Ontario Court of Appeal Recognizes the Tort of Invasion of Privacy

The Ontario Court of Appeal just released its decision today in Jones v. Tsige, a breach of privacy case.

Jones and Tsige were both employees of the Bank of Montreal, but at different branches, and didn't know each other.  Tsige was cohabiting with Jones' ex-husband.

As is common for bank employees, Jones did her personal banking with BMO.  Tsige, accordingly, had access to her banking information, and accessed said information at least 174 times over a period of four years, for no legitimate purpose whatsoever.  (Tsige claims that she was in a dispute with her partner - Jones' ex-husband - and was looking for proof regarding supposed support payments.)

When Jones found out about it, she complained to BMO, which resulted in a one-week suspension of Tsige.  Jones proceeded to commence an action against Tsige.  Last year the action was dismissed on motion, on the basis that Ontario law does not recognize a common law tort of invasion of privacy.

Today the Court of Appeal reversed that decision, finding that, in fact, there is a tort of invasion of privacy (or intrusion upon seclusion).

[71] The key features of this cause of action are, first, that the defendant’s conduct must be intentional, within which I would include reckless; second that the defendant must have invaded, without lawful justification, the plaintiff’s private affairs or concerns; and third, that a reasonable person would regard the invasion as highly offensive causing distress, humiliation or anguish. However, proof of harm to a recognized economic interest is not an element of the cause of action. I return below to the question of damages, but state here that I believe it important to emphasize that given the intangible nature of the interest protected, damages for intrusion upon seclusion will ordinarily be measured by a modest conventional sum.

The Court goes on to note that the third element makes the tort fairly limited, since only intrusions "into matters such as one's financial or health records, sexual practices and orientation, employment, diary or private correspondence" meet the test.  The Court also leaves open the question of how this right to privacy will be balanced against competing rights of others such as freedom of expression.

Damages become an interesting discussion as well.  Where no pecuniary loss has been suffered, the Court establishes a range of up to $20,000, in the most egregious cases, based on factors such as the "nature, incidence and occasion of the...wrongful act"; the effect on the plaintiff's health, welfare, social, business or financial position; the relationship between the parties; distress, annoyance or embarrassment suffered by the plaintiff; and the conduct of the parties before and afterwards, including apologies or offers of amends.

It is possible that aggravated damages will also be available in certain cases.

Ultimately, the Court of Appeal found that damages of $10,000 were appropriate in this case.

My Thoughts


Assuming that this isn't successfully appealed to the Supreme Court, this may have interested consequences in the employment arena.  It is yet another piece of a fragmented privacy patchwork in Ontario, now, where certain types of breaches of privacy, involving information of very specific natures, will be actionable even where privacy statutes may not apply.  I'm sure that many wrongful dismissal cases will include breach of privacy allegations, and not just because of the limited damages that may be available but also because it will now satisfy the "separate actionable wrong" requirement necessary to claim punitive damages.

In the absence of pecuniary loss, breach of privacy claims which aren't connected to other actions (like wrongful dismissal) will be squarely within the jurisdiction of the Small Claims Court.

*****

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.

Layoffs in Non-Union Contexts

An unusual case came out from the Ontario Superior Court of Justice recently, McLean v. The Raywal Limited Partnership, where the core question, as the Court puts it, is "whether the plaintiff was laid off or dismissed".

This is strange, and rare, because the terminology of a "layoff" doesn't usually properly apply outside of union settings.  Yes, people will often use the term "layoff" to describe a dismissal due to reasons of business restructuring, thinking that "fired" or "dismissed" implies that there was misconduct, but that's not really a fair distinction where there are no unions.  People are fired for just cause, or not for cause.

At law, the best way of seeing the distinction between a layoff and a dismissal is that a layoff contemplates the recall of the employee.  And, in fact, the Employment Standards Act, 2000 has provisions dealing with temporary layoffs of limited durations, but that doesn't mean that they're available in every employment situation.  The employer needs to reserve the right in an employment contract.  As the judge put it in McLean, "In the absence of a contractual basis for layoff, the device of layoff does not exist at common law and any purported layoff will be, in fact, a dismissal."

In this case, in 1998 Natalie McLean was hired by Raywal.  Raywal had an employee handbook which included layoff provisions, but it was not integrated into her written offer of employment.  It was not referred to in the offer of employment, nor was she required to acknowledge in writing that it formed part of her contract.

I've talked about this before, usually in context of termination provisions:  Even if she received the handbook the day after accepting the offer of employment and read it and signed it, there would be a 'consideration' problem.  She wouldn't be contractually bound to it unless there's something of value passing in exchange for her agreeing to it.  (Other policies in an employee handbook are trickier - an employer has some rights to change the conditions of the work environment.  Hours of work, absenteeism and discipline policies, dress codes and decorum, use of office equipment...these are all things that the employer will be entitled to amend, within certain limits, unilaterally and on a regular basis.  The employee never really has a choice but to comply with these directions, and won't often be successful in arguing constructive dismissal on such bases.  But something permitting the employer to send the employee home without pay...that goes to the heart of the employment contract, and is not something that the employer will really be entitled to implement unilaterally.)

This case is a little more complicated than a simple consideration case, though, because McLean was laterally transferred to a different position in 2008, at which point she did sign a new contract which integrated the employee handbook.

In October 2010, McLean was told that she was being laid off, and given a recall date of June 27, 2011.  In late May, she was recalled, but she did not return to work.

So the question becomes whether or not the 2008 contract amendment was valid.  The judge found that there was no "obvious or certain improvement in compensation or terms of employment", and therefore no consideration.  (The employer argued that the provision of benefits through the layoff period was an improvement to her compensation package, but the judge understandably rejected that.  It would be a hard sell that saying "If we send you home temporarily, we'll leave your benefits in place" is a plus to somebody who is entitled not to be sent home.)

Therefore, McLean was dismissed and was entitled to pay in lieu of notice.  The judge found that no failure to mitigate was established, including by McLean not accepting an offer made on the eve of mediation in the litigation process, and awarded ten months' pay in lieu of notice.

My Thoughts


The decision largely makes sense to me, but I'm a little bit perplexed on the mitigation point.  It doesn't make clear when the litigation was commenced nor when, exactly, the offer on the eve of mediation was made, but while I can certainly understand the judge's reasoning dealing with the offer on the eve of mediation, I cannot understand how (or if) the judge dealt with the mitigation consequences of the original recall date or the notice of recall.

Given how the law of mitigation has developed, particularly after the Evans v. Teamsters case from the Supreme Court of Canada, failure to return following a recall notice, in most cases, would probably be considered a failure to mitigate.

*****

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.

Legal Remedies of the Still-Employed

I've had a remarkable number of calls lately from people who still have their jobs, but who take issue with actions of their employer, be they disciplinary issues, changes to the nature of the job, or unreasonable employer demands backed up by a threat of termination.

It is possible to take the position that you have been constructively dismissed.  As I've discussed before, it isn't easy, and it's never guaranteed.  It adds an additional couple of layers of uncertainty onto an already uncertain process.  And while it is possible to sue your employer while still working for them, that’s only appropriate in some situations (and will likely cause problems for you with most employers).

The last example I gave really puts this in perspective.  An employee facing unreasonable demands and a threat of termination has two choices:  Give in to the demands, or risk being unemployed.  Assuming that it isn’t a demand they are entitled to make, they won’t be able to make out a case for just cause when you refuse to do so, which means you’ll be entitled to pay in lieu of notice of termination if you get fired.

But how much is that?  And is it enough?  Let’s suppose that you make $50k per year, and are entitled to approximately six months’ notice.  You’ll have a claim worth $25,000.  Which seems like a lot of money, when you say it this way:  If I get fired, I can get $25,000.  But it isn’t that simple.  First off, it’s truer to say “I can maybe get $25,000 or so.”  And then you have to factor in legal fees (which can be substantial), taxes, the fact that any EI entitlements will be deferred until after the six month period...not looking like such a lot of money anymore, is it?  Oh, and don’t forget that you may have to go to the end of a litigation process, years out, before you see a dime of it - unlike straight dismissal cases, employers are often very reluctant to acknowledge any basis for liability in constructive dismissal cases.

And here’s the hitch:  You’ll be unemployed.  How long will you be out of work?  Six months?  A year?  Longer?  Even if it’s shorter, there’s no windfall to be had here – if you find an equivalent new job in two months, you’d only win two months’ pay from your own employer, assuming you win at all.  (That's the 'mitigation principle' at work.  Don't be discouraged from looking for work, though, or accepting a job - failing to take reasonable steps to secure replacement employment can reduce your entitlements, too.)

So you really have to say “I can maybe get $25,000 or so, less legal fees, but I’m not sure when I’ll get it, and in the mean time I’ll be unemployed and I’m not sure when I’ll start getting a steady pay cheque again.”

In other words, when remaining gainfully employed is an option for you, you should think very carefully about your options before throwing that away in exchange for a chance of some litigation entitlements.



*****

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.

Back to Basics: A Practical Guide to Wrongful Dismissal Resolution

While there's a new wrongful dismissal case coming out of Ontario's Superior Court of Justice every few days or so, the truth is that the vast majority of dismissals get settled very quickly, often even before issuing a statement of claim.

This post isn't designed to help people see the process through themselves; both sides really do need lawyers, and for very compelling reasons.  I practice on both sides the fence, so I would encourage anyone finding themselves in this situation to contact me.  Rather, I want to give readers a sense of what to expect, to be more comfortable with the process.

Before Termination

Employers should consult a lawyer before terminating the employee in the first place.  (Indeed, you should consult a lawyer before even hiring, to get a good written contract in place.)  If you want to terminate for just cause, you need a legal opinion about it first.  Just cause is very difficult to make out, with risks of increased liabilities - sometimes significantly so - if you fail.  And, where there is no just cause, you need to know what your "notice" obligations may be.  (With a good written contract, drafted by a good employment lawyer and properly executed, these may be minimal.  Otherwise, you're looking at owing "reasonable" notice, which even a good employment lawyer will only be able to estimate and give you a range.)

Upon Termination

Employers:  There's a correct process for termination meetings.  Half of it is common sense (yet frequently not done), but a good portion of it might not occur to everyone in every case.  Have at least two people in the termination meeting, one taking notes.  Be professional.  Don't get dragged into an argument about the reasons for termination - have a script, preferably vetted by your lawyer, and refuse to be pulled off of it.  (In most cases, you won't even want to give any substantive reasons.)  Be discrete and sensitive.  There is a lot to be said about how to behave on terminations, and a lot of it depends on the nature of the workplace and the specific employee.  The termination meeting should be accompanied by the delivery of a termination letter, which will advise them about receipt of their last pay and statutory entitlements (which should be conditional on absolutely nothing), and requiring them to return all company property, reminding them of any ongoing confidentiality concerns, etc.  At the same time, there should be a second letter, marked "Without Prejudice", offering them something further in exchange for signing a full and final release.  (In the wake of Brito v. Canac Kitchens, there's a thought that more than the statutory minimums should be provided upon termination.  I don't think that's yet having any real impact on the standard practice, though.)

Employees:  When you are terminated, you will often receive an offer, conditional on you signing and returning it within x days.  At this stage, there are several things to note:

(1)  You are going to feel a range of negative emotions.  It's almost a grief response.  Anger, betrayal, despair, frustration...these are all perfectly normal.  It's one small part of the reason you will need a lawyer - it's going to be difficult for you to deal productively and professionally with your employer in light of these feelings.  (As a note to employers:  This is also the reason that working notice is seldom a good idea.)

(2)  Do not sign anything until you get legal advice.  Employers are seldom generous with their initial offers, and in the vast majority of cases there is some flexibility for movement on both monetary and non-monetary terms.  Sometimes, the entitlements are significantly more than what has been offered.  Even if you have a written contract limiting your entitlements, termination clauses are hard enough to enforce that it is often worth seeking advice on the enforceability of the contract.

(3)  Even if you have signed something without legal advice, it's still prudent to consult a lawyer.  I have seen some employers put a release to a dismissed employee in exchange for payment of the statutory minimum.  (In one case, the strict deadline was the day before stat minimums were due anyways.  I can't help but think that that was calculated.)  A release on such a basis will often be unenforceable.  The rule is that an employee should never assume, without proper legal advice, that the fact they signed something means they are bound to it.  (Of course, it is almost *never* a good idea to sign anything on the assumption that it will not be upheld by a court.)

(4)  If you can't meet with your lawyer until after the strict deadline is up, don't despair.  I've never seen an employer refuse to extend the timeframes of an offer upon request.  In most cases, they know that, if they get sued, they'll owe more than the contents of the offer anyways.  So they don't usually pull offers off the table.

(5)  In my years of experience, I have very seldom seen offers from employers that I could tell an employee was better than they would likely do in Court.  In the vast majority of cases, I respond with a demand letter for the client's full entitlements. (In the rare cases where an employer is being generous, unlike some lawyers, I do tell my client as much and try to respond reasonably.  If there's room for improvement with non-monetary terms, etc., I'll recommend the request, but an employer who is being generous knows that the offer is generous, and isn't going to move much on the monetary aspects of the settlement.)

(6)  If you haven't been asked to sign anything, it's often because you've only been given your statutory entitlements.  You likely still need to make a demand, and you'll need a lawyer to figure out what to demand.

Employer's Response to the Demand


There are myriad employer responses to a demand letter.  Know that most demand letters will frame the employee's entitlements generously.  Many employers will try to negotiate the demand down.  While there's not much certainty as to reasonable notice periods, there's enough clarity as to the appropriate ranges that both lawyers can tell their clients, "This is the range, and there's a good chance that the other lawyer is telling the other side the same thing."  So the employer tries to negotiate something at the low end of the range, the employee tries to negotiate something at the high end, and neither side really has much of a will to litigate when there are offers inside the range.

By contrast, many employers will completely reject demand letters at the outset.  Even large and sophisticated employers do so.  This is often strategic, and done with employees whose entitlements are fairly limited.  (Sadly, it often also factors in the employee's tolerance for stress.)  This approach is usually rationalized by the logic that, if you make the employee sue for his entitlements, some percentage of employees will simply not do so, and the increased costs and liabilities of dealing with the ones who do will be less than what is saved on the employees who walk away.  In these cases, an employee can often expect that the employer will come to the table promptly upon issuance of a statement of claim.  (Many prominent employer-side firms take the approach that, when served with a statement of claim, they immediately make a semi-reasonable offer to settle and ask for an indulgence so as not to be required to file a statement of defence while settlement discussions are ongoing.  If the offer to settle appears to be in good faith, then most employee-side counsel will recommend granting the indulgence, as they know that a settlement is imminent, and there's little to be gained through hardball at that point.)

The ones that go to trial, these days, usually have a fair bit of money at stake and a real fight about one of a handful of things, such as whether or not there is just cause, enforceability of the written contract, how to characterize one of the factors that defines the reasonable notice period, or a dispute about constructive dismissal.  Without some fundamental factual dispute underlying the calculation of the reasonable notice period or the entitlement to reasonable notice, the margins between what the employer might expect to have to pay and what the employee might expect to get are so small that the cost of litigation is prohibitive for both sides.  Even when there is a fairly fundamental dispute, if there isn't a lot of money at stake, both sides still know that the most cost-effective approach is through an early settlement.  What's a few months' notice for a minimum wage employee beside the amount of money it would cost to get to trial?

That being said, many employers will fight certain cases 'on principle':  Where there's a clear-cut case for cause, an employer isn't going to settle, because it sends the message to other employees that they can act badly then cash out.

It's always important to hire a lawyer who knows what they're doing, but that's especially important for low-value cases.  I've taken on clients whose cases I assessed at being mid four digits.  At a lawyer's hourly rate, it doesn't take long before that all gets eaten up in legal fees, so a lawyer on such a case really needs to be careful about how much time is being spent.  So far, in my practice I've been pretty good about being able to settle efficiently enough that my clients still get to keep most of their money.  On the other hand, I have seen lawyers (even boutique employment lawyers) go five digits into legal fees before even issuing a statement of claim, on files that were not high value.

That's why the choice in lawyers is important.  It is important to me to try to ensure that my client will be better off at the end of the day for having hired me, and if I don't think that's going to happen, I tell the client that.  I offer free consultations to dismissed employees in most cases (some exceptions apply), so I would encourage any dismissed employees to contact me immediately.

*****

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.

Dismissed CEO Wins Awkward Partial Summary Judgment Motion

There is a recent judgment in the Hinke v. Thermal Energy International Inc. case, by Justice Ray, on a motion for partial summary judgment.

Put briefly, Hinke founded TEI in 1991 and was its principal until he brought it public in 1994, and continued on as its President and CEO.  In 2004, he recruited Timothy Angus into a senior position, and while conducting his due diligence prior to accepting the position, Angus discovered a letter from the TSX-V asking to review certain transactions, which had been received a few weeks earlier but not produced to the Board of Directors. Angus produced the letter to the Board, Hinke resigned as President in February 2005, and Angus became President and CEO.

Hinke's position with the company at this point seems unclear.  His existing contract was set to expire on June 25, 2005, which would have triggered certain severance entitlements, etc.  On June 5, 2005, Hinke and TEI agreed to enter a new employment agreement, and then they went about discussing some of its terms.  It had not yet been finalized when Hinke's employment was terminated, allegedly for cause, on June 23, 2005.

Hinke then sued for wrongful dismissal, among other things, and TEI counterclaimed alleging oppression, breach of fiduciary duties, and negligence.

It should be a simple matter of two arguments about the same facts.  If the facts underlying TEI's claim are warranted, then that probably constitutes just cause, right?  Well, maybe not.  Simply put, while there were disciplinary letters leading up to June, including some threatening termination, the Court concluded that entering a new agreement on June 5 was inconsistent with an intention to terminate Hinke's employment for cause.  In effect, by entering into a new agreement, TEI undermined any case for just cause it was attempting to build.

The Court therefore held TEI to proving just cause based on conduct after June 5, which is a tall order considering how little time had passed since then.

This motion related only to the wrongful dismissal elements of the claim, and was successful.  The remainder of the claim, however, along with the full counterclaim remain outstanding.  (This judgment, however, has been stayed pending disposition of the other issues.)

My Thoughts

The dimensions of an eventual trial have been shifted.  This is a brilliant tactical move, because it shifts the stakes significantly.  The defence is no longer able to challenge the wrongful dismissal allegations, but its allegations of misconduct are limited to proving its own counterclaim now (and damages are often difficult to establish) and the consequences of failing could potentially have brutal consequences in terms of moral damages for breaching the duty of good faith and fair dealing.  This could press a settlement of the other issues.

However, if they don't settle, then think about the trial that results.  Among other things, Hinke is likely to make the same pitch that succeeded here - if his actions were really oppressive and breached his fiduciary duties, then the company would not have entered into the June 5 agreement.  It may not be as strong a pitch, in context, but if it fails, and if the counterclaim does succeed, then we will be left with the Courts saying that the employer was entitled to hold him to account for all that misconduct, but they were not entitled to fire him on a for cause basis.  There's an inconsistency there.

Here's where the inconsistency becomes worse:  In employment law, there is a doctrine referred to as "after-acquired cause".  (See the Lake Ontario Portland Cement case.)  In a nutshell, when an employee is terminated on a for cause basis, and the employer later discovers the full breadth of the misconduct - or even entirely new areas of misconduct - the employer is entitled to rely on those in support of allegations of just cause.  And condonation falls off the rails in these cases, too:  An employer can't be said to have condoned what they didn't know about.  So the possible trouble with the Court's finding that the employer was limited to relying on misconduct from June 5 to June 23 is this:  The employer is also entitled to rely on any misconduct, regardless of when it occurred, that they discovered after June 5, and even after June 23.  (Note:  For all I know, it is entirely possible that the employer may have known the full particulars of the misconduct alleged prior to June 5, in which case this issue wouldn't arise.  While it seems unlikely, that very possibility may justify the Court's decision if it wasn't disposed of in the employer's evidence:  There's an obligation in summary judgment motions to "lead trump or risk losing".  It may be a defect with the employer's case, or it may be a defect in how the employer led its case.)

One other interesting point:  The Court notes that the employer's defence did not claim setoff - i.e. they're counterclaiming for damages, but they didn't lead those same allegations in the defence as a way of saying "Even if the plaintiff's claim is legitimate, we still don't owe him money because he owes us all this".  It's understandable to do so in such a case, because of the natural inclination to think that the success of the claim and counterclaim, on the facts, would be mutually exclusive.  However, such a pleading of setoff likely would have blocked a partial summary judgment motion with such a limited scope as this one.

*****

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.

Back to Basics: Constructive Dismissal

I frequently refer to constructive dismissal, such as in my recent post about McMillan v. Selectrucks.  I often talk about it in a fairly cursory way, but I feel it's important to occasional address more basic questions.

What is Constructive Dismissal?

Constructive dismissal is a term that most people have heard of, a general idea that, if the employer does something wrong, they can quit and still demand a package.  It's a term that's thrown about pretty casually in some contexts, yet people are rightly reluctant to give up secure employment on the basis of some simplistic sense of an abstract legal principle.  The result is that I, and lawyers like me, get lots of calls from employees saying, "My employer did x, have I been constructively dismissed?"

The essence of constructive dismissal, and part of what makes the doctrine very weak in many cases, is that it is an extension of wrongful dismissal.  Wrongful dismissal damages are not a windfall.  You don't get rich by suing in wrongful dismissal.  Indeed, in many cases the entitlements are quite limited, and so it seems a poor trade to lose one's job in exchange for wrongful dismissal damages.  The appeal of constructive dismissal, of getting paid to walk away, quickly loses its glamour in light of the bleak future of unemployment in an uncertain economy.

So, if you have been constructively dismissed, you are entitled to treat yourself as having been terminated by the employer.  Sort of.  There are all sorts of exceptions and qualifications to address, but let's look to the legal definition first:  A constructive dismissal results when the employer unilaterally makes a fundamental or substantial change to the terms of an employee's contract.

Whether or not the change is unilateral is pretty straightforward:  If you agree to the change, it isn't unilateral.  Whether a change can be characterized as fundamental or substantial...is trickier.

In the jurisprudence, there are really two different types of constructive dismissal.  There's the constructive dismissal where the employer actually changes the employee's duties, functions, title, compensation, or some other aspect of the terms of employment (the "demotion" cases), and then there are the Shah-type cases, where an employee quit to escape harassment or an otherwise poisoned work environment.

It is largely a matter of scale.  The employer is entitled to make certain changes to the terms of an employee's contract, and that includes reductions in pay...to a certain extent.  When the change is large enough to be said to be a 'fundamental' change, then it can be characterized as constructive dismissal.  Where an employee is demoted, with a loss of prestige, that too can be a constructive dismissal, depending on the significance of the change.

The McMillan case shows how even the Shah-type cases are a matter of scale:  Even if you can show that you have been treated unfairly by the employer, and this led you to leave, that will not necessarily make out a case for constructive dismissal.

There are also the 'discipline' cases, which can be a hybrid of the two types.  Sometimes, it's discipline being imposed as part of a campaign of harassment, making it a Shah-type case.  Other times, the discipline itself can exceed employer authority.

This is a mistake I've seen unionized employers make with their non-union staff members, applying the same disciplinary process to them, including unpaid suspensions.  The way the jurisprudence sits on unpaid suspensions was set out by the late Justice Echlin in Carscallen v. FRI Corporation, upheld by the Court of Appeal:  Unless there is an express contractual right to do so (as there usually is in collective agreements, but seldom in individual contracts of employment), an employer has no inherent right to impose unpaid suspensions in disciplinary matters, unless the misconduct rises to the level of "just cause".  In other words, if the employer would be justified in firing the employee without notice, then it can forbear and instead issue an unpaid suspension instead.  Otherwise, it will be a breach of contract, and possibly generate a constructive dismissal.

The Difficulty of Mitigation

When your employment is terminated and you want pay in lieu of notice, you're obligated to try to mitigate your loss by seeking replacement employment.  There is a line of cases dealing with demotions or pay cuts establishing that, where the demotion isn't the result of a soured relationship, an employee can be expected to accept the new position with the same employer in mitigation of the loss generated by the constructive dismissal.

In other words, you might be entitled to treat yourself as having been dismissed by your employer, yet your employer may still be entitled to expect you to stay in the job nonetheless.  (In a previous blog, I wrote of this disconnect and called it "Unconstructive Dismissal".  Just to clarify terminology, there's not actually such a thing called "unconstructive dismissal"...that was just ironic wordplay on my part.)  So there have been cases where the Court has found that a constructive dismissal had occurred, and yet the Court also found that the employee should have stayed in the job as mitigation while seeking a new job, with the result that the employee had few if any entitlements.

(In a case that turns around the same concept, an employee whose pay was cut significantly actually stayed in the job and sued the employer for the salary to be topped up through what would have been the notice period.)

There was one case that went to the Supreme Court, Evans v. Teamsters, which was similar, though not strictly a constructive dismissal case:  The employee had actually been dismissed, and was offered another position on a contract basis through the notice period when he came back with a lawyer's letter.  The Court felt that refusing the job was a failure to mitigate.

I feel that this doctrine needs to be refined, for two reasons.  Firstly, mitigation is usually fairly employee-friendly:  Employees are not generally required to take the first job that comes along, but are entitled to hold out for a job that is close to being as good as the old job.  Outside of these "employment with the same employer" cases, I know of no other case that holds that an employee should accept another position on a temporary basis while seeking replacement employment.

Secondly, this disconnect is the result of having two different standards for what should essentially be the same thing.  In my view, if the changes in the employment relationship are not so significant as to make the resulting job 'not equivalent' for the purposes of mitigation, then it can't be constructive dismissal.  Conversely, if the changes are significant enough to constitute constructive dismissal, then the job can't be close enough to expect the employee to accept it in mitigation.  Still, that's my own view, and does not reflect the current state of the law.

*****

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.

The Corporate Veil and the Identity of the Employer

Corporate Law 101:  A corporation is a legal person, and can enter into contracts, and (subject to personal guarantees, etc.) is the only one responsible for its own contractual obligations...unless one of about a hundred exceptions applies.

But that's what the 'corporate veil' is all about.  If I own a corporation, and the corporation incurs liabilities, then unless the plaintiff can convince a Court to ignore the corporate veil, the plaintiff can only enforce a judgment against the corporation's assets, and not against my personal assets.

When you get into employment law, this principle occasionally triggers the question of "who is the employer?"

The Superior Court recently decided the Asselin v. Gazarek et al. case, which dealt with a complex scenario involving interrelated corporations with common owners.

Let's set up the cast of characters.  There are three corporations, being Sheridan Chevrolet Cadillac Ltd. ("Sheridan"), the Pickering Auto Mall Ltd. (a "Saturn" dealership), and Gazarek Realty Holdings Ltd.

Gazarek Realty Holdings Ltd. is a real estate holding corporation and was, in essence, the landlord for Sheridan and Saturn.  But it was a little bit more than that:  Gazarek Realty Holdings Ltd. is solely owned by Gerald Gazarek, who also owned Sheridan, and whose daughter Leslie owned Saturn.  So it's all a family affair.  Operationally, there was also an unusual connection:  For tax reasons, the holding corporation paid the salaries of managers at the dealerships, and was reimbursed for these payments by the dealerships.

Mr. Asselin started working for Saturn in 2006, and was 'transferred' to Sheridan (terminated and rehired?) in 2008, but was terminated in 2009.  Both dealerships closed in 2009 and have no assets.  The holding corporation continues to have assets, however.  So the main question became whether or not the holding corporation was a common employer.  (The length of the notice period and applicability of punitive damages were also in question, but they were all secondary to the question of whether or not the holding corporation was liable.)  The Court concluded that the holding company was not liable.

In 2001, the Ontario Court of Appeal considered the question of 'what makes a common employer' in the Downtown Eatery (1993) Ltd. v. Ontario case, in which there was a "highly integrated or seamless group of companies" operating a nightclub together.  The Court of Appeal succinctly drew the test of a common employer as "where effective control of the employee resides".

In this case, the Court raised three problems with Asselin's position:

Firstly, Asselin was not a manager, so his salary was paid by the dealerships, not the holding company.  The Court acknowledges that the result might have been different otherwise, but the fact that he was paid by the dealerships distinguished it from case law (such as Sinclair v. Dover Engineering Ltd.) in which the employee worked for one company but was paid by another.

Secondly, the holding company didn't assert any control over Asselin's employment.  One could easily imagine a scenario where payment of the managers would give the holding company effective control, but the fact that it was a purely technical arrangement for which the corporation was fully reimbursed suggested that there was not effective control.

Thirdly, the evidence did not support a contention of interrelation as in the Downtown Eatery case; rather, the dealerships carried on their own business with minimal interaction with the holding company.

Accordingly, the holding company is not liable, and the judgment for reasonable notice was only against the dealerships...which have no assets.  Does that mean that Asselin is completely out of luck?  Maybe.  It might depend on what assets were in the corporation previously and what happened to them; there are "oppression" remedies that could be available.

As an interesting side note, the employer had initially alleged cause and only paid the statutory minimums, so Asselin tried to rely on the Brito v. Canac Kitchens case (which I discussed in this post, which is arguably inconsistent with established case law) seeking punitive damages, but the judge dismissed this claim fairly summarily.

My Thoughts

I have concerns about this decision.

On the point that the holding company was paying his managers but not him, I understand the distinction and I'm less inclined to question it, but from a policy perspective I wonder it Justice Conway's disposition of it is too summary.  In a footnote, he notes that the nature of the tax advantage sought wasn't discussed at trial.  The fact that it wasn't Asselin's salary is important, yet the holding company was still managing a portion of the dealerships' payroll expenses in an arrangement which clearly was not arms-length.  Part of the reason (from the plaintiff's perspective, the entire reason) for the common employer doctrine is to prevent employers from structuring their affairs so as to protect their assets from claims by employees, and a non-arms-length delegation of payroll to a third-party corporation should definitely raise alarm bells that the Court should at least peek behind the corporate veil to see what's going on there.

On the second point, the test is "effective control", and the Court points out that the holding company exercised no control over the managers.  However, that would seem to gloss over the fact that the holding company and one of the dealerships had the same directing mind, which was also non-arms-length with the directing mind of the other dealership.  To suggest that the holding company had no "effective control" is basically saying that "When Gerald told the managers what to do, he wasn't acting in relation to his role in the holding company."  Did he put on a different hat?

It has to be more nuanced than that, and it is very difficult to draw a meaningful distinction of 'effective control' when both corporations are controlled by the same person.

On the third point, the finding that there was not sufficient integration between the companies glosses over a number of facts.  Firstly:  They use common professionals to assist them.  I wouldn't suggest that we should use the fact that they retained only one lawyer in this proceeding against them (though one would expect a conflict of interest for a lawyer representing all three parties if they were at arms length), but they clearly got the same accounting advice as well.  The fact that they both engaged the same non-arms-length management payroll structure tends to work against an allegation that they were all independently run.

Secondly:  The dynamics of the 'transfer' to Sheridan are also quite unlike anything you might see in companies that are not related.  The Court did not explore the dynamics in much detail, because the defence conceded that nothing turned on whether or not Sheridan and Saturn were both liable (a brilliant concession, perhaps?).  Leslie's evidence was that he was terminated because they were having problems with him, but she 'inquired' to see if there was a place for him at Sheridan.  ("Hey Dad, I've got this problem employee I want to get rid of; want to take him off my hands?")

Thirdly:  When Sheridan terminated him after three months, he received ROEs from parts of his statutory notice from Sheridan and from Saturn.  While Leslie testified that the failure to provide the same upon his termination from Saturn was an oversight, which was corrected when she was told he was fired from Sheridan, the fact alone that she was so promptly told of his termination from Sheridan is also indicative of operational integration.  (And, if they weren't related, arguably a breach of Sheridan's duty of good faith and fair dealing.)

Most of those facts I'm pointing to deal with integration between the dealerships (and not necessarily the holding company).  Ultimately, the defence didn't fight much about whether or not the dealerships were integrated, and so they are jointly and severally liable.  But the fact of integration between the dealerships suggests against these being autonomous and independent operations, as the Court found, and - with the involvement of the holding company in their affairs - it is difficult to see how, if the two dealerships were common employers, the holding company would not be a part of that integrated group.

*****

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.

Dance Instructor found not to be a "Key Employee"

I've occasionally discussed restrictive covenants before; what I haven't covered in much detail is the route that employers can occasionally go to prevent unfair competition by former employees who haven't signed restrictive covenants.

At common law, there is a concept of fiduciary duties, which is an obligation on one person to put another's interests ahead of his own.  Professionals often owe their clients fiduciary obligations, and occasionally you get case law where a professional abused information received in confidence to their own advantage.

In the employment context, "key employees" may be considered to be fiduciaries of their employer, and are not permitted to use confidential information they acquired in their employment to unfairly compete with the former employer.  A "key employee" is defined by the following non-exhaustive list:

1. An integral and indispensable component of the management team that is responsible for guiding the business affairs of the employer;
2. Necessarily involved in the decision-making process; and
3. Therefore, has broad access to confidential information that if disclosed would significantly impair the competitive advantages the former employer enjoyed.  

Absent a restrictive covenant or fiduciary obligations, former employees are free to compete with former employers, including bringing to a new business the skills and knowledge acquired while serving the former employer.  But restrictive covenants can limit that (if enforceable, which is not easy), and fiduciary obligations do as well in very similar ways.

In the recent case of Laplante v. Hennessy-Craibe, Laplante operated a dance studio in Cornwall and had employed Hennessy-Craibe as a dance instructor until she left to start her own studio.  It appears that several students went with her.  Laplante then sued and sought an interlocutory injunction preventing Hennessy-Craibe from soliciting current and former students.

This is surprisingly similar to Gatreau v. Arvelo (2004), also involving a defecting dance instructor, in this case from an employer in Brockville.  I suppose Eastern Ontario must have a competitive industry for dance instruction.  Similarly, in that case, the plaintiff alleged that the instructor was a fiduciary, but the judge rejected it.

In Laplante, even without referring to Gatreau, Justice Quigley came to the same conclusion:  He did not see a serious issue to be tried, and felt that even if a trial judge ultimately found Hennessy-Craibe to be a fiduciary, Laplante could be compensated through an award of damages; therefore, he declined to award the  injunction sought.

*****

There is also previous jurisprudence considering whether or not written restrictive covenants can be enforced against athletic instructors.  Of course, every case is unique on its facts and the specific language of these clauses, but Courts have gone both ways when determining whether or not an athletic school is protecting 'legitimate proprietary interests' with restrictive covenants:

In Gold in the Net Hockey School Inc. v. Netpower Inc., a 2007 Alberta case, the Court found that a non-competition clause did not protect a hockey school's legitimate proprietary interests.

In Moffatt v. Sanchez, a 2004 Ontario decision involving a Tae Kwon Do academy, a non-competition clause was enforced against the former head instructor.

*****

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.

Third Party Insurers can (sometimes) rely on Post-Employment Releases

An employee always has to be careful when signing a full and final release, for a few reasons.  The recent decision in Zelsman v. Meridian Credit Union is an excellent example of this.

Ms. Zelsman's employment was terminated, following which she applied for long-term disability benefits to the LTD insurer, Great West Life.  This application was denied.  Ms. Zelsman proceeded to litigate the termination of her employment via the Human Rights Tribunal, resulting in a settlement achieved at the mediation, involving a payment to Ms. Zelsman of $90,000, which appears largely to be compensation for the loss of her LTD insurance due to the denial of the LTD benefits.

Then, retaining a different lawyer, Ms. Zelsman appealed the denial of her LTD benefits, and was eventually successful...however, after granting her LTD application, resulting in a hefty lump sum of retroactive benefits in excess of $46,000, Great West Life found out about the full and final release, and - moreover - found out that it contained a term releasing Great West Life from any such liabilities, and reversed the payment.

Normally, if you're not a party to a contract, you don't get to benefit from it.  In this context, however, because the release so expressly released Great West Life, the Court was prepared to conclude that Great West Life could rely on it; in other words, the LTD benefits were toast.

So how does this happen?  The biggest question is this:  How did Ms. Zelsman get to the point of litigating against Great West Life after signing such an express release?  Indeed, after getting the LTD benefits, Ms. Zelsman would have been happy to resile from the minutes of settlement, but that's not usually possible to do - particularly without $90,000 cash in hand to refund the employer.

Every management-side lawyer appears to have a different way of dealing with Minutes of Settlement and Full and Final Releases, but the one consistent fact is that they are all quite comprehensive, releasing anything and everything.  In fact, usually the releases go well beyond the subject-matter of the current dispute, which adds real value to them for employers, but the consequence is that employee-side counsel have to be careful to ensure that their clients understand that they can't proceed with other claims afterward.

Indeed, given the extremely final nature of these Full and Final Releases, I've occasionally had to go back to employer counsel to get exemptions inserted for such things as pensions - so we're dealing with pay in lieu of notice, but the employee still has a tidy sum tied up in an employer pension plan to be dealt with (which usually isn't in dispute, so my client doesn't need to pay me to help deal with it).  The response I usually get is "Well, of course the intention isn't to waive these entitlements", whereupon I respond, "Then you won't mind expressly saying so."

Simply, these releases envision a completely cut cord, saying "We're done dealing with you, and we won't deal with you again."  If there is an unforeseen dispute down the road, I don't want these releases getting in the way.  But that isn't always the case.  So the releases have to be tailored.

Most of the time, it's a matter of saying to the client, "If you sign this, you don't get to come back and sue for more, you don't get to make a Human Rights Application, you don't get to make a claim for any more wages due, etc."  Every so often, this shocks the client, because they thought they'd hired a lawyer just to deal with one isolated aspect of their relationship with their employer, and thought very cleverly that they'd get money now then come back for more money later on a different aspect.

In this case, the first lawyer assisting with Ms. Zelsman knew that there had been an unsuccessful application for LTD benefits, and presumably opined that it was better to go after the employer for it than to take on the insurance company.  The second lawyer didn't realize that a settlement had been reached, and agreed to take on the insurance company.  (They both were pretty successful in their respective tasks, it seems, but it was really one or the other.)

This is the other thing that can happen when you change counsel too many times:  Facts get lost.  It takes time, effort, and often money for your new lawyer to achieve the same level of familiarity with the file that your previous lawyer had.

Was Ms. Zelsman not told that the Minutes of Settlement would prevent her from going after Great West Life?  Perhaps she was told, but didn't fully appreciate it?  Or did at the time, but forgot?  Or thought that she'd pull a fast one and try to proceed with her claim anyways (she very nearly pulled it off, after all)?  As outside observers, we can't know.  What seems almost certain is that, had she gone back to her first lawyer afterwards and said, "Now I want to go after the insurer", the first lawyer would have said, "Sorry, with the release you signed, you really can't."  (Maybe this happened, and the client didn't listen.  Who knows.)  But retaining a second lawyer means increased legal fees of her own appealing the denial, increased legal fees (with a third lawyer) in making the Court Application, plus there's now a good chance that she'll end up having to pay several thousand dollars toward the insurer's legal fees.

The lesson to clients is:  Tell your lawyer everything, and make sure you listen to what they say.  The lesson to lawyers is not to take anything for granted.  Maybe you think that the client has accepted your advice not to go after the insurer, but you never know if in the back of their own minds they're thinking that they'll be clever and try for both.

*****

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.

Back to Basics: I've been fired for no reason! How can they do that?

Occasionally in this blog, I start talking about things like reasonable notice in fairly cursory ways.  And judging from the search terms people use to find this blog, I'm fairly confident that many of my readers don't need any further elaboration of the concept.

However, it's also clear that some of my readers are not experienced in employment law, and are looking for information about the legal framework surrounding dismissal.  So let's back up for a moment and talk about what a dismissed employee, without just cause, is entitled to.

As a beginning qualification, let's be clear that I'm talking here about the non-union context.  In union contexts, not-for-cause terminations are usually limited to layoffs, and have a different framework.

Practicing employment law, it is not at all uncommon to get a call from a prospective client who says, outraged, "They fired me without any reason at all!  They even said they didn't have a reason!  How can they do that?"

People like to think that they have job security, that they can't get fired unless they do something wrong.  That's not true at all; without just cause, an employee can be fired on notice (or pay in lieu thereof).  I would say that upwards of 85% of the terminated employees I have seen were terminated on a not-for-cause basis.  (It's also true that the *vast* majority of not-for-cause terminations involve some employer dissatisfaction with the employee - poor productivity, poor chemistry with co-workers or managers, misconduct that the employer isn't confident rises to the level of "just cause"...it is exceedingly rare to have a purely economic decision for a layoff.  But that doesn't really matter to the analysis.)

Employment as Contract

Even when there isn't a formal written contract, the provision of service in exchange for wages is still contractual in nature.  Let's suppose I hire you to work for me, and all I tell you is the job title, a brief summary of the job duties, your wages, your hours, and where you have to go to report for work in the morning.

That's all the important stuff, right?  That's enough for you to accept the job, show up for work, and start doing the job.  But what about other matters?  The tools that will be made available to you to do your job?  The extent of contact you're going to have with clients, or the extent to which you will be supervised in your duties?  What about vacation time?  Overtime?  Breaks?  And, importantly for our purposes, how does either party terminate the contract?

These things are defined by a couple of different sources.  So let's start with the most authoritative source, the Employment Standards Act, 2000.  This is the Provincial statute that applies to employment relationships within the jurisdiction of the Province - some employers are Federally regulated, and they fall under a different statute (the Canada Labour Code), but the principles are largely similar.

The Employment Standards Act, 2000

The ESA sets minimum entitlements for employees.  There are provisions in the ESA that state that any contractual provision giving more than the minimum to the employee is enforceable, but any contractual provision giving less to the employee than the minimum is void.  The easy example to understand is "minimum wage".  If I offer to pay you $8/hour, yet the minimum wage under the circumstances is $10.25/hour, then you could take the job, then insist on $10.25 even notwithstanding that you agreed to $8.

So the ESA sets minimums for paid vacation, unpaid lunches, overtime pay.  It also creates entitlements for employees in the sense of creating maximum numbers of hours that can be worked over a period of time.  And it sets a minimum standard for notice of termination and severance pay, based on a formula taking into account length of service and, in some cases, the size of the employer's Ontario operations.  (See below.)  Note that the Regulations under the ESA create a number of exemptions to these entitlements.

The Common Law

Where the government hasn't enacted a law speaking to a point (i.e. in the ESA), and where the parties haven't reached a binding contract in respect of the point, the point is governed by the common law.  Over centuries, judges have looked at fact-patterns and decided the most just resolution.  These cases become precedents, and subsequent cases are likely to be determined similarly.

So the Courts have looked at a lot of employment relationships, and they have read in certain "implied" terms, and in particular an implied term that neither party will terminate the employment relationship without giving the other party "reasonable notice".  (While the employee is, strictly speaking, required to give reasonable notice, it's relatively rare that there is any litigation flowing from this, and what's "reasonable" for the employee to have to give is very different from the "reasonable" notice required of the employer.  So from here on in, when I discuss "reasonable notice", it's the notice required of the employer.

Let's be clear that the common law can be displaced by a binding contract.  So if there's an enforceable termination clause in the contract (see my discussion of the ESA above...there are other pitfalls to enforceability as well), then that will have replaced the "implied" term with an express term, and there will be no entitlement to "reasonable notice" as defined by common law.

Reasonable notice of termination is defined with reference to several factors.  The usual four (though they are not an exhaustive list) are age, length of service, character of employment, and availability of replacement employment.  So a young person who has spent a few months in a front-line service position has fairly minimal entitlements, whereas an older person who was fired from a CEO position held for many years will likely have significant entitlements.  Either way, common law reasonable notice entitlements are usually measured in months (seldom exceeding 2 years).

One more important point is that common law notice entitlements are subject to an obligation to "mitigate".  Suppose an employee is terminated without cause and without notice, and has a reasonable notice period of 12 months.  During the notional notice period, the employee is obligated to try to find equivalent replacement employment.  (Failing to take reasonable efforts can result in a loss of entitlements.)  Now suppose that the employee obtains a new position at 90% the pay rate after 4 months.  He is entitled only to be 'topped up' to what he would have received over the whole notice period.  (So the first four months pay in full, and then over the remaining 8 months he gets only the 10% extra that he would have gotten in his old 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

*****

Ontario's Employment Standards Act, 2000:  Minimum entitlements on termination for most employees

The first entitlement (again, provided no exemption applies) is notice of termination.  This minimum entitlement can be satisfied by either actual notice or pay in lieu thereof - they can tell you, "Your employment is terminated effective x weeks from now", or they can say "Your employment is terminated effective immediately, but we will continue paying you for x weeks."

This is entirely based on length of service:

Nil to 3 months of service:  No minimum entitlement.
3 months of service to 1 year of service:  1 week notice
1 year to 3 years of service:  2 weeks notice
3 years to 4 years of service:  3 weeks notice
4 years to 5 years of service:  4 weeks notice
5 years to 6 years of service:  5 weeks notice
6 years to 7 years of service:  6 weeks notice
7 years to 8 years of service:  7 weeks notice
8 years of service and up:  8 weeks notice.

(For simplicity, I've abbreviated the language.  In truth, 2 weeks notice is what you get if you have 1 year of service but less than 3 years of service, meaning that if you're fired without cause on your 3rd anniversary, you get three weeks notice.)

The second entitlement, in some cases, is to severance pay.  This cannot be satisfied by notice, but must be provided by way of pay, though it too is measured in terms of number of weeks, meaning that entitled employees must be paid the equivalent of x weeks pay, in addition to their notice entitlements.

Eligibility for severance entitlement, again subject to various exemptions in the regulations, requires two criteria be met:

(1)  The employee must have five years of service or more, and
(2)  The employer's Ontario payroll must be in excess of $2.5 million, OR the severance is part of a mass layoff where the employer is terminating all or part of its business at an establishment resulting in 50 or more layoffs in a six month period.

The quantum of severance pay is one week's pay per completed year of service, up to a maximum of 26 weeks.

Application is not appropriate for enforcing restrictive covenants

For non-law readers, let me first simply explain a point of civil procedure.

In civil litigation, there are really two kinds of proceedings: Applications, and actions. (It's really quite a bit more complicated than that, but let's keep it simple.) An action is what we usually think of as a law suit: I sue you, you defend, we go through disclosure and discovery, pre-trial conferences, then we set a trial date.

An application under the Rules of Civil Procedure is usually a much briefer and simpler process. If I'm issuing a Notice of Application, I will obtain a date from the Court before I even start the process, which could be just a couple of weeks out. I issue the documents, serve them on any respondents, and you have an opportunity to file responding materials...but we end up in Court fairly quickly. Witnesses aren't usually called to testify, but evidence is introduced through affidavit.

It's simpler and faster, but not always permissible under the Rules. Even in cases in which an application is permissible, if there are serious facts in dispute, such matters can be referred to a trial, and are then treated as an action.

In the recent case of Portable Packaging Systems Inc. v. Brackin, the employer attempted to proceed by application to enforce restrictive covenants against the employee, seeking damages and injunctive relief. The Court noted that injunctive relief is only available on an application where it is ancillary to other relief properly sought by application, and damages are seldom available on applications.

The proceeding by application is likely a consequence of the admitted difficulty in proving damages. But the Court ultimately concluded that an application was inappropriate and that the relief sought should be sought by way of an action. Accordingly, the Court dismissed the application.

I question why the decision does not address the applicability of Rule 14.05(3)(d), which permits applications seeking, among other things, "the determination of rights that depend on the interpretation of a ...contract...". Consider, for example, Mason v. Chem-Trend Limited Partnership, which I blogged about here: The employee brought an application for a declaration that restrictive covenants were unenforceable, and the Court of Appeal ultimately found them not to be enforceable.

*****

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.

Contractual Notice does not supplant mitigation principle

Bowes v. Goss Power Products Ltd., a recent case from the Ontario Superior Court of Justice, involved an employee in a common situation making a "Hail Mary" play.

Bowes was a Vice-President making a base salary of $140,000 plus bonus and benefits. His employment was terminated, without cause, in April 2011 after about 3.5 years of service, and the language in his contract entitled him to six months' notice or pay in lieu thereof. So, when he was terminated, he was told that his salary would be continued for six months, but he was obligated to seek replacement employment and keep the employer apprised of his progress.

And he found a new job, with equivalent salary, 12 days later.

In contracts, the "mitigation principle" holds that a plaintiff cannot recover for a loss which is avoidable or avoided. So, when an employer terminates employment without notice, and the employee finds a new equivalent job shortly thereafter, most of the actual loss is avoided, and the employer's liabilities are quite limited.

It's well-established law in Ontario that the statutory minimum notice under the ESA is not subject to mitigation, but contractual/common law notice is.

So, for Bowes, getting the new job is a double-edged sword. He has his new job, and a stable source of income...but he doesn't get much more money from his old employer. An employee dismissed without cause usually wants that vindication. And the extra money would be nice, too. So Bowes initiated this Application to interpret the contract, to argue that his actual mitigation doesn't reduce his entitlement.

Some contractual language does have the "golden parachute" effect of not being subject to mitigation. This case doesn't have that kind of language. Yet I understand the argument: The mitigation principle is triggered by breach of contract. In the ordinary course, the employer isn't actually entitled to terminate on pay in lieu of notice (see, for example, Love v. Acuity Investments); pay in lieu of notice is the way of calculating damages caused by the breach of contract which is termination without notice. So I've been fired without notice, I lose my income, and I have a cause of action against my employer, but I have to try to mitigate.

When the contractual language, however, provides for termination with pay in lieu of notice, then there has been no breach of contract when the employer terminates with salary continuance. There has been no cause of action, no breach of contract, and no duty to mitigate accrues. So when the employer has elected to terminate with pay in lieu of notice, the employee should be entitled to pay through the whole notice period, regardless of whether or not a new job is obtained, correct?

The challenge is that this 'notice or pay in lieu thereof' language is used in many employment contracts, and the purpose is simply to supplant 'reasonable notice' and provide more certainty as to the notice period. While there's a certain technical logic to my above analysis, and ordinarily employers are held to a very high technical threshold, in this circumstance the policy considerations cut the other way: Bowes, with his new job, isn't in a morally persuasive position arguing that he should be getting his old salary in addition to his new one. The Court held that the intention of the contract was not to supplant the mitigation analysis.

*****

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.

Contractual Termination Clauses

One of the best pieces of advice for employers is to include a termination provision in any employment contract. Specifically what the calculation of the notice period must be set out in the provision itself. There are a few rules for making them enforceable: They can't, in any circumstance, provide for notice less than the guaranteed statutory minimum, and if signed after the formation of the initial contract there must be "fresh consideration".

They can be keyed directly to the Provincial statutory minimum, but even then a large employer has to be cautious: In one case where an employee was transferred from Ontario to B.C., and his contract referred to the Ontario Employment Standards Act, the provision was found void in B.C. because in some circumstances Ontario's minimums are less than B.C.'s.

The advantage of these clauses is two-fold for an employer: Firstly, they usually reduce liability. Common law "reasonable notice", which can be displaced by these clauses, is often quite significant. Secondly, regardless of how much contractual notice is provided for, there is an advantage to having certainty: If the clause is enforceable, then how much is owed is simple arithmetic, and litigation is likely unnecessary.

I recently had a reader find one of my blogs through a search to the effect of "Is an ESA termination clause reasonable for a management position?" Which is an interesting question, and I'd like to discuss it.

The reasonableness of a clause isn't really a legal question. It's hard to argue unconscionability of notice clauses, given that there's a statutory standard set. That being said, there is a line of jurisprudence saying that the termination provisions set for an employee when he signed on with the mail room probably weren't intended to continue through to his rise through the ranks to the executive level. (There are ways of dealing with that scenario, as well.)

Rather, the reasonableness is a practical market question. Does the employee have the bargaining power to go back and say "Please change this"? If the employee does so, will the employer just say "No, forget it, we're withdrawing the offer."

This is the simple reality of employment contracts: The employer often has an immense amount of bargaining power at hire. Canadian law limits the employer's bargaining power after the hire, limiting the employer's ability to change the terms down the road, but the initial contract...well, freedom of contract goes a long way. Few employees will be in a position to dictate the terms of their employment.

The notice provision is particularly difficult to negotiate, because for the employee it means going back and effectively saying "In the event that I fail to prove to you just how invaluable I am, I want more significant entitlements." Still, sophisticated commercial actors should be aware that the notice provision is a reality that needs to be addressed, and that there are plenty of different circumstances that could lead to it being triggered, many of them not being performance related at all. So for an employee taking a high-level position, it's fair ground to bargain the notice provision.

Employees: Remember, it's not about "getting fired", it's about "job security". And that's a key phrase especially for employees leaving existing employment situations - it's pretty natural to want some assurances of job security, and an ESA termination provision is no assurance of job security at all.

It's also worth noting that there are management positions and management positions. I've had employee clients from different organizations with almost identical managerial titles, one of whom supervised from zero to four employees, and the other of whom routinely supervised in excess of fifty employees.

So there's no "one size fits all", and it's impossible to say in general whether or not a specific clause is reasonable. Suffice it to say, however, that if you accept it, you could well be stuck with it.

*****

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.

Unionized Employees: Court isn't for you

This isn't new, but every so often a new case pops up - and is dealt with quite quickly - involving a unionized employee (the technical term is "bargaining unit member") trying to sue his employer.

Under most circumstances, that's impossible. Collective agreements must provide for a grievance process, and for grievance arbitration. So if somebody who is a member of a bargaining unit gets terminated, then he has to go to his union rep to file a grievance; you can't go retain a lawyer to try to sidestep the union and sue the employer directly.

The underlying principle is that, once a group of employees forms a bargaining unit, that group of employees no longer has a direct relationship with the employer. Rather, they have a relationship with the union; the union has the relationship with the employer.

Nor can such an employee sue his union if he isn't happy with the job it has done representing his interests, generally speaking. Under the Labour Relations Act, the Ontario Labour Relations Board has exclusive jurisdiction over most such issues. There is a select number of issues that an employee can raise directly with his employer at the OLRB, but most issues must go through the grievance process, and an employee displeased with the Union must bring a "DFR" (Duty of Fair Representation) application against the Union. The trouble with DFRs is that the Union has a very wide latitude in deciding how best to represent the interests of the bargaining unit on the whole. If it decides that the bargaining unit can best be served on the whole by refusing to advance your overtime grievance in order to not taint the next round of bargaining, then you're pretty much stuck unless you can establish that the Union's actions were "arbitrary, discriminatory, or in bad faith". The exception is with discharge grievances: A Union generally can't refuse to grieve a discharge grievance, because the consequence of that refusal is that the employee is no longer part of the bargaining unit and - following the above example - won't have any of the benefits that may be obtained in the next round of bargaining.

In law, however, every rule has its exceptions. The OLRB's jurisdiction specifically excludes certain types of employee associations, such as fire associations. I have had occasion to opine that a Court proceeding might be instituted by a firefighter against the fire association, under the right circumstances, in a similar fashion to a DFR application. As far as I can tell, however, that hasn't happened. It's peripheral, in any event.

Moving along, consider the recent Paonessa v. Lifemark Health Management Inc. case. Health management companies are essentially external human resources departments working with disabled employees to assist in assessing them and facilitating an accelerated return to work. (Essentially, they track disabled employees, determine the length of treatment, limitations, and accommodations which might be made to phase them back into the workplace asap.)

The Facts

The employee was off work, receiving disability benefits, for three and a half years. At that point, the employer retained Lifemark to conduct a Functional Abilities Evaluation (FAE). The assessor concluded that the employee was not capable of returning to work, and the employer proceeded to discharge the employee.

The employee grieved the discharge, settled it on terms involving a return to work, then was discharged again following an alleged failure on her part to comply with the terms of the settlement. She grieved the second discharge, and settled again with the employer.

Then she proceeded to sue Lifemark, alleging interference with economic relations. Lifemark turned around and claimed for indemnification against the employer.

The Issues

The biggest and most obvious problem with suing Lifemark is this: Any settlement she would have agreed to with the employer would almost certainly have included the execution of a "Full and Final Release" including a clause preventing the employee from initiating proceedings against the employer or any other person who might seek indemnification from the employer.

When I explain these clauses to my clients, I put it this way: Suppose I hire a general contractor to renovate my home, and he subcontracts to an electrician, who performs his work in a negligent manner, causing me damages. Now suppose I sue the electrician for his negligence, and reach a settlement with him.

After settling with the electrician, imagine that I proceed to sue the general contractor in breach of contract, because he didn't provide the renovations I bought in a good and workmanlike manner. What is he going to do? Well, he'll issue a Third Party Claim against the electrician, saying "It's his fault, so he should have to pay me back for anything I'm required to pay." The electrician, already having settled this matter directly with me, won't be pleased with this turn of events...and would point to the release and say, "Sorry, the statement of claim has to be struck because the plaintiff already has his settlement for anything for which I might be responsible." Ultimately, in this case, the judge similarly finds that the plaintiff had her remedy through the grievance process, so the litigation is an abuse of process.

The other issue in whether or not the action is barred because of the fact that she's a bargaining unit employee. The judge's answer is that the subject matter of this law suit (namely, the conduct of the FAE) is squarely the subject matter of the collective agreement, and therefore the action is barred by the Labour Relations Act.

Thoughts

I don't doubt the correctness of this decision, I think the justice of it is in the right place, and I'm impressed by the judge's clarity in explaining his reasoning...but I'm still left with some nagging concerns: In any other circumstance, there would be the potential for a freestanding action against the organization that administered the FAE, and in the occasional circumstance there might be good reason to sue that organization in addition to the employer. That's not possible for bargaining unit members. So what happens if the organization carrying out the FAE does something beyond what the employer could reasonably be held responsible for in the grievance process?

I think the answer to that question is likely that such a scenario can't be permitted to occur. It cements the agency relationship. If an action against the assessor is statute-barred, then this must have the result that everything the assessor does in carrying out the FAE must be considered actions of the employer, for which the employer may be liable. (Of course, there's nothing stopping the employer from suing the assessor, in the right case.)

*****

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

Sue in Court? Or Apply to the Human Rights Tribunal?

This is an issue that I frequently have to deal with in practice, and that I've blogged about before in a previous blog I maintained when I practiced in Norfolk County. (Click the link for a detailed discussion on the question of "Now that you can seek a human rights remedy at Court, should you?") To sum it up, there are a lot of pros and cons for a wrongfully dismissed employee going to either venue, remedies you can obtain in one venue but not another, procedural benefits and cost benefits...but in this post I'll briefly discuss the fundamental issue of the difference in establishing liability.

The Facts

Last week, the Human Rights Tribunal of Ontario released its decision in Callwood v. Franchise Management Inc. et al. Mr. Callwood was assistant store manager of a Pizza Pizza in Oshawa East, and that location (with several others) were purchased by the Respondent corporation in October 2008. In early 2009, Mr. Callwood began to be disciplined due to customer complaints. Mr. Callwood believed that this was connected to his race, and sought legal advice. He apparently received a legal opinion that unjustified discipline could warrant a law suit in constructive dismissal, which he brought up with management. In that time period, he initiated this legal proceeding. Around the same time period (though it appears to be somewhat after he obtained the legal opinion and filed the Human Rights Application), the corporation implemented a management review which resulted in downsizing the management team to one assistant manager (Mr. Callwood was the junior of two) in six stores. Accordingly, Mr. Callwood was demoted to the position of shift manager, his wages were cut from $13.00/hour to $11.50/hour, and he lost his guaranteed 45 hours per week. He believed that this, too, was a consequence of his race.

Further discipline occurred throughout the following year, and ultimately Mr. Callwood was terminated in April 2010. He alleges that all the discipline was the consequence of him initiating the Human Rights Application. But the Tribunal disagreed, believing the employer's explanations as to why Mr. Callwood was selected for demotion, why he was disciplined, and why he was terminated. Therefore the Tribunal dismissed the Application.

Here's the key to this discussion:

[36] I am not here to assess whether there was “just cause” in the common law sense for dismissal. My role is to determine whether a prohibited ground (race or colour or reprisal) played a role in the termination. I have concluded that they did not.

The Issue of Liability

When an employer dismisses (constructively or actually) an employee, in a wrongful dismissal action the onus is upon the employer to demonstrate that they had 'just cause' to do so, or else they are liable to pay reasonable notice (or contractual notice, if applicable) to the employee. Just cause is a very high threshold, and it is really only in the clearest cases that the Courts will find just cause to exist. Thus, at Court, the employee has a pretty strong advantage in establishing liability for notice.

But at the Human Rights Tribunal, the question of just cause is unimportant. The burden of proof is on the employee to establish a breach of the Code, and the employee must lead "clear, convincing, and cogent evidence" that the employer's actions were motivated by discrimination. The failure to do so means a recovery by the employee of zero, even in a case where there is no just cause and therefore an entitlement to pay in lieu of notice.

This loss at the Human Rights Tribunal may not be the end of things. It is likely that the applicant could commence an action in Court seeking pay in lieu of notice, arguing that the employer did not have just cause for termination. But there will be a few difficulties in such an action.

(1) Timing. A claim for constructive dismissal based on the 2009 demotion would now be out of time. It is, quite frankly, fortunate for the employee that this process was already underway by the time he was actually terminated, because it puts this decision still well within the timeframes for initiating an action based on the actual termination of his employment. In most cases, a dismissed employee will not have the ability to commence a Court claim after the dismissal of the Human Rights Application, simply because of the timing factor alone. (This makes the question of venue up front much more critical.)

(2) He will find it very difficult to seek damages beyond straight notice. A claim containing human rights allegations would be struck.

(3) It is unclear to what extent the Court would adopt the factual findings of the Tribunal. While the Tribunal expressly disclaimed any decision on 'just cause', and therefore the employer likely could not succeed in taking the position that a wrongful dismissal action is estopped (barred), the Tribunal did reach several conclusions about the bona fides of the employer's actions in disciplining and terminating him, including a finding that Mr. Callwood's performance significantly declined. If I were acting for the employer in a Court action following this decision, I would be arguing strenuously that the fact of Mr. Callwood's misconduct is a matter of record, that Mr. Callwood cannot relitigate the question of whether or not his disciplinary record was justified, and that the only question for the Court is whether or not the discipline rose to the level of just cause.

My Comments

In cases where there is likely a significant liability for pay in lieu of notice, I usually recommend Court to my employee clients. It's clearer cut in cases where the allegations of discrimination are tenuous, but other files have presented more difficult questions. (One file in particular comes to mind, where the employer was engaged in practices some of which probably and others of which certainly infringed the Code protection against discrimination on the basis of gender and religion...the Tribunal would have been easier and cheaper, and also presented the possibility of a "public interest remedy" - i.e. the Tribunal dictating the employer's policies moving forward - which would give us a stronger position for settlements. Yet the risk of ultimately not establishing that the termination itself was discriminatory in nature pushed me towards recommending a Court action.) In cases where the wrongful dismissal liability would be limited, for whatever reason, and there is clear and cogent evidence of discrimination, I continue to believe that the Tribunal is the preferable option for plaintiffs in most cases.

Additional Remarks

The Tribunal's decision raises a couple of concerns in my mind.

First, I question the Tribunal's acceptance of the Respondent's submissions on one point related to the demotions: Five out of six of the people demoted were visible minorities. The fact that one was not is relevant, true, and rebuts (if perhaps only in a lukewarm way) the suggestion that the demotions were discriminatory. However, the Tribunal also accepted that the fact that five out of six managers demoted were visible minorities painted a picture of a a diverse management team generally. This is simply...well...wrong. To draw that conclusion, we would need to see what the rest of the management team in these stores looked like. If it was universally true that 5 out of 6 managers/assistant managers were visible minorities, then that makes any allegation that the demotion was racist extremely tenuous. On the other hand, if it turned out that these five were the only visible minorities in the management team, then the fact that they were all demoted and all the non-minorities left in place...well, that would tend to go the other way, and support an inference of discrimination. That's a minor point, though, and I don't think that it materially affects the integrity of the Tribunal's finding that there was no discrimination.

Secondly, and more importantly from a broader policy perspective, I have concerns about the Tribunal's commentary (though not its disposition) dealing with the employer's response to Mr. Callwood hiring a lawyer. Comments were apparently made expressing concern about Mr. Callwood's choice to get a lawyer involved, saying that "once you mention legal that gets their dander up". The Tribunal's response is basically: "Well, yeah, that's a natural reaction."

The problem, as I see it, is that anti-reprisal provisions in statutes like the Human Rights Code are exactly designed to prevent deterioration of the working relationship based on the employee standing on their rights. (A lofty goal, certainly, but that is the objective. It is illegal for the employer to treat an employee unfavourably just because the the employee has threatened human rights-based legal proceedings.) The suggestion that it is not only acceptable but should be expected that the employer's attitude to the employee will be chilled by the employee seeking legal advice undermines that purpose.

Again, I don't think that the Tribunal was necessarily wrong to find that this wasn't a reprisal, but the obiter could interfere with employees' abilities to stand on their rights in the future.

*****

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.