Wednesday, April 23, 2014

Dismissed Sales Manager in Barrie Gets $100,000 Windfall

The Ontario Superior Court of Justice released a decision last week on a summary judgment motion in the wrongful dismissal case of Smith v. Diversity Technologies Corporation.  The motion was heard in Barrie by Madam Justice Vallee, a Newmarket judge.

Mr. Smith was a sales manager at the company from 1991, which was then known as Drillwell.  Drillwell was purchased in 2007 and rebranded to DiCorp.  In October 2011, he was dismissed, allegedly for cause.

The Employment Contract

There's some issue as to whether or not there was an enforceable written employment agreement, but in a stark reversal of the norm, the employee was arguing that there was an enforceable agreement, and the employer was arguing against it.

It's a Bowes v. Goss Power Products type of case:  Mr. Smith was dismissed, but found a new job three weeks later.  In the absence of a written employment agreement, common law doctrines would say that he mitigated his damages, and therefore he would obtain very low damages.

However, when Drillwell was purchased in 2007, an employment agreement was signed which entitled Mr. Smith to a year's notice or pay in lieu.

DiCorp was under the belief that the employment agreement had never actually been executed:  The previous owners of Drillwell had intended to make Mr. Smith a partner, and so when they sold instead they insisted that Mr. Smith be offered an employment contract...but the demand was dropped in the course of negotiations, and Drillwell made a $200,000 payment to Mr. Smith instead.

The trouble with DiCorp's recollection is this:  There were copies of the written employment agreement which had been signed by the parties.  (No single copy signed by both, but contracts executed in counterparts are not unusual.)  As well, DiCorp had acted in accordance with the employment agreement, modifying Smith's salary accordingly.

The judge accordingly found that the contract was enforceable.  In light of that finding, there was no issue of a mitigation credit (following Bowes, no doubt):  His damages were $100,000 - his annual salary at the time of dismissal.

Just Cause

DiCorp took the position that it had just cause to dismiss Smith, in connection with a client with large outstanding receivables:  In September 2011, they claim that they told Smith that all sales to that client should be on a cash or credit card basis, yet Smith went on to accept an order from the client and instruct the production staff to put a 'rush' on it.  Supposedly, DiCorp gave Smith a written warning, though this wasn't in evidence.  Later, they claim that they instructed him not to accept any orders from the client, expressing an intention to commence legal action against the client for the outstanding debts, and Smith went on to accept an order for $1,168.94 from that client, accepting a cheque in payment.

Smith's recollection of events was that he never received any written warning, and that the only instruction he had received was that sales should be on a "cash on delivery" basis.  Furthermore, he claimed that it was not him who processed the subsequent order or accepted the cheque.

DiCorp took the position that the credibility issues made this matter unsuited to summary judgment.  That's a tough argument following the recent Supreme Court decision in Hryniak.  The judge decided to approach the case taking the employer's case "at its highest and best":  Even if Smith did what he was accused of doing, it increased the delinquent accounts by a 'trifling' amount, and had to be considered in light of Smith's lengthy service and positive performance reviews.  It would be a singular mistake and a relatively trivial one at that.  Particularly in the absence of evidence of a clear and properly documented warning, DiCorp didn't have just cause.


This is a good decision.  In the face of a written contract signed by both parties, it would take something pretty compelling to justify not treating the parties as having reached an agreement as to the document's terms.  Of course, there could be other issues of enforceability, but saying "We never signed an agreement" can't really survive well in the face of "Well, there's your signature on the agreement."  (My guess?  The negotiations with Drillwell ended without requiring an employment agreement to be signed, but by that time the agreement was probably already in the works, and nobody actually killed it.)

There's a bit of superficial ambiguity, with the motion judge saying firstly that she'll take DiCorp's case at its "highest and best", and then proceeding on the basis that they had not given him a clear written warning, despite their claims to have done so.

I'm not troubled by this, though.  Firstly, in the absence of a copy of the warning, it's impossible to assess whether or not the warning was sufficiently clear to warrant termination for subsequent infractions.  And the onus is on the employer.  If DiCorp had provided a written warning, then they should have been able to provide a copy of the warning, ideally with his signature on it acknowledging receipt of the warning.  Without any record of the warning they claim to have given (and if they had it, they should have led it in evidence), there's no reason to think that the employer might be able to meet its onus.  Even if one assumes that DiCorp did, in fact, give a written warning, their evidence at its best and highest is that there was a written warning, with no indicia that it had the requisite clarity that the employer could rely upon it to justify termination.

A written warning should not be "fire and forget".  Process is important, for exactly this reason:  If you need to rely on it, you need to prove what it said, when it was given, and that it was provided to the employee.

All things considered, the evidence is far from establishing the kind of wilful insubordination that might justify termination, and particularly given the relatively trivial nature of the misconduct, for a 20-year employee, dismissal seems really heavy-handed.


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.

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