Friday, June 5, 2015

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.


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.

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