firm often enough, and they're usually pretty good about 'client management' in the sense of convincing their clients to negotiate reasonably.  (That said, some employers can be pretty stubborn about not wanting to give a package to an employee they think was a bad apple.)

With a two-day trial, this file would have been pretty pricey on both sides.  Definitely more expensive for the employer - their lawyer was not such a junior lawyer, and was from a major Toronto-based firm.

15% of the judgment - arguably the prima facie cap on costs at the Small Claims Court - would be under $3600.  This was a full win for the plaintiff, so one would hope that the plaintiff did better than an offer to settle, which could double that to $7200.  This isn't so far out of line - I can't know what kind of costs the plaintiff incurred, but it seems to me that, if she can collect $31,000 from the employer, she's probably coming out ahead by a pretty good margin.

And, from the employer perspective, consider the message:  One expects that they probably could have settled for less than $24,000 somewhere along the line, but now they're faced with paying the full $24,000 to the employee, plus, likely, a contribution to costs, not to mention having to pay their own legal fees...which, as I said before, I'm sure isn't cheap.

It definitely doesn't raise the concerns I've noted before about pyrrhic victories and encouraging employers to play hardball.

At the same time, this was kind of a 'best case scenario'.  A claim that approaches the maximum jurisdiction of the Small Claims Court; a junior lawyer for the plaintiff who nonetheless appears to be a competent employment lawyer; and a reasonably skilled and experienced lawyer acting for the defendant; and it dealt only with three 'bread-and-butter' employment law legal issues:  Just cause, reasonable notice period, mitigation.


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.

Labour Law and the Charter

This is a topic that frequently arises in labour law:  What, precisely, is the impact of s.2(d) of the Charter of Rights and Freedoms - that is, the freedom of association - on union activities?

Not only does the question keep getting asked, but the answer keeps changing.  Initially, the Supreme Court rejected union claims that their activities were Charter-protected.  But they've changed their minds about that, and the question is still burning:  How far does s.2(d) go?

There's a brief history to go through here, followed by a question up for consideration in the short term:  Does the constitution protect a right to strike?

The Labour Trilogy - 1987

In 1987, the Supreme Court of Canada delivered a series of reasons, the most detailed of which was the Alberta Reference.  A "reference" case occurs when the government asks the courts proactively for an answer to a legal question - in this case, the Province of Alberta asked its Court of Appeal (and the query was subsequent appealed to the SCC) whether or not 'no strike' provisions for certain public servants were inconsistent with the Charter, and also whether or not legislative limitations on collective agreement arbitration (basically, statutes telling an arbitrator what's on the table) were inconsistent with the Charter.

The answer - though it was far from unanimous - was No on both counts:  The Charter did not guarantee a right to strike, nor a right to collective bargaining.

The 'right to strike' has always been pretty contentious.  Though the right to collectively bargain was a closer battle, and rightly so.  Think about it:  The government and the union can't agree to terms.  The union can't strike, and instead can only bring the matter to arbitration.  And then the government gets to legislate the rules for the arbitrator, effectively telling the arbitrator what to decide.  It's like going to a court where the judge reports to your opponent.  Pretty unfair.

At the same time, bear in mind that the Charter was relatively new, and historically the government had held basically unrestricted power (subject to jurisdictional matters) - before 1982, if the government decided that it wanted to legislate something within its jurisdictional sphere, the courts had little to say about it.

Lavigne - 1991

Merv Lavigne, a teacher affiliated with the Liberal Party, objected to mandatory union dues, as the union proceeded to donate to the NDP.

Basically, Lavigne argued that the freedom of association included a right not to associate - to opt out from having his money contribute to a rival political party.

As background, it's worth noting that much of Canadian labour law turns on what we call the "Rand formula" - in essence, for most bargaining units outside of the construction industry, you don't need to join the union in order to work in the bargaining unit; you just need to pay dues.  The logic is that, while requiring employees to join the union may be somewhat heavy-handed, there's a recognition that there can be value provided by the union, in its obligation to represent the interests of all bargaining unit members:  Mandatory dues are simply a matter of the union insisting on compensation for the service it provides.  In theory, at least.

There was a seven-judge panel in Lavigne, and while all rejected Lavigne's argument, they had different reasons for doing so.  There was a threshold issue - whether the union's expenditure of dues was capable of attracting Charter scrutiny.  Five of the seven judges agreed that it did - Justice Wilson and Justice L'Heureux-Dube argued otherwise.  The next question is whether the s.2(d) protected against compulsory union dues.  On this question, there was a split court, with four answering "no".  However, the other three - though finding that s.2(d) was infringed - concluded that it was a justifiable infringement, under s.1 of the Charter.

So up to this point, the Supreme Court had found, basically across the board, that s.2(d) did not provide a constitutional basis for judicial intervention in labour relations matters.  But, unbeknownst to anyone at the time, the board was already being set for a rematch.

Dunmore - 2001

The more recent chapters of this saga turn on agricultural workers in Ontario, who have historically been excluded from labour relations statutes - the logic being, largely, to protect the "family farm", a major part of Ontario's economy and infrastructure.

In 1990, an NDP government was elected in Ontario under Bob Rae.  They made a number of sweeping changes across the Province, including a 1994 statute called the Agricultural Labour Relations Act, which had the effect of extending union and collective bargaining rights to agricultural workers.

Then, in 1995, the pendulum swung all the way back again, and the Rae government was defeated by Mike Harris' Progressive Conservative government, which immediately set about reversing the changes brought about by the NDP.  In November 1995, Harris passed the Labour Relations and Employment Statute Law Amendment Act, 1995, (the "LRESLAA"), which repealed the ALRA, and effectively reimplemented the exclusion on agricultural workers from labour relations protections, including terminating any agreements or bargaining rights certified under the ALRA.

In the mean time, the UFCW became the certified bargaining agent for employees of a mushroom farm in Leamington, and started a certification drive at a mushroom farm in Kingsville (and at a hatchery in Beamsville).  These activities were completely shut down by operation of the LRESLAA.

Suffice it to say that the UFCW was not pleased by the development, and immediately brought an application arguing that the LRESLAA infringed s.2(d) of the Charter.

I mentioned above that there's a threshold issue for applying the Charter - the Charter only restrains 'state action', being acts by or attributable to the government.  The freedom of expression doesn't guarantee everyone a soapbox, nor does it prevent me from censoring comments on this blog; it merely limits the ability of government to restrict expression.  Traditionally, the Charter also only restricts government action, and provides very minimalistic positive obligations - so it doesn't say that the government has to enact laws to protect freedom of speech; just that it can't enact laws restricting it.

What we're talking about here is a statute governing relationships between private parties, and the UFCW arguing that "you have to protect these parties too".  Their primary argument, therefore, was that the LRESLAA was in and of itself 'state action'.  This argument did not hold the day - it would have had the effect of immunizing a great many statutes from repeal, saying to the government "You weren't constitutionally obligated to do this in the first place, but now that you've done it, you are constitutionally prohibited from going back."

However, Dunmore became a major precedent in terms of the scope of 'state action', in that it was held that the exclusion of a specific group created a "chilling effect", tacitly encouraging employers and others to treat bargaining efforts by agricultural workers as illegitimate.

The Supreme Court concluded that, in fact, s.2(d) does protect the right to join a union, and the LRESLAA had a chilling effect on the ability of agricultural workers to join and maintain associations, and therefore was unconstitutional.  It's all a very soundly-reasoned argument, and not directly inconsistent with prior case law (though expanding on some doctrines significantly), and importantly expressly declined to opine about the full extent of the collective protections the government needed to extend to agricultural workers:  The necessary protections included the freedom to organize, freedom to assemble, freedom to participate in the lawful activities of the association and to make representations, and the right to be free from interference, coercion, or discrimination in exercise of those freedoms.  But beyond that, the court took a 'wait and see' approach.

It was a decision calling for a sequel.  And the Ontario government didn't disappoint, enacting the Agricultural Employees Protection Act, 2002, which basically extended precisely the minimum protections that majority of the Supreme Court said it had to, predictably resulting in the Fraser case being brought before the courts.  But before the Fraser case was concluded, there was an important intervening decision dealing the B.C.

B.C. Health Services - 2007

British Columbia was trying to address certain challenges facing its health care system, and passed a sweeping law with no meaningful consultations with the union beforehand.  It changed several matters relevant to labour relations, including transfers and assignment rights, contracting out, job security programs, layoffs, and others.

The problem, of course, is that many of these issues are addressed in collective agreements, so to change them unilaterally, the statute also had to override collective agreements.

There was no real question here about whether or not the B.C. government's actions constituted 'state action' capable of attracting scrutiny under the Charter:  The real question was whether or not the Supreme Court was now prepared to reverse its position in the Trilogy, and recognize that the Charter protected collective bargaining.  And they did.

So with Dunmore, we saw the Charter protect the right to organize (and other activities essential thereto); B.C. Health Services stands for the proposition that the Charter protects the right to good faith collective bargaining.  It was a gradual expansion.

There is some awkwardness in the B.C. Health Services decision, however:  The Supreme Court dealt in great detail with the employer's duty to bargain in good faith, as content of the right to collectively bargain.  In some phrasings, it seemed to suggest that the Charter directly imposed an obligation on employers to bargain in good faith.  On a careful reading of the decision, bearing in mind an understanding of the Charter, the decision is better understood as imposing a requirement that labour relations regimes preserve the process of good faith consultation and bargaining.

Still, it left some uncertainty in terms of the scope of government's obligations in regulating the private sector:  Many read Dunmore as creating a situation in which 'positive state action' can be required by the Charter; my interpretation of Dunmore, by contrast, is that it turns a statutory exclusion which, for narrow factual reasons, constituted prohibited state action.  (Thus, I read it as being in line with existing Charter jurisprudence; others read it as being an exception to the traditional analysis.  At most, however, that exception is extraordinarily narrow.)  B.C. Health Services seemed to create a positive obligation on government to impose a duty to bargain in good faith upon all employers.  Which would indeed be a significant break from traditional Charter case law.

Fraser v. Ontario - 2011

After the Supreme Court struck down the LRESLAA in Dunmore and the Ontario government responded in 2002 by enacting the minimalistic AEPA, the UFCW still wasn't happy.  Agricultural workers now had the right to form and maintain an association and to "make representations" on a collective basis, but - unlike the general labour relations regime - there were no clear obligations on the employer to come to the table with the union.

In 2006, Justice Farley of the Superior Court of Justice dismissed the UFCW's application.  It was pretty clear-cut, after all:  In Dunmore, the Supreme Court told Ontario to do, at minimum, x, and Ontario responded by doing exactly that.  They followed the SCC's instructions to the letter, so until and unless the SCC further expands s.2(d), that should be fine.  The UFCW appealed to the Ontario Court of Appeal.

With B.C. Health Services going to the Supreme Court, however, the Fraser case was put on hold.  After all, that decision could change the terrain.  And, of course, it did.

I've posted about the Fraser case before - see my detailed analysis here.  There was a widespread consensus that, following B.C. Health Services, Ontario's response to Dunmore could no longer be considered constitutionally adequate.  The Court of Appeal found that, not surprisingly.  (Personally, I argued in a moot on the point that the 'state action' threshold wasn't met, that neither Dunmore nor B.C. Health Services had expanded the doctrine to the point that positive state action could be required absent evidence of a 'chilling effect', and that nothing in either case suggested that an exclusion would automatically generate a chilling effect sufficient for Charter scrutiny.  Essentially, I argued that there wasn't the factual foundation necessary to establish the inadequacy of the AEPA.)

The Supreme Court was mixed.  In my commentary before, I highlighted that the decision involved fifteen interveners, 33 lawyers, and 9 judges releasing four sets of reasons with an aggregate 369 paragraphs.

Justice Abella alone agreed with the Ontario Court of Appeal, concluding that the AEPA was unconstitutional.  Justice Deschamps argued that B.C. Health Services should be interpreted narrowly, and that we still need to be careful about imposing positive government action.  To that point, the argument was not altogether different from the argument I had made, but Justice Deschamps went on to argue that it rose issues of economic equality, and that s.15 of the Charter (the anti-discrimination provision) should be interpreted as including economic status.  Justice Rothstein and Justice Charron argued that Dunmore and B.C. Health Services were wrongly decided and unworkable.

A slim majority of the court, however, addressed the question creatively, interpreting the AEPA in such a way as to bring it within the B.C. Health Services framework.  It required some logical gymnastics and suspension of disbelief, but the effect of the decision was to impose on agricultural employers the obligation to bargain with unions in good faith.

This wasn't exactly a loss for the union, but it wasn't exactly a win either:  They wanted a full-blown "Wagner model" labour relations regime, and what they got wasn't even close.

For the fall-out from Fraser, have a look at this entry, where I discussed Ontario's Bill 115, designed to impose collective agreements on teachers, after a minimalistic consultation process which the Ontario Court of Appeal had recently upheld in the AJC decision, following Fraser.  (AJC did not receive leave to appeal to the Supreme Court of Canada.)

Upcoming Question #1:  The Right to Strike?

In two months, the Supreme Court will hear the appeal of a case out of Saskatchewan, in which Saskatchewan public sector employees are arguing for the right to strike.  They succeeded at the Court of Queen's Bench (following which I posted this entry), but were unsuccessful at the Saskatchewan Court of Appeal.

The Saskatchewan Court of Appeal was unambitious in its reasoning, relying on the Labour Trilogy and the fact that the Supreme Court has not yet expressly overturned its pronouncements therein that s.2(d) does not protect a right to strike.  Essentially, it was an invitation to the Supreme Court to settle the debate, and the Supreme Court accepted the invitation by granting leave to appeal.

There's plenty of reason to think that the Supreme Court no longer regards the principles underlying the Labour Trilogy as good law, so I'm inclined to think that the reticence by the Saskatchewan Court of Appeal in part arises from the way that the Supreme Court dealt with Fraser:  Look, the Ontario Court of Appeal tried to interpret B.C. Health Services, and did so in a way that made a lot of sense on its face, but the Supreme Court came in and did its own thing entirely.  They're being unpredictable on these issues, so let's just toss the ball to them and see how they handle it.

That being said, the Saskatchewan Court of Appeal did imply that they would have ruled that way anyways:  While Fraser suggests that some mechanism of resolving bargaining impasses may be required, there is no constitutional requirement that this mechanism be the opportunity to strike.  As well, the role of a strike, as fundamental to labour relations as it may have been a hundred years ago, has changed significantly over time.

I doubt that the Supreme Court will conclude that there is a right to strike, but the Saskatchewan Court of Appeal is right that it's time the SCC dealt with the issue again.  While Dunmore and B.C. Health Services both expanded s.2(d) significantly, I have argued that Fraser indicated the apex of the pendulum, with three judges arguing against adopting an expansive approach to B.C. Health Services, and another five also limiting its impact.

Upcoming Question #2:  What is the Full Impact of Fraser?

I've posted a few times about the MPAO case, with the Mounties trying to unionize.  The Court of Appeal shut down the attempt, based largely on a factual finding that the consultation system currently in place satisfies the requirements of the Fraser decision.  But the Supreme Court recently granted leave to appeal, so more will be said on the subject.

If the Supreme Court allows the appeal, that may amount to a significant expansion of the content of the right to collectively bargain - precisely what they refused to do in Fraser.  But it's also an opportunity to clarify the scope of the government's obligations under the Charter, which is important at this point.  On the one hand, the existing system gives the workers the right to form and maintain associations, and to make representations on a collective basis, which factually appear to be dealt with in good faith.  It's a fact pattern which definitely seems to lack the characteristic element of the Dunmore-type cases, which dealt with the effective impossibility of associational activities.

On the other hand, the reality remains this:  If the employer and workers (collectively) can't agree on terms, the employer unilaterally has the final say.

If it's correct to say that some mechanism for resolving bargaining impasses is constitutionally necessary (as opposed to the Ontario Court of Appeal's interpretation that, once good faith bargaining has been attempted, the government's Charter obligations are satisfied), then one might anticipate the Supreme Court partially allowing the appeal in MPAO and requiring the RCMP to implement such a mechanism.

But if the Supreme Court were particularly troubled by the Ontario Court of Appeal's interpretation of Fraser, then AJC would have been the much better case for strengthening s.2(d) - asking whether or not the government can resolve good faith bargaining impasses by legislative fiat.


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, March 11, 2014

The Condonation Defence: Firing the Condoner

There's an ongoing wrongful dismissal action against the Bank of Nova Scotia by a former Mortgage Development Manager, Mr. Payzant.

I've had some dealings with banks.  The impression among bank employees, at least, is that dismissals tend to result only from fraud or theft of some sort - i.e. if you get fired from a bank, those who know you were fired will presume that you must have been padding your own pockets.

In my own experience, this is not necessarily true; however, most of the dismissals I have seen from major banks have involved allegations of just cause.  Mr. Payzant's case is no different:  His dismissal resulted from a complaint to the Office of the President dealing some some of Payzant's mortgage files.

The nature of the irregularities isn't clear to me on the reported decisions, but it's probably not the case that there's any pocket-lining going on here, given that it appears that Mr. Payzant is making a 'condonation' argument.

What is Condonation?

Condonation is a fancy way of saying that the employer had tolerated and accepted the conduct with which it now takes issue.

When misconduct comes to the attention of an employer, the employer must decide in a timely fashion how to address it.  If the employer doesn't take any action to show the employee that the conduct is unacceptable (i.e. discipline), then the employer is taken to have 'condoned' the behaviour.

For example, suppose you're an employer, and you discover that an employee is engaging in serious misconduct.  One or two instances of it might justify termination, but you can't afford to lose the employee right now, so you sit on it, and don't raise the issue with him for a prolonged period.  This has two effects:  Firstly, and most simply, you can't just bring the issue out of the woodwork a year later when work has slowed down and you don't need him anymore.  Secondly, and perhaps more shockingly, you have tacitly sent a message to the employee that this conduct is acceptable, and you will be unable to discipline him even for subsequent similar actions, without first clarifying expectations.

In this way, condonation basically acts as a justification for actions which would ordinarily be considered serious misconduct.  "I've been doing this for years, and the employer never had a problem with it before.  How can they fire me for it now?"

The Payzant Case

There's a recent decision from the Superior Court of Justice on the Payzant case, with Mr. Payzant wanting, among other things, access to the dismissal file for his former supervisor.

You see, Mr. Payzant was fired in May 2009.  He commenced litigation, and eventually proceeded with examinations for discovery of the supervisor on June 28, 2011, and again on May 10, 2012.

Three weeks later, according to Justice Gauthier's decision, Scotiabank dismissed the supervisor.

Payzant argues that the examination for discovery made it clear that the supervisor had known about and condoned the conduct now alleged to constitute just cause, and infers that the Bank fired her because of it.

It's a logical narrative:  Senior management at the bank finds out that Payzant is doing something they consider inappropriate, so they fire him.  They later find out that Payzant's manager was 'in on it', so they fire her too.  If that's what happened, then the dismissal file may indeed support Payzant's contention that his conduct was condoned; therefore the court ordered disclosure of the file.

The problem, for the Bank, is 'chain of command':  To Mr. Payzant, his direct supervisor represented management of the bank.  And therefore, if she was 'in on it', then, generally speaking, that means that Mr. Payzant is justified in saying "My employer allowed me to do this."  (The exception would arise in a case where the employee and the supervisor were conspiring against the employer's interests.)

In a way, it's a 'big fish' analysis - you're better off being able to get rid of the supervisors and managers who aren't doing their jobs, rather than their subordinates who aren't being properly managed.  (As well, you'll typically find more benefit to proving just cause of a senior employee as opposed to a junior one.)

However, the reality is that there are a lot of well-meaning supervisors and managers, for a lot of institutional employers, who simply don't know how to manage people - who avoid the tough conversations, who want to keep a friendly relationship with subordinates, etc.  The natural inclination among HR and management is to regard these 'soft touch' managers as being a lesser evil, whereas the real problem is the trouble employees they're failing to discipline.  I might disagree with that analysis, myself.

I have a friend working in HR for a major institutional employer, who once told me about a 'problem employee' who, among other things, ran a small internet sales business, and attended to the business while at work, on the employer's time and the employer's equipment, including trying to sell to co-workers in the office.  Not only did the employee's manager fail to address the issue, but the manager actually bought from the employee while at work.  That's a big problem.  Of course, running a side business in your own time will generally be quite acceptable, and a sales pitch in the lunchroom might well be acceptable, too, but there are boundaries.  The employee in question failed to recognize the boundaries, and with early intervention and guidance might well have been brought to respect these boundaries.  Instead, the manager ignored and participated in the violation of appropriate boundaries, and the misconduct grew in scope, creating a larger disruption in the workplace, to the point that the employer eventually decided to be rid of this employee - not for cause, naturally, because of the condonation by the manager.

So, because the manager failed to manage, the employee's out of a job, the employer has to provide pay in lieu of notice, there are recruitment and training expenses to incur, and the rest of the department is shorthanded until a replacement is found and brought up to speed.  Everybody loses.

I've said this before:  Managers don't have to be mean.  Bullying isn't the same as managing.  But to properly manage employees, one has to be willing to have the hard conversations, and maintain a professional demeanour.  It's a tough balance to strike.


Update, March 26, 2014:  I have been contacted by in-house counsel for Scotiabank, and advised that, notwithstanding the court's decision indicating that the supervisor in question was dismissed, this is "not the case" and that, rather, she "resigned from employment with the Bank for reasons unrelated to Mr. Payzant's action against the Bank."

I'm not in a position to assess the accuracy of the competing positions between the judge's comments and those of Scotiabank.  In general, I take a judge's statements at face value, but in this case the factual question of whether or not she was dismissed doesn't appear to have been squarely contested.  The plaintiff alleged that she was dismissed, and it looks like Scotiabank's position at the hearing was to broadly state that the end of her employment is inherently irrelevant, without providing any details of how they came to part ways.  Which is kind of understandable, since the whole motion was about whether or not Scotiabank should be required to produce details of the termination of the employment relationship in any event.


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. 

Did the City Handle this Complaint Correctly?

Last week, I made an entry arguing that an employer should not disclose the disciplinary actions taken in response to complaints of misconduct.

This week, there's a story in the Toronto Star raising similar issues.

Here's the fact pattern:

Ms. Rose works for the City of Toronto, and complained about inappropriate conduct by a co-worker in the lunchroom, in that he allegedly unzipped his pants and rubbed up against her.  Apparently, she initially alleged that he had completely exposed himself, but she later admitted that she turned her head away and couldn't be sure.  Her understanding is that, in the ensuing investigation, he denied exposing himself, but essentially admitted the rest of the allegations.

If true, either way, that conduct is extremely inappropriate.  If unwelcome, almost certainly sexual harassment.  In the absence of consent, it could arguably be sexual assault.  So it's pretty egregious.

The problem for Ms. Rose is that the context wasn't exactly flattering of her, either.  Prior to that act, he had said something to her (which she no longer recalls), and her response was "I will punch you in the dick".  Which, itself, looks to be pretty egregious, and led to the employer suspending her.

Ms. Rose contends that her statement was in line with common banter in the workplace - in essence, she's lining up a condonation argument.  Which could work, more or less, if it's substantiated by the facts - it's hard to impose significant discipline for something you've traditionally permitted.  So if she grieves it, that could be a factual basis for reversing or reducing the discipline.

But there's a larger issue here:  She feels that she's being punished for complaining.  And if that's true, that would be inappropriate on any number of levels.  But I'm not sure there's a basis for thinking it's true.  If I'm the boss, whether I'm typically okay with banter or not, seeing an admission in writing from an employee that she threatened to punch a person's genitals...well, I'd have a hard time turning a blind eye to that.  It's certainly something that calls for some response, whether a firm direction "Stop saying stuff like that", a formal reprimand, or something more significant.

At first glance, a suspension seems fairly severe, but there are other factors that could be relevant to that, such as discipline record.  We don't necessarily know all the facts.

Of course, if they suspended her without pay, and just told him, "Yeah, don't do that again", that kind of disproportionate response might support her inference that her suspension was motivated by the fact that she made the

What Happened to Him?

Inquiring minds want to know, right?  Well, the City's letter to her, after they finished the investigation, indicated that there was "some merit" to her complaint, and that the "matter has been addressed".  Which sounds like a whitewash, right?  (Especially in the Star's reporting.)

But this is the point I was making in my last entry:  That is the right approach to these matters.  The complainant has no right to know about the impact the complaint had on the employment relationship between the employer and the subject of the complaint.

Suppose she made a reprisal application to the HRTO, claiming that they were heavy-handed with her to send a message that complainants will be dealt with harshly...the proportionality of their response to her and their handling of the complaint itself might reasonably come under scrutiny, but in the absence of disclosure obligations that come with legal proceedings, it seems to me that the City did the right thing in keeping those details confidential.

Isn't It Inappropriate to Discipline the Complainant?

Anti-reprisal provisions are pretty far-reaching, but they have their limits, and there's a bit of a myth that they shield a person against all discipline.  You can discipline such a person, though not because of the complaint.  (It's kind of like the "You can't fire a pregnant person" myth.  You can fire a pregnant person.  But not because they're pregnant.)

I've often made this observation:  Suppose that an employee seeks accommodation for a disability, but does so inappropriately, in a profane letter which engages in inappropriate personal attacks against the supervisor.  On the one hand, the employer has an obligation to evaluate the accommodation request in a manner consistent with the Human Rights Code - determine if accommodation is required and reasonably possible without undue hardship, and (if so) provide such accommodation.  On the other hand, an employer doesn't have to (and shouldn't) accept profanity and personal attacks from an employee, and can impose appropriate discipline for that.  The fact that the employee is seeking an entitlement, and even a reprisal-protected entitlement, simply is not carte blanche to engage in other misconduct.

So yes, it would be inappropriate to discipline Ms. Rose for complaining.  It's almost certainly appropriate, however, to discipline her for threatening to punch another employee's genitals, regardless of how that issue came to management's attention.

Union Versus Non-Union Remedies

This is an area where being in a union is a bit of a mixed blessing.

A bargaining unit member, such as Ms. Rose, can ask the union to file a 'grievance' of improper discipline.  If she succeeds, and the discipline is rescinded or reduced, then her employee file will be amended accordingly.  This process is available for all manners of discipline.  However, a union can decline to pursue the grievance, and remedies against the union are generally slim-to-none - basically, the union's safe so long as its decision can't be shown to be arbitrary, discriminatory, or bad faith.

An employee who is not in a bargaining unit, by contrast, generally has no remedies akin to a grievance - basically, such an employee's remedies are limited to breaches of statute like the Employment Standards Act, Human Rights Code, or Occupational Health and Safety Act, or to dismissal or constructive dismissal.

So, unless it contravenes an anti-reprisal clause or rises to the level of constructive dismissal, a non-union employee generally has no remedy for inappropriate discipline.

That being said, an unpaid suspension will often rise to the level of constructive dismissal.  The general proposition of law (at this point in time) is that, unless the written contract provides for unpaid suspensions, or the misconduct rises to the level of just cause, an unpaid suspension will constitute constructive dismissal.

And you might be surprised by how frequently this becomes a problem.  The typical case involves a unionized employer and an employee who is not part of the bargaining unit - HR will sometimes fail to appreciate the difference (or even feel more at liberty in dealing with non-bargaining unit members, because there's no prospect of a grievance), and will proceed to impose an unpaid suspension.

Then they get a Statement of Claim alleging constructive dismissal, seeking pay in lieu of notice in addition to bad faith damages.  And by contrast to the 'temporary layoff' class of cases, it's much harder for an employer to resile from such a suspension and return the employee to work.

(However, on some of these files I've had, there were other strategies to consider as well.  For instance, there are cases where the employee, for good reason, would rather fix the employment relationship instead of quitting and suing.  In that case, the threat of a constructive dismissal action can be used as leverage to bring the employer to the table to discuss a mutually satisfactory resolution of the issues - basically a pseudo-grievance.)


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.