Residential Tenancies: Common Misconceptions

I've dealt with Residential Tenancies Act matters from time to time, and there are a number of common practices which are not entirely compliant with Ontario law.

Most (though not quite all) residential tenancies in Ontario are covered by the RTA, which sets out a large number of obligations for landlords and tenants, which they cannot contract out of.  As a result, it's not uncommon to be able to look through a residential lease and list off a whole pile of clauses that can't be enforced.  Note, however, that there are exceptions - tenancies to which parts or all of the RTA do not apply, and therefore legal advice should be sought in respect of particular circumstances.

Security of Tenure

There are certain reasons that a tenant can be required to leave the rental unit.  There are quite a number of circumstances, but an important note is that the expiration of the lease is not one of them.  When you sign a 12-month term lease, then the default is that it will convert to a month-to-month lease at the end of the 12 months and continue until and unless somebody terminates it in accordance with the RTA.

A landlord can pursue an order evicting a tenant at any time on a 'for cause' basis, such as non-payment of rent, undue damage to the rental unit, interfering with the reasonable enjoyment of the rental complex by others, or illegal acts in the rental unit.  (This is not an exhaustive list.)  Even if you're on a year-long lease, you can be evicted at any time even before the end of the lease on such bases.  (This makes sense:  Fail to pay your rent; get kicked out.  The idea is that you have violated the terms of the lease by engaging in such conduct, such that your landlord might be relieved of its obligations.)

There is another set of reasons permitting the landlord to obtain an order evicting the tenant at the end of the term.  (So, if you're on a 12-month term lease, these can't be triggered during the running of the term...if you're month-to-month, they just have to give you a certain number of months of notice.)  These reasons include that the landlord (or a purchaser of the property) personally requires the unit (for himself or members of his family), among others.  But in the absence of such a reason, the lease continues.

The tenant, on the other hand, can terminate the lease at the end of the term at will - but on appropriate notice.  (Tenants usually do have to give notice.  Just walking away at the end of the 12 month term could result in you being on the hook for additional rent.)

Alternatively, the landlord and tenant can agree at any time to end the tenancy.  However, the RTA expressly provides that such an agreement entered into at the start of the tenancy is not enforceable.  (In other words, if you're renting a place from me, and when signing the lease I require you to sign off on an agreement to terminate the tenancy at the end of 12 months...tough for me, I can't enforce it.)

Most of Ontario's residential tenancy legal regime is built around meaningful protection for security of tenure - protecting tenants against being forced out by the landlord.

Leases Do Not Expire

This is kind of a re-statement of the above, but it is really important for tenants to know.  It seems pretty natural to expect that, when your 12-month lease is up, you either need to agree to re-rent, or just move out.  I only signed a 12-month commitment, and the lease says nothing about continuing beyond the 12 months; why should I need to notify the landlord that it won't continue?  This is not correct.

If you fail to give appropriate notice of termination, then the law deems the tenancy to continue, and you can be on the hook for additional rent.  It does happen.

"No Pets" Clauses

A landlord is entitled to advertise for "no pets", and generally to vet (no pun intended) prospective tenants to rule out pet ownership.  There's not even anything strictly wrong with including a "no pets" clause in the lease...except that it can't be enforced.

There are a handful of circumstances in which a tenant can be evicted due to pet ownership - namely, if the pet is causing problems (damage, allergic reactions, noise, etc.) or if the animal is inherently dangerous.  Aside from that, a tenant can't be evicted on the basis of pet ownership.

There's a bit of a complication with condominiums, however:  Condo corporations often have by-laws regarding pet ownership, and tenants can (and should) be bound to the condo by-laws.  The "No Pets" clause in the lease may be void, but the requirement to abide by condo by-laws may be enforceable, as may be the 'no pets' language sometimes contained in those by-laws.

Damage Deposits

Another common practice, particularly when dealing with pets, is to require tenants to provide a damage deposit up front.  Landlords are entitled to require a deposit, but it's limited to 'last month's rent', so to speak.  (Even less, in rare cases.)  And it does have to be applied against the last month's rent, which makes it pretty useless as a damage deposit.

It's actually an offence for a landlord to collect an additional deposit.  The maximum penalties are pretty steep - up to $25,000 for an individual, or up to $100,000 for a corporation.

Post-Dated Cheques

A tenant can't be required to provide post-dated cheques.  It shouldn't be in the tenancy agreement at all.  (In practice, there's not a lot a tenant can do to protest this sort of thing before taking possession.  However, it does put the tenant in a pretty good position to resist providing additional groups of cheques.)

On the other hand, post-dated cheques are relatively convenient for all involved.  There's nothing actually wrong with providing post-dated cheques; it just can't be required.

Rent Increases

There are a lot of restrictions on rent increases.  And exceptions.  It's a nuanced area.  The general rule, however, is that a rent increase requires at least 3 clear months' notice, can't be made more than once every twelve months, and can't be in an amount greater than the 'guideline' - basically an inflationary figure published by the government each year.  By way of example, the 2015 Guideline is 1.6%.

You can charge a new tenant whatever you can get someone to pay.  (Usually.  There are exceptions.)  But once they're in, you can only raise rent in accordance with the guideline.  Practically speaking, it's an effective protection of security of tenure:  You can't raise rent to a level that the tenant can't afford to get them out.

And there's a logic to it, as well:  Let's say I'm looking for a place to rent, and I'm pretty cost-sensitive.  Your place is $1400 a month; all the equivalent places are $1500 a month, so I pick yours.  After the year lease is up, the 'market' rate increases by 5% (so other places now cost $1575 per month), but you raise my rent by $300 per month, to $1700 - well above market rate.  I can leave, sure, but that means finding a new place, paying first and last again, paying to move, probably moving my kids to a different school...  There's 'value added' in having already made a place a 'home', and it doesn't make economic sense to allow landlords to capitalize on that value added.  Most Provinces have some sort of control in place, with the exception of Alberta...which may well change in the near future.

On the other hand, with the housing market appreciating at a much higher rate, landlords run into problems with long-term tenants paying well below market rates:  As the cost of housing has tended to increase at a faster rate than the guideline, the gap between the rent you can charge and the actual market rate grows over time.  (This leads to landlords trying all sorts of shenanigans to try to get long-tenure tenants out, when they can re-rent at much higher rates.)

As well, landlords argue that their costs increase at a rate not necessarily reflected by the Consumer Price Index - from which the guidelines are taken.

Breaking the Lease

Fixed term leases are regarded as providing protection to landlords.  You rent out for a period of a year, and that means that you don't have to re-rent for another year, right?  So a lot of landlords want to sign year-long leases annually.

Not only is a landlord, as noted above, not entitled to insist on signing a new lease, but it's probably not that helpful to a landlord.

If a tenant 'breaks' a term lease (or walks away without appropriate notice), the landlord is entitled to damages...but that's not necessarily going to be the full outstanding balance of the lease.  The landlord has the obligation to 'mitigate' his loss by seeking a new tenant.  In practical terms, it's rare to see a landlord get much more than a month or two of lost rental income.

So getting a couple months' notice of termination, as under a month-to-month lease, is probably just as good.

That said, there may be a 'moral' strength to a term lease.  A good tenant is a lot less likely to break the lease than to give two months' notice on a month-to-month tenancy.

It might also be noted that, in Ontario, there is such a thing as a 'yearly' tenancy - i.e. one which can only be terminated on the anniversary of its start date.  I've never seen a properly-drafted yearly lease, and I've never seen the LTB deal with situations where a yearly tenancy was terminated other than on its anniversary.

Suffice it to say that they're rare, and I think the down sides outweigh the up sides, for all involved.  For a landlord, terminating a tenancy can be tricky.  If you don't know what you're doing, if you don't cross all the t's and dot all the i's, if you don't properly serve a notice, if you miss the timeframe by a day, the notice is likely to be regarded as void.  On a month-to-month tenancy, that means that, if you mess up the termination application, you start fresh, for a later month.  For a yearly tenancy, you'd be stuck for another full year.  Not to mention that many end-of-term terminations require at least three months' notice.  If you decide, a little over 9 months into your yearly tenancy, that you want to move into the rental unit yourself, you need to wait until the end of Year 2 to do it.

It very much ties the hands of the landlord, and at the same time doesn't help the landlord much at all.

Repair Responsibilities

The responsibilities on the parties in terms of repair obligations are set out pretty straightforwardly in the RTA itself.

Section 34:  "The tenant is responsible for the repair of undue damage to the rental unit or residential complex caused by the wilful or negligent conduct of the tenant, another occupant of the rental unit or a person permitted in the residential complex by the tenant."

Outside of that, under s.20, the landlord is responsible for, among other things, maintaining the rental unit "in a good state of repair".

You can't contract out of that.  You can't enter into an "as is" lease - the landlord doesn't get relieved of that responsibility just because the tenant knew about the issues before moving in.

I've seen a lot of residential leases, and one of the more creative ways of dealing with repair issues involved something akin to a deductible:  The tenant pays the first $50 to the cost of each repair call.  (The person who drafted the lease argued that it's a 'standard term'.  It really isn't.)

The trouble with such a clause is two-fold:  Firstly, it probably isn't enforceable, because the Act is pretty straightforward on these responsibilities.  Secondly, it is a really bad idea.

The logic is that you don't want the tenant calling the landlord over 'every little thing'.  If it'll cost $50 for me to fix, as a tenant, then firstly I need to evaluate whether or not I really want it fixed, and secondly I need to figure out if it's something I might as well just get done myself.

On a practical level, I'm a big fan of tenants taking some responsibility for their own homes:  If the drain is clogged, forget getting the landlord to call in a plumber; just walk down to Canadian Tire and pick up a bottle of drain cleaner.

On a legal level, however, I'd never actually recommend tenants take a DIY approach for things within the landlord's purview of responsibility:  If you do it wrong, you're on the hook for the resulting damages.

But if I, as a tenant, am assessing what's worth my money to fix, when it isn't my property, then I'm operating on a different set of priorities than the landlord.  The faucet drips.  Whether I want that fixed will obviously depend on whether or not I'm paying for my own water bill.  The dishwasher has a leak underneath.  Well, it isn't *my* stuff getting damaged by the accumulating water - why should I pay to get it fixed?

The house, and every part of it, is a capital asset of the landlord.  There's no cogent reason why the tenant should have to contribute to repairs to that capital asset (at least, unless the tenant caused the damage), and most tenants...simply won't.  With the result that, when it comes time to re-rent, the landlord is going to find that maintenance issues have accumulated, and sometimes been exacerbated by the delay.

Other Frequent Errors

By Landlords:

Increasingly, the rental market is dominated by small-scale landlords who own an investment property or two, perhaps condos.  Without a great deal of professional experience as landlords, they often don't realize that there are formal requirements for giving notices (including notices of rent increases), or various technical requirements at the outset of the lease.

One of the most common mistakes I've seen is that landlords frequently fail to provide the Landlord Tenant Board's mandatory "Information for New Tenants" brochure, which s.11 of the RTA requires Landlords to provide to tenants on or before the date the tenancy begins.  The consequences of failing to do so are questionable.  The Board has found on at least one occasion that there's no remedy available against the landlord for that failure.  (Furthermore, by definition, the LTB will never see a Tenant Application by a tenant who is not already aware of his or her rights, so the prejudice to the tenants who actually go before the LTB will naturally be non-existent.  It's the tenants who *don't* know their rights and remedies who are prejudiced by the failure to provide the information.  As it stands, therefore, it's pretty much a totally toothless provision in the RTA.)  That being said, when it's coupled with other failures of the landlord, it might be a moral factor in pressing the Board to assess a higher rent abatement.

Regardless, it's pretty handy information for the landlord to have.  Many of the smaller-scale landlords will find the brochure informative for their own reference.

Likewise, I have seen it happen that landlords will fail to provide their address to the tenant, which is one of the very few circumstances in which a tenant is justified in withholding rent.  (That said, once it's remedied, the landlord is entitled to recover the withheld rent.)

And finally, Notice of Entry:  Most people are under the impression that entry by the landlord always requires 24 hours' notice.  Most folks, if they thought about it, would probably expect exceptions for emergencies, and consent entries, as well.

But there's a much bigger exception, which many people don't realize:  24 hours' notice is not required to show a unit to prospective tenants, once one side has given notice of termination.  Instead, the landlord's notice obligations are more limited:  Before entering, he or she must inform, or make a reasonable effort to inform, the tenant of the intention to enter.  (In other words, showing up unannounced is still probably not okay.  But 24 hours' written notice?  Not required.)  However, I've seen landlords integrate the right of entry into language in the lease, stating that 24 hours' notice of entry is required.  If the lease says so, it's quite possible that the landlord would be bound to that expectation.

When starting out as a landlord, it's worth getting professional advice to understand your obligations, and to get help drafting your lease.  While outside of my primary area of practice, I am nonetheless able to assist in this area.  Some residential leases that you can find or buy online are better than others, but even the relatively good ones have problems - for instance, trying unsuccessfully to create a yearly lease, or tying the landlord to more onerous obligations than they should.  (One of the best leases I've seen was simply out-of-date, including a term that the landlord had to pay interest on the last month's rent deposit at a rate of 6%.  That was required under the applicable statute until January 2007, but since then the rate of interest has been tied to the guideline, which probably averages around 1.5-2%.)

I can't say it enough:  Have a lawyer review your lease.  Even if you're using a realtor for the transaction, that's no substitute for having legal advice on contract terms.  Indeed, some of the absolute worst residential leases I've ever seen have been realtor-drafted.  You think you're paying them for their transactional expertise, but the truth is that you're lucky if your realtor knows more about the RTA than you do.  Even in Agreements of Purchase and Sale, which realtors are certainly more experienced with, I urge people to get legal advice before signing, particularly if there are substantive terms in Schedule "A" outside of the 'usual' conditions [like financing and home inspections].  However, I've seen entire leases built into the Schedule "A" of OREA's Form 400 (Agreement to Lease), with nobody getting legal advice.  Formula for a lot of unpleasant surprises.

By Tenants:

It's very common for tenants to express their dissatisfaction with landlords, say, for failing to properly repair the property, etc., by withholding their own rent.  There's a certain logic to it:  You're not fulfilling your end of the lease agreement, so we're going to hold back on our end.

That doesn't go over well.  There are only a handful of situations where the tenant is entitled to withhold rent, and those are very limited rights.

You're better off bringing a Tenant's Application to the LTB - do it yourself, or get a qualified lawyer or paralegal to assist you with it.  Because the alternative of withholding rent will merely put you on the defensive at the LTB, facing an eviction application for non-payment of rent.  And no, "He didn't fix the broken electrical fixture" is not a defence; you'll still need to bring your own Tenant's Application if you want an order to get that fixed.

*****

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.

Small Claims Court Finds Duty to be Cowed

There are a couple of new decisions out of the Woodstock Small Claims Court, in the case of Caskanette v. Bong-Keun Choi Dentistry Professional Corporation.

The plaintiff, Tammy Caskanette, was self-represented.  The employer was represented by Pamela Krauss, an employment lawyer in KW whose cases have featured favourably in this blog before.

In many ways, the fact pattern is dime-a-dozen:  In January 2013, the employer acquired the business, with its existing employees.  Ms. Caskanette was a relatively short-service worker (fortunately for the employer), and conflicts developed between her and the new ownership.

At trial, the Deputy Judge found that the facts were essentially uncontradicted:

In May of 2013, the Office Manager met with Caskanette.

From Caskanette's perspective a woman she had rarely seen was upbraiding her with a series of complaints which had more to do with other staff than with Caskanette...The issues on Choi's list for discussion had little, if anything, to do with Caskanette, directly.  Caskanette felt trapped in a tiny room with a closed door.  Before the meeting agenda was complete, from Choi Dentistry's perspective, Caskanette exploded and in a fit of rage broke a door handle in her rush to escape the tiny room.  I do not fault Caskanette because a door handle broke.

The Choi's never seemed to understand why Caskanette became so upset during the meeting on May 24th.  The Choi's were justified in feeling, however, that this extreme reaction to the meeting was disrespectful and rude.  Caskanette at no time apologized for the behaviour.

Subsequently, the employer sought the assistance of an HR advisor to try to help alleviate growing workplace tensions, without success.

No warnings were issued at any time for any alleged misconduct of Caskanette.

But the termination came following the events of June 28th, 2013:  Caskanette's long-standing practice, with previous management, was to take off the Fridays before long weekends.  The employer acknowledges that it never expressly told Caskanette to cease that practice, but the employer distrusted her because of her claims that this was her long-standing practice (which was confirmed by other evidence).

June 28th was a Friday before a long weekend.  In advance, the employer staged a 'secret shopper' style call to Caskanette to schedule an appointment for the Friday morning, so she did so, attended the office (the decision's a little vague on the exact events), and then left.

The office manager called Caskanette and left a scripted message on her answering machine instructing her to return to work.  She did not do so until after the long weekend, at which point she was dismissed.

The employer took the position that it had just cause.

And was successful.

The employer obtained a substantial costs award:  The plaintiff had claimed $25,000, leading to a presumptive cap of $3750 for legal fees - the Deputy Judge found that the employer was entitled to that full amount, at least in part because Caskanette had raised several complicated issues, plus an additional $1250 for each of two personal defendants (represented by the same counsel as the employer, and who shouldn't have been named as parties).

Apparently the employer had made an offer to settle (for an amount not mentioned in the decision), which the Deputy Judge found made a doubling possible, but declined to fully double the costs award because of the fact that he did not consider the breakdown of the relationship to be entirely Caskanette's fault.  However, he did increase the employer's costs award to $5500, plus a modest award for disbursements, for a total costs award against Caskanette of nearly $9500.

Commentary

I've noted before that self-reps are very frequently unsuccessful, but it's hard to say how much of that is because they pursue 'loser' cases (without recognizing their weaknesses), and how much of that is because a lawyer would have added value to them in the process.

This case, in my view, falls cleanly within the latter.

The Deputy Judge's decision on just cause is surprising to me, given his other findings.  Troubling.  Perhaps to the point of calling for appellate review, but the higher courts have tended to give a high degree of deference to trial judges on the point, finding that the "determination of just cause is essentially factual".  (I have my disagreements with that approach, as I've noted before.)

In light of the finding that Ms. Caskanette reasonably felt "trapped" in a "tiny room" while being "upbraided" for issues that had little, if anything, to do with her, his conclusion that the employer was justified in feeling that her furious departure from the room was "disrespectful and rude" is frankly shocking.  That's the sort of meeting conduct that used to lead to Wallace damages as a matter of course.  It was deeply inappropriate treatment by the employer, inconsistent with the employer's own implied obligations under the contract of employment, yet the implications of the Deputy Judge's conclusion is that she was obligated, as part of her employment contract, to just sit there and take it.

The Deputy Judge agreed that the employer at least shared in the creation of a hostile work environment, had failed to properly correct conduct, had not warned her.  The Deputy Judge felt that there were cultural issues in play - that the cultural background of the new ownership found it "unthinkable" to be treated by his employee in such a manner, and didn't know how to respond.

Yet, despite the fact that the employer at no time took issue with her conduct, and had itself acted in a manner which was deeply inappropriate, the Deputy Judge nonetheless found that "she should have recognized the effect of her behaviour on the others in the office and she should have apologised to Dr. Choi."

It appears to me that the Deputy Judge found that this sequence, even without the subsequent events of June 28, justified a termination for cause.

This "failure to apologize" is something we've seen once before, and something I took issue with in the past as well.

It's appropriate to look at apologies, or failures to apologize, in the face of a confrontation about the misconduct.  If my employee acts in a manner which I find inappropriate, and I bring that employee in for a meeting to discuss the issue and express my concerns about the conduct, then the failure of the employee to take responsibility is relevant to a subsequent decision to terminate.

However, I cannot just sit back and wait for an apology, and then fire because none came.

As for the 'insubordination' in not returning to work on June 28, it doesn't appear to me that she had been told, prior to June 28, that she would be required to attend.  As far as she was concerned, that was a day off for her.  It always had been.  She attended in the morning because a (fake) client had insisted upon it, but then regarded herself as able to leave.

It's likely that the employer was entitled to require her to change that practice.  But it had to communicate that change to her.  And not on the morning of.  In context, it's roughly akin to a Monday-to-Friday worker being called on Saturday and told to come in right away, and then getting fired because he or she refused to do so.

The Deputy Judge appears to have regarded the failure to attend at work, in the face of a clear direction to come in, as a clear repudiation of the employment contract.

It's an absurd handling of affairs by the employer, and reeks of a 'gotcha' tactic.  You have a strained relationship with this employee already, but you haven't disciplined her for anything.  You know she takes the Friday off before the long weekend, so rather than tell her beforehand, "Don't", you stage a secret shopper appointment and script a voice message to leave for her that day?  It's deeply incompatible with the employer's duty of good faith and fair dealing.

To get around the usual 'duty to warn', the Deputy Judge referenced a 2012 case from the Ontario Court of Appeal, in which a Manager outright refused (in writing) to deal with the president of the company.  The Ontario Court of Appeal found that, in that case, working with the president was an essential part of the job, so by refusing to do it, the employee was repudiating the employment agreement, without the need for warnings.  Made sense.

The comparison here is to the June 28 refusal to return to work.  Yet it's not the same - refusing to work on the Friday before a long weekend was not an 'essential part of the job'; she'd never done it before.  It's a very poor comparison.

It's a rare case where an employee can be dismissed without prior progressive discipline.  These facts shouldn't have gotten there.

Objective Versus Subjective Tests

The Deputy Judge uses a great deal of subjective language through the decision.  Which is quite appropriate - it looks like he's stepping into the shoes of both sides to understand their viewpoints of events.

But it's not entirely clear to me that he stepped *out* of the employer's shoes when rendering his decision.

He uses the word 'justified' several times when discussing the employer's perspective:  "The Choi's were justified in feeling, however, that this extreme reaction to the meeting was disrespectful and rude."

Here's an interesting question:  Is that a statement that they were right, and that the conduct was disrespectful and rude?  Or merely that it's understandable that they felt that way?  The reference to 'feelings' suggests that there's a subjective element there.

Likewise, when the Deputy Judge concluded that they were "justified" in determining that her actions had destroyed the relationship - a critical point in the finding of just cause - is he talking about justification in the sense of being correct, or in the sense of being understandable?

Because if it's the former, it's directly at odds with his other conclusions, throughout both decisions, that the employer shared the fault.  It's not the case that her actions alone destroyed the employment relationship.  And if it's the latter...well, that's not the test for cause.  But it's perhaps the most common error made in finding cause, asking whether or not it was reasonable for the employer to end the relationship.

Yes, by the time the termination occurred, it appears that the employment relationship was doomed, and it was probably very prudent for the employer to terminate it.  That doesn't mean that the employer had just cause.  In the absence of progressive discipline, and given that the employer had done its own part in alienating the employee, the fact that the relationship was beyond repair can hardly be said to flow from her misconduct.  It flows from a combination of the employer's actions, perhaps her own actions, and also from the employer's failure to respond appropriately to any misconduct she engaged in.

And that's not a formula for just cause, in the absence of a trail of appropriate progressive discipline.

She Who Acts As Her Own Lawyer...

The Deputy Judge said that she presented her case well.  However, he also described her as "brash, aggressive, and inclined to 'talk over' others".  In other words, exactly how a lot of people expect lawyers to act.

Some lawyers do act that way.  The virtues of the approach...well, let's just say there are different philosophies on the point.  But to some extent, it's okay for the lawyer to be the bad guy - the lawyer isn't the one standing for judgment at the end of the day, and it isn't the lawyer's character in an employment relationship that's on trial.  When a self-represented litigant stands up and argues aggressively, the way she thinks a lawyer is supposed to, there's a risk that the Deputy Judge will come to believe that this is the same manner she exhibited in the employment relationship itself.

Had she been represented by counsel, the only opportunity the Deputy Judge would have had to assess her character would have been her own examination-in-chief and cross-examination, controlled and prepped by counsel.  If properly prepped, the Deputy Judge would never have seen her argue, would never have seen her 'talk over' others, because all argumentation, objections, etc., would have been carried out by her lawyer on her behalf.

As well, she certainly pursued issues not worth pursuing, and overvalued her claim:  Personal liability should never have been sought; aggravated and punitive damages...maybe, maybe not - they're tough to get, but I can't necessarily fault her for trying; but ultimately the claim was not even worth 5 digits.

Costs

It's a pretty generous costs award to the defendants, for Small Claims Court.  We've seen the kinds of costs awards other Deputy Judges make - for instance, Kitchener's Deputy Judge Winny never doubles the award for a totally successful defendant (an approach that is legally arguable), and is usually pretty constrained in fixing the 'reasonable' fees in the first place.

But at the end of the day, it really highlights the risk of proceeding self-represented, even at the Small Claims Court.  She went self-represented because she didn't want to have to pay a lawyer, and ends up having to pay over $9000.

Final Note on Counsel

My criticisms of the decision, my doubts as to its correctness, should in no way be seen as a criticism of counsel.  The defendants' lawyer did her job, and clearly did it well.  However, it goes to highlight concerns I've expressed before about the nature of Small Claims Court and wrongful dismissal files.

*****

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.

Political Astroturfing in Canada: Does it happen? Is it legal? Should it be?

It's now a well-established reality that governments and political parties closely monitor social media.  This isn't surprising, though - as with government advertising - there's often a question as to whether the tax dollars spent on government message monitoring may be partisan in nature.

But when the Canadian government admitted some years ago to monitoring online discussions relating to public policy, there was a small and mostly-overlooked element of the reporting, that the government's involvement included participation in the discussion, by 'correcting misinformation'.

To date, we don't really know what that means.  Did government employees, open about who they were, simply rebut objectively incorrect statements of fact?  Or were they posting under anonymous monikers, and/or promoting the government's position on arguable or contested facts?

Last month, the CBC ran a piece discussing the 'nasty' partisanship exhibiting itself in the comments on news stories.  While noting that there's no evidence of any Canadian political party actually paying or directing the online comments trolls, there's lots of evidence of foreign governments doing so to control the message, and it is undeniable that we're dealing with "our own partisan troll armies, whether they be volunteers or paid".

Along similar lines, a team at the University of Indiana was reported, during the last election campaign, as tracking potential partisan abuses of Twitter.

Astroturfing

There's a social media phenomenon known as "Astroturfing" - the attempt to promote a message while concealing who is behind it, to make it appear to originate from 'grassroots'.  There are a number of contexts for it - the 'classic' example would appear to be the posting of fake positive reviews for a business (or the posting of fake negative reviews against a competitor).

Whenever you're reading anything online that isn't from a verifiable source, take it with a very large grain of salt.  And anonymous internet comments are probably the high watermark of unreliable information.

Still, astroturfing has an impact.  It's normal for consumers to look online for product reviews, etc., even knowing that the information they obtain might not be reliable.  And the overall 'consensus' is influential:  If most of the reviewers were satisfied with one product, and reviewers of the competing product found it to be woefully deficient in some way, I'm probably going to be pushed to the former.

And it happens.  The Competition Bureau has published warnings about astroturfing, with a statistic (albeit one that is very poorly cited) that a third of all customer reviews are fake.

Many jurisdictions have prohibited astroturfing of that nature, and in Canada it's probably captured by s.52 of the Competition Act:

No person shall, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, knowingly or recklessly make a representation to the public that is false or misleading in a material respect.

(Other provisions make it clear that 'permitting' a representation to be made is included.  So the fact that you didn't *ask* your underling to post fake reviews doesn't change the fact that, if you were aware your underling was doing so and didn't stop him, you're guilty.)

And it's good that these practices are unlawful:  It totally undermines the public value of customer feedback when we can't tell bona fide feedback from sponsored messages.

Political Astroturfing

At first blush, we might be less concerned about overt political astroturfing.  When an anonymous commenter posts a personal insult directed at Justin Trudeau or Stephen Harper, it is fairly easy for a reader to assess that the message is coming from a political and partisan perspective - paid or not.

But the concern arises in full force surrounding issue-based and fact-based posts.

In recent days, there have been many news stories and columns about the need for Senate Reform.  These stories barely mention the judiciary or Supreme Court, if at all, and yet there are significant numbers of internet commenters voicing cries, with unnerving consistency, of judicial partisanship, that the Supreme Court has overstepped itself in an attempt to thwart the elected government.

(Yes, I read the comments on internet news stories.  Call it masochism.)

Now, these complaints are wrong.  Full stop.  But given that they're only peripherally related to the subject matter of the news articles and columns, it seems surprising that so many choose to drive the discussion in the direction of an attack on the Supreme Court, which makes me wonder:  Is there a driving force behind this discussion?

And that's a dark thought.  It's possible, and even quite plausible, that the people who think the Supreme Court has overstepped its mandate are sincere, albeit wrong.  But what if they aren't?  What if they are, in fact, paid shills of an interested party who simply doesn't want to attach their own names to the criticism?  (Recall the significant bad press the government attracted when it implied that the Chief Justice had acted unethically in advance of the Nadon reference?)  That would be difficult to accept.

Factual misrepresentations, taking controversial or even offensive positions on issues, while the parties behind them get to publicly say "We never said that"...it would bring our already-dirty political discourse to new lows.

Again, it isn't clear that political astroturfing is happening in Canada to any significant degree.  Frankly, knowing how some of our politicians approach message management, I'd be surprised if it wasn't going on.  But let's suppose, for the sake of argument, that it is.

Is it Legal?

I would argue, on a fairly solid basis, that political astroturfing is illegal during an election campaign.  Under the Canada Elections Act, "election advertising" is broadly defined, including any transmission that takes a position on an issue with which a party or candidate is associated.

There are exceptions, including "the transmission by an individual, on a non-commercial basis on what is commonly known as the Internet, of her or her personal political views".  In other words, an individual making a bona fide post about his own views will probably not be captured within the definition of election advertising.  In the early days of the internet, before that exemption existed, and before the explosion of social media and Web 2.0, there were tales of web hosts being targeted by Elections Canada for putting up political messages on web sites without complying with the CEA.  The exemption serves an important role in today's world.

But if an internet comment is directed by another authority - be it a politician or third party - then it may well be outside the exemption.

In which case...well, you know how all political ads have that note at the end that the message was authorized by whatever party?  Well, that would become legally mandatory.  If I'm a paid shill of one of the political parties, and posting what they've told me to post, then the message would be legally required to include "This message is authorized by the [insert party here]".  Kind of defeats the point of astroturfing, eh?

But only during an election campaign.  (And there may well be different degrees of clarity.  What if I'm taking directions from a political party, but sincerely believe every word I write?  Does that fall within the exemption?  I'd probably argue 'no' - that the external direction prevents it from being my "personal political views" within the meaning of the provision.  But it's arguable.)

In between election periods, I know of no basis for arguing that political astroturfing would be unlawful.  It wouldn't fall under the Competition Act prohibitions, and I doubt it would come within any CRTC guidelines such as those that so many politicians violated with automated diallers.

Should it be Legal?

There are a great many challenges caused by internet anonymity.  It's well known that people will say many things behind the perceived veil of anonymity on the internet to which they would never attach their names - to the extent that the Prime Minister's former Parliamentary Secretary, Dean Del Mastro, argued that Parliament should try to ban internet anonymity.

Of course, that raises a whole host of practical and ethical concerns, but neither one applies to a prohibition on anonymity of political parties online.  Prohibiting them from anonymously financing television or radio ads triggers the same policy concerns as prohibiting anonymous internet advertising - indeed, the latter might present a more compelling case for prohibiting anonymity, given that TV and radio ads are obviously sponsored by somebody, whereas Web 2.0 posts are presumptively created at the instance of 'some guy with an internet connection'.

Permitting parties to distance themselves from their own messages is, simply, not appropriate.

*****

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.

Five-month employee receives 8 months' pay in lieu - plus half a million for employer's misrepresentation

Here's a very interesting case out of the Ontario Superior Court of Justice this week:  Antunes v. Limen Structures Ltd.

It's a wrongful dismissal decision.  Up until the pretrial conference, the employer alleged 'just cause', but then abandoned that allegation.  Through trial, the employer alleged that Mr. Antunes had resigned, but led no evidence to that effect, and abandoned the position on closing submissions.

I'll predict right now:  The employer is going to get hammered on costs.

The Scenario

Mr. Antunes was hired by the defendant in May 2012, after being approached by Mr. Lima - a relative through marriage.  He took the position that he was 'induced' to join the defendant, and he was offered a salary of $150,000, to be increased to $200,000 after the first year of employment, plus 5% of the company's shares, with the potential for another 5% of the company's "Residential Division".  Mr. Lima verbally represented to him that the company was worth at least $10 million - meaning that the shares would be worth $500,000.  (Mr. Lima never took the stand; the defendant led no evidence to rebut this contention by the plaintiff.)

Two problems arise there:  Firstly, the employer misrepresented the value of the company.  Significantly.  Secondly, there was no "Residential Division", nor was there any intention of starting one.

Mr. Antunes never received any documents to support the valuation of the company, nor did he ever receive a copy of the Shareholders Agreement, nor was he ever actually issued the shares.  Mr. Antunes had accepted Mr. Lima's representation because he 'trusted' him.

Mr. Antunes was dismissed without notice five months later.  He was given an extra week's pay purportedly to offset expenses incurred in the course of employment.  The contract had promised him "up to twelve months" pay in lieu of notice upon termination.

So Mr. Antunes was essentially suing for two things:  Pay in lieu of notice, and damages for not being issued the shares - calculated on the basis of the promised valuation.  There were a number of alternative positions in play:  The plaintiff just wanted the half million dollars - the value he had been told his shares would have.  Alternatively, he wanted the Court to order an assessment of the value of the shares, order the issuance of the shares, and order the employer to 'top him up' to the $500,000 based on the misrepresentation.  (Kind of 'six of one; half a dozen of the other' from the initial relief sought - could have a slightly different result in practice, but a much longer and more expensive road getting there.)  Alternatively, he asked for the issuance of the shares.

Though the defendant had abandoned its 'just cause' allegation, it argued at trial that the employment contract was "void ab initio" based on alleged misrepresentations by the plaintiff in terms of his qualifications.

The Judgment

The Court rejected the employer's contention that the contract was 'void ab initio', and awarded the plaintiff 8 months' pay in lieu of notice.  The Court referred to the Bardal factors, but also highlighted "the plain wording of the contractual provision"; "the defendant's failure to act in good faith vis-a-vis the employment contract"; "the misrepresentations on which the plaintiff relied"; and "the adverse inference I have drawn against the defendant corporation for its failure to call Mr. Lima to testify or to defend this action in a meaningful way".  The Court stopped short of finding that the plaintiff had been 'induced'.

As to the shares, the Court was highly critical of the employer's conduct, promising a possibility of shares in a non-existent division, but this did not create a contractual entitlement.  As to the 5% of the company itself, that's the trickier issue.  The Plaintiff's evidence as to Mr. Lima's representation was uncontradicted, and as much as the defendant argued that the Plaintiff's evidence was "self-serving" and not credible, there was an adverse inference to be drawn against the defendant on that point.

The Court ultimately decided the point on the following basis:

The plaintiff expected to receive shares worth $500,000 and received nothing. He is to be put in a position commensurate with his expectations arising from the contract and from Mr. Lima’s representations to him.

So the plaintiff received eight months' notice, plus $500,000.

Commentary

First, a quick note on the lawyers involved:  I've dealt with plaintiff's counsel before; he's an experienced employment lawyer.

I'm not familiar with defence counsel, but he identifies himself as a 'commercial litigator'.  This doesn't surprise me.  Arguing that an employment contract is void ab initio is basically unheard of, and would have some strange results.  I think most employment lawyers - if they felt that this was a position worth advancing at all - would have characterized the argument as one of 'just cause'.  Likewise, arguing resignation, through trial, without being prepared to lead evidence to back up the contention, seems like part of a general litigator's "throw everything at the wall and hope something sticks" bag of tricks, and not something employment lawyers would generally recommend, given the employer's duty of good faith and fair dealing.

The Notice Period

While eight months, for a role like the plaintiff's, isn't out of the ballpark, it's very interesting that the judge so significantly highlighted the breaches of the duty of good faith and fair dealing when assessing the notice period.  She's basically awarding Wallace damages without calling them Wallace damages - it might run awry of the Supreme Court's decision in Honda v. Keays.  Or it might not.  That's something to watch, if this gets appealed.

On the other hand, there's a certain ambiguity in the contract, promising "up to" 12 months' notice, without setting out the circumstances in which less would be payable.  The language would arguably support a reading that the plaintiff is entitled to receive 12 months, and in the face of that ambiguity, the contract should be interpreted against the interests of the party that drafted it (the employer).

The Shares

Actual issuance of the shares was a scenario both sides would have wanted to avoid.  It's a closely-held corporation, so appropriately valuing and disposing of the shares could well have been impossible for the plaintiff; on the other hand, for the defendant to be accountable to the plaintiff as a minority shareholder moving forward...well, it wouldn't have been a great scenario.  Actually valuing the shares and awarding their value would have involved a rigourous and expensive process.

So, from a results-driven perspective, the decision is probably a good one.  And there's a compelling logic to the notion that the plaintiff "expected to receive shares worth $500,000", and so it was a breach of contract to not give him shares worth $500,000.

The trouble is that it's a tricky result to get to.

The contract clearly entitled the plaintiff to 5% of the company.  That's what it promised.  Expressly. Yes, the evidence is that there was a misrepresentation as to the value of that 5% interest, but damages for negligent or even fraudulent misrepresentations are to be calculated on the basis of "the amount of money required to put the plaintiff in the position that would have been occupied not if the statement had been true but if the statement had not been made."

In other words, at first blush, the plaintiff's entitlements are to have his damages assessed on the basis of "What would have happened if that misrepresentation hadn't been made?"  (Usually it's "If you hadn't entered into the contract, what would the consequence have been?")  Which, in the context of a broader employment contract, is actually a really tough analysis to figure out, but almost certainly doesn't get him to half a million in damages.

The only way to value his damages at half a million is to say that the misrepresentation was not merely a misrepresentation, but that it rose to the level of a contractual promise, to be read together with the employment contract.  And to be fair, it might have, and that appears to be how the judge is characterizing it.  It might just withstand an appeal, as a question of mixed fact and law, entitled to deference.

Food for thought, though:  If the employment contract had included a "whole agreement" clause (it doesn't appear to have), that might have foreclosed the prospect of reading the misrepresentation as creating a contractual obligation.

*****

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.