I recently referred in passing the concept of ancillary damages, from Justice Echlin's decision in Brito v. Canac Kitchens, which I discussed here and here.
The essential facts are these: Mr. Olguin (the plaintiff in Brito) was dismissed, and offered a modest package, which was less than his common law entitlements. He didn't agree to the package, and his benefits and remuneration were cut off after his statutory minimums were satisfied. He obtained new employment relatively quickly, but without benefits. So when he began to undergo cancer treatments during what would have been the reasonable notice period, he incurred significant losses.
The issues included the length of the notice period, but by the point of trial, even the employer wasn't seriously arguing for a notice period which would have allowed them to terminate Mr. Olguin's benefits before he was diagnosed. So the main issue was the scale of damages for their termination of his disability benefits; they argued unsuccessfully that he should have mitigated his loss by purchasing replacement benefits. Instead, they were hit with the full amount his disability insurance would have had to pay out. Pretty major.
But another head of damages awarded by Justice Echlin was "ancillary" damages, for cutting off his benefits and wages after only the statutory minimum notice period. Looking at the description of his reasons for awarding them, they appeared to me to be in the nature of punitive damages, which traditionally have a very high bar in wrongful dismissal suits, including a separate actionable wrong and exceptionally bad conduct on the employer's part. I couldn't see how this case would meet the traditional test for punitive damages. But that doesn't mean it can't succeed - the law is always changing.
The Court of Appeal agreed that they looked like punitive damages, and found that, because punitive damages weren't pleaded by the plaintiff, the award couldn't stand. Highly unsatisfactory. Canac's approach to this matter is not an uncommon one: Put an initial offer to the employee which satisfies his statutory entitlements and offers to continue wages and benefits past the stat minimums in exchange for a release. Few employers are willing to continue wages or benefits - and especially LTD benefits - past the stat minimum notice period without a signed release. That's the deal they're trying to make. "Let's agree on how much we owe you before we pay you anything." And in a case where the employee finds new employment, an employer would normally take money off the table. Canac's actions, which Justice Echlin found to be so high-handed and oppressive as to justify additional damages, were essentially common practice. So employers need a little something more from the Court of Appeal than "it wasn't pleaded". A singular decision in exceptional circumstances, even from Justice Echlin, is unlikely to change the industry practice.
This was Justice Echlin's last reported decision, to my knowledge, before he passed, and it was a big one. His analysis on LTD benefits are likely to become fairly well-entrenched in the law. The ancillary damages leave a big question mark, however.
Right now, it's an outlier. But outlier decisions which run against the grain of established law, when made by esteemed judges in the field, often plant seeds which can result in legal change down the road. It's hard to completely ignore Justice Echlin, though two decisions (Asselin v. Gazarek and Day v. JCB Excavators Ltd.) that I know of have distinguished the case, calling it a "fact-specific" decision.
So, for now, the existing practice continues to involve the provision of only the stat minimums without a signed release, but I can't help but think that Justice Echlin has left us with a dark threat, that employers could land in trouble doing so, at least in the wrong circumstances. We don't know if or when the sword of Damocles will fall, but employers have reason to be somewhat nervous about this.
(Incidentally, Justice Echlin himself evoked the image of the sword of Damocles in his decision in Carscallen, in a constructive dismissal context.)
*****
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.
Showing posts with label punitive damages. Show all posts
Showing posts with label punitive damages. Show all posts
Thursday, July 19, 2012
Friday, March 2, 2012
Pate v. Galway-Cavendish and Harvey Update
Last May, I posted this entry about the Court of Appeal sending Pate v. Galway-Cavendish and Harvey back for a trial on malicious prosecution and punitive damages. To recap, Mr. Pate was the Chief Building Official for the Township of Galway and Cavendish until an amalgamation at the end of 1998. The Chief Building Official for the resulting municipal corporation, former police officer John Beaven, investigated certain apparent 'discrepancies' involving permit fees which Pate supposedly collected but didn't remit, the implication being that Pate had been defrauding the municipality.
Less than three months after the amalgamation (in March '99), Pate was told that, if he resigned, the police wouldn't be called. He refused to resign, and was dismissed and charged criminally. In December 2002, he was acquitted of all charges. The discrepancies were actually innocent record-keeping issues, not indicative of fraud, and not only that but the municipality had known (and in many cases not disclosed to police) the innocent explanations for the misconduct. For example, in one case the records were kept under a different name because the fee had been paid by the property-owner's son-in-law. Mr. Pate noted this in his journal, but the journal was taken from him when he was dismissed and not disclosed to police. Other records had been lost in an office move, another fact not disclosed to police. Finally, one of the subject transactions had been inquired into years before, with the municipality concluding that Pate had not done anything wrong...another fact not disclosed to police.
In 2009, the matter first went to trial, with the trial judge making an award of pay in lieu of notice, with a Wallace bump-up (by that time somewhat controversial), and a modest award of punitive damages (finding that he could not award more than $25,000 as such), but declining to find malicious prosecution. In April the Court of Appeal found that the judge erred in his consideration of the wrongful dismissal claim and didn't adequately explain why he limited the punitive damages to $25,000, and ordered a new trial on these issues.
A little bit of a strange feature of the Court of Appeal's decision was an offer to direct the new trial to be conducted before the same trial judge. I didn't understand that at the time; it might be more cost-effective, but ordinarily you don't want to go back to the same judge who decided the matter wrongly in the first place.
I now understand that, however: Mr. Pate passed away in January 2011. He would have been in his mid fifties. Without Mr. Pate present in person, it would have been far more complex to conduct a full trial of these issues before a new judge.
In November 2011, Justice Gunsolus released his decision on punitive damages (though with no mention of malicious prosecution), increasing the punitive damage award to $550,000. That's a pretty big win for the estate, but again I would highlight the "Justice Delayed" aspects of this case, as I did in my last post. He was dismissed in early 1999. The criminal proceedings continued until late 2002. His personal life fell apart in that time. The wrongful dismissal case took six more years to get to trial, being heard more than a decade after the termination. The appeal was heard in late 2010, with the decision being released in April 2011, and even with the new trial moving in quite an expedited fashion, being heard and decided in November 2011, it was still more than 12 and a half years after the dismissal. In which time the plaintiff actually passed away, giving real meaning to the phrase "Justice delayed is justice denied."
*****
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.
Less than three months after the amalgamation (in March '99), Pate was told that, if he resigned, the police wouldn't be called. He refused to resign, and was dismissed and charged criminally. In December 2002, he was acquitted of all charges. The discrepancies were actually innocent record-keeping issues, not indicative of fraud, and not only that but the municipality had known (and in many cases not disclosed to police) the innocent explanations for the misconduct. For example, in one case the records were kept under a different name because the fee had been paid by the property-owner's son-in-law. Mr. Pate noted this in his journal, but the journal was taken from him when he was dismissed and not disclosed to police. Other records had been lost in an office move, another fact not disclosed to police. Finally, one of the subject transactions had been inquired into years before, with the municipality concluding that Pate had not done anything wrong...another fact not disclosed to police.
In 2009, the matter first went to trial, with the trial judge making an award of pay in lieu of notice, with a Wallace bump-up (by that time somewhat controversial), and a modest award of punitive damages (finding that he could not award more than $25,000 as such), but declining to find malicious prosecution. In April the Court of Appeal found that the judge erred in his consideration of the wrongful dismissal claim and didn't adequately explain why he limited the punitive damages to $25,000, and ordered a new trial on these issues.
A little bit of a strange feature of the Court of Appeal's decision was an offer to direct the new trial to be conducted before the same trial judge. I didn't understand that at the time; it might be more cost-effective, but ordinarily you don't want to go back to the same judge who decided the matter wrongly in the first place.
I now understand that, however: Mr. Pate passed away in January 2011. He would have been in his mid fifties. Without Mr. Pate present in person, it would have been far more complex to conduct a full trial of these issues before a new judge.
In November 2011, Justice Gunsolus released his decision on punitive damages (though with no mention of malicious prosecution), increasing the punitive damage award to $550,000. That's a pretty big win for the estate, but again I would highlight the "Justice Delayed" aspects of this case, as I did in my last post. He was dismissed in early 1999. The criminal proceedings continued until late 2002. His personal life fell apart in that time. The wrongful dismissal case took six more years to get to trial, being heard more than a decade after the termination. The appeal was heard in late 2010, with the decision being released in April 2011, and even with the new trial moving in quite an expedited fashion, being heard and decided in November 2011, it was still more than 12 and a half years after the dismissal. In which time the plaintiff actually passed away, giving real meaning to the phrase "Justice delayed is justice denied."
*****
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.
Monday, February 6, 2012
Brito v. Canac Kitchens Appealed
Last week, the Ontario Court of Appeal released its decision on the appeal of the late Justice Echlin's decision in the Brito v. Canac Kitchens case. I discussed the original decision shortly after it was released in this post.
This was one of many wrongful dismissal cases against Canac, and included several plaintiffs. One of the plaintiffs, Mr. Olguin, became disabled during the notional notice period, battling cancer. Incidentally, he had found a new job fairly quickly after being fired, albeit at a lower rate of pay, and his new job didn't have benefits, so when he had to stop working, it was without any LTD coverage.
Justice Echlin found Canac Kitchens responsible for what the LTD policy would have paid out, but for the termination of benefits, to the tune of nearly $200,000. Justice Echlin was pretty displeased with the employer's approach to termination of the coverage and litigating the point, and awarded $15,000 in what he called "ancillary damages" for not unilaterally continuing disability coverage and paying out only the statutory minimum notice. There was some murmur in the employment law bar about this - it was novel, and condemned essentially what has become standard employer practice. I commented in a discussion on Professor David Doorey's blog at the time that I wondered if this would hold up on appeal, as the ancillary damages "[look] like punitive damages to me, to which the appellate Courts have applied an extremely high standard in employment cases."
However, while the $15,000 in ancillary damages was novel, and in some ways asked for an appeal, Justice Echlin's reasoning on the damages for loss of LTD benefits looked relatively solid. Both points were appealed, and the result is as expected.
The Court of Appeal upheld the award of damages in respect of LTD benefits, but found that the "ancillary damages" were in the nature of punitive damages...
...and that since punitive damages weren't pleaded in the statement of claim or sought at trial, the award could not stand.
My Thoughts
I'm a little disappointed with the Court of Appeal's dodge of the ancillary damages question. It's a novel question of law, and while the decision was no doubt correct that it can't be awarded if not pleaded, I would have liked to see some obiter as to whether or not the award might have been upheld if pleaded. As it stands, this does not endorse Justice Echlin's finding that Canac's conduct was blameworthy, but nor is it an outright rejection of the suggestion that paying only the statutory minimums might give rise to such damages. Given that this suggestion was made by a widely-respected judge and expert in the employment law arena, it's something that still might carry some sway.
Also note the costs award: Canac Kitchens defeated the $15,000 ancillary damages award, but lost on the $200,000 issue, and therefore was ordered to pay another $20,000 to offset Mr. Olguin's costs on the appeal. Just can't catch a break.
*****
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.
This was one of many wrongful dismissal cases against Canac, and included several plaintiffs. One of the plaintiffs, Mr. Olguin, became disabled during the notional notice period, battling cancer. Incidentally, he had found a new job fairly quickly after being fired, albeit at a lower rate of pay, and his new job didn't have benefits, so when he had to stop working, it was without any LTD coverage.
Justice Echlin found Canac Kitchens responsible for what the LTD policy would have paid out, but for the termination of benefits, to the tune of nearly $200,000. Justice Echlin was pretty displeased with the employer's approach to termination of the coverage and litigating the point, and awarded $15,000 in what he called "ancillary damages" for not unilaterally continuing disability coverage and paying out only the statutory minimum notice. There was some murmur in the employment law bar about this - it was novel, and condemned essentially what has become standard employer practice. I commented in a discussion on Professor David Doorey's blog at the time that I wondered if this would hold up on appeal, as the ancillary damages "[look] like punitive damages to me, to which the appellate Courts have applied an extremely high standard in employment cases."
However, while the $15,000 in ancillary damages was novel, and in some ways asked for an appeal, Justice Echlin's reasoning on the damages for loss of LTD benefits looked relatively solid. Both points were appealed, and the result is as expected.
The Court of Appeal upheld the award of damages in respect of LTD benefits, but found that the "ancillary damages" were in the nature of punitive damages...
...and that since punitive damages weren't pleaded in the statement of claim or sought at trial, the award could not stand.
My Thoughts
I'm a little disappointed with the Court of Appeal's dodge of the ancillary damages question. It's a novel question of law, and while the decision was no doubt correct that it can't be awarded if not pleaded, I would have liked to see some obiter as to whether or not the award might have been upheld if pleaded. As it stands, this does not endorse Justice Echlin's finding that Canac's conduct was blameworthy, but nor is it an outright rejection of the suggestion that paying only the statutory minimums might give rise to such damages. Given that this suggestion was made by a widely-respected judge and expert in the employment law arena, it's something that still might carry some sway.
Also note the costs award: Canac Kitchens defeated the $15,000 ancillary damages award, but lost on the $200,000 issue, and therefore was ordered to pay another $20,000 to offset Mr. Olguin's costs on the appeal. Just can't catch a break.
*****
This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.
Thursday, October 27, 2011
The Dangers of Scapegoats
There are two stories in the Toronto Star today about allegations of criminal misconduct against employees.
The 'front page' on the online version is about Oshawa Hospital Foundation firing its CEO, Jim Szeman, and calling the police after a Star report prompted an investigation and "forensic accountants turned up serious money and charity management problems."
Reading the story, it seems like they've done their homework and they're pretty confident that there was mismanagement. But I have enough experience with media to not take any of it at face value, and I'm particularly doubtful about the strength of the case when the only specific allegations in the story are...less than obvious misconduct. There's an allegation of self-dealing, that the charity paid a company of his over three hundred thousand dollars...which seems like a lot of money until you realize that this was over a six year period and his annual salary with the charity is over two hundred grand...where it is "unclear" (to the Star) who else on the Board of Directors knew of the self-dealing arrangement.
Reading the news, I always assume that I'm not seeing all the facts. So it could be that this fellow is a hardened fraudster and the employer's response is reasonable. Or it could be that he was acting in a transparent manner, taking perks that the general public might not have much patience for in the wake of the e-Health scandal, and that the employer decided it would rather blame let Szeman take the fall than stand behind him.
If it's the latter, there could be real liability risk.
The second story is about a former low-level employee of Durham Region who was fired and charged with fraud. More to the point, the story is about his acquittal.
Joel Nicholson was an employee with no legal training, in charge of collecting unpaid fines under the Provincial Offences Act. Then, in 2002, his duties were expanded to include collecting from tenants in subsidized housing who owed rent arrears or money for damage caused. And he built those debts into the same system he had for collecting other fines, seizing and garnishing assets and income.
Just one problem: You can't do that. There are certain actions that you have to take when dealing with residential tenants. While they're in the rental unit, you need to go to the Landlord Tenant Board for an Order, which can then be converted into a Small Claims Court judgment, and enforced in the Small Claims enforcement process. After they're out of the rental unit, such claims go directly to Small Claims Court. The key is this: You need to get a judgment before you can take enforcement action on a debt.
So Nicholson's actions in collecting these debts were deeply problematic, as was brought to light in 2009. However, as the Court concluded, the mistakes were innocent on his part. He didn't realize that he was doing anything wrong. He didn't know that there was another process he had to use. And it's not as if he was pocketing the proceeds. And therefore, he was acquitted.
The story also notes that he is suing the employer in wrongful dismissal. Likely a solid case, if this Court decision is any indicator. (It isn't binding. The burden of proof is different. In order to convict him, the Crown needs to prove guilt "beyond a reasonable doubt". To prove that he engaged in misconduct for the purpose of a wrongful dismissal suit, the employer only needs to establish it on a "balance of probabilities". Accordingly, the fact that he was acquitted doesn't necessarily bar a Court from finding that he engaged in misconduct in a subsequent civil proceeding.) The judge in the criminal proceeding seemed critical of the Region's managers for not spotting the "flagrant legal problems" in Nicholson's approach, and for failing to consult the Region's legal department. If these criticisms were picked up by a judge in a wrongful dismissal case, then that could be very bad for the employer.
Where an employer makes allegations of cause which don't pan out, that usually amounts to a breach of the duty of good faith and fair dealing. (Not always. There is some case law suggesting that, if the allegations themselves are true and simply don't quite meet the threshold for cause, then there's no reason to think there's bad faith. Similarly, one can easily imagine a circumstance in which an employer, having diligently investigated allegations of wrongdoing and reasonably, if incorrectly, concluding that the employee is guilty, might not have breached the duty of good faith and fair dealing.) The more serious the allegations, the more serious the breach of the duty of good faith. If they bring in the police and an unsuccessful criminal prosecution results, the employer's motives for calling the police will be closely scrutinized, as will their actions in making the police report. Claims for malicious prosecution, negligent investigation, including aggravated and punitive damages, are easy to imagine in such contexts.
The 'front page' on the online version is about Oshawa Hospital Foundation firing its CEO, Jim Szeman, and calling the police after a Star report prompted an investigation and "forensic accountants turned up serious money and charity management problems."
Reading the story, it seems like they've done their homework and they're pretty confident that there was mismanagement. But I have enough experience with media to not take any of it at face value, and I'm particularly doubtful about the strength of the case when the only specific allegations in the story are...less than obvious misconduct. There's an allegation of self-dealing, that the charity paid a company of his over three hundred thousand dollars...which seems like a lot of money until you realize that this was over a six year period and his annual salary with the charity is over two hundred grand...where it is "unclear" (to the Star) who else on the Board of Directors knew of the self-dealing arrangement.
Reading the news, I always assume that I'm not seeing all the facts. So it could be that this fellow is a hardened fraudster and the employer's response is reasonable. Or it could be that he was acting in a transparent manner, taking perks that the general public might not have much patience for in the wake of the e-Health scandal, and that the employer decided it would rather blame let Szeman take the fall than stand behind him.
If it's the latter, there could be real liability risk.
The second story is about a former low-level employee of Durham Region who was fired and charged with fraud. More to the point, the story is about his acquittal.
Joel Nicholson was an employee with no legal training, in charge of collecting unpaid fines under the Provincial Offences Act. Then, in 2002, his duties were expanded to include collecting from tenants in subsidized housing who owed rent arrears or money for damage caused. And he built those debts into the same system he had for collecting other fines, seizing and garnishing assets and income.
Just one problem: You can't do that. There are certain actions that you have to take when dealing with residential tenants. While they're in the rental unit, you need to go to the Landlord Tenant Board for an Order, which can then be converted into a Small Claims Court judgment, and enforced in the Small Claims enforcement process. After they're out of the rental unit, such claims go directly to Small Claims Court. The key is this: You need to get a judgment before you can take enforcement action on a debt.
So Nicholson's actions in collecting these debts were deeply problematic, as was brought to light in 2009. However, as the Court concluded, the mistakes were innocent on his part. He didn't realize that he was doing anything wrong. He didn't know that there was another process he had to use. And it's not as if he was pocketing the proceeds. And therefore, he was acquitted.
The story also notes that he is suing the employer in wrongful dismissal. Likely a solid case, if this Court decision is any indicator. (It isn't binding. The burden of proof is different. In order to convict him, the Crown needs to prove guilt "beyond a reasonable doubt". To prove that he engaged in misconduct for the purpose of a wrongful dismissal suit, the employer only needs to establish it on a "balance of probabilities". Accordingly, the fact that he was acquitted doesn't necessarily bar a Court from finding that he engaged in misconduct in a subsequent civil proceeding.) The judge in the criminal proceeding seemed critical of the Region's managers for not spotting the "flagrant legal problems" in Nicholson's approach, and for failing to consult the Region's legal department. If these criticisms were picked up by a judge in a wrongful dismissal case, then that could be very bad for the employer.
Where an employer makes allegations of cause which don't pan out, that usually amounts to a breach of the duty of good faith and fair dealing. (Not always. There is some case law suggesting that, if the allegations themselves are true and simply don't quite meet the threshold for cause, then there's no reason to think there's bad faith. Similarly, one can easily imagine a circumstance in which an employer, having diligently investigated allegations of wrongdoing and reasonably, if incorrectly, concluding that the employee is guilty, might not have breached the duty of good faith and fair dealing.) The more serious the allegations, the more serious the breach of the duty of good faith. If they bring in the police and an unsuccessful criminal prosecution results, the employer's motives for calling the police will be closely scrutinized, as will their actions in making the police report. Claims for malicious prosecution, negligent investigation, including aggravated and punitive damages, are easy to imagine in such contexts.
*****
This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.
Thursday, October 13, 2011
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.
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.
Monday, May 2, 2011
Malicious Prosecution and Wrongful Dismissal
An employer always needs to be careful when accusing employees of misconduct, but an additional level of caution needs to be exercised when the alleged misconduct has criminal dimensions, and - as a new case from the Ontario Court of Appeal, Pate v. Galway-Cavendish (Township), 2011 ONCA 329, makes clear - an employer must be especially careful and diligent when reporting alleged employee misconduct to the police.
This is not the first cautionary tale. In a recent post about Canac Kitchens, I alluded to the Correia case in which the employer investigated thefts then mixed up two employees with similar names and reported the wrong one to the police.
This new Pate case, however, is interesting for a number of reasons.
Mr. Pate was the Chief Building Official for the Township of Galway and Cavendish for 9 years before it amalgamated to form the Township of Galway-Cavendish and Harvey on December 31st, 1998. He was relegated to a Building Inspector position and reported to Chief Building Official John Beaven. No, this isn't a constructive dismissal case. This arrangement didn't last long.
On March 26th, 1999, Mr. Pate was told of apparent 'discrepancies' relating to permit fees paid to him but not remitted. He was not given an opportunity to respond, but was told that, if he resigned, the matter would not be reported to the police. He did not resign, so he was fired and charged criminally.
In December 2002, following a trial lasting four days over the course of a year, he was acquitted, and he sued in December 2003 in wrongful dismissal and malicious prosecution. (A caution about limitations: Following amendments to the Limitations Act effective January 1st 2004, there would be a solid argument today to be made that the wrongful dismissal claim was brought too late.)
So the obvious questions are these: On what basis was he accused, and on what basis was he acquitted?
Well, Mr. Beaven was a retired staff sergeant from what was then known as the Metropolitan Toronto Police Service, and conducted his own investigation into certain irregularities - records of remittances missing, essentially - and prepared statements for the police relating to alleged theft of fees relating to six properties.
The trouble is that there were other explanations for the irregularities. In one case, the records were kept under a different name because the fees had been paid by the property owner's son-in-law. Mr. Pate noted this in his journal. However, on termination, Mr. Pate's journal was seized by Mr. Beaven, and was not provided to the police. In other cases, property owners had paid fees at a municipal satellite office which moved in 1998, during which move many files were lost. Municipal officials were well aware of the missing files, but police were not told.
One of the irregularities had even come to the Township's attention in 1995, whereupon it was investigated and the Township concluded that there was no wrongdoing. Of course, the police were not told about this.
Remember the effect on the employee, and the timeline. He was fired in March 1999, charged with theft in or around April 1999, and only had the charges finally dealt with in December 2002, nearly four years later. One can imagine the toll it would take on his professional life, and as well it seems that his marriage fell apart in that time.
The parties agreed on a reasonable notice period of 12 months, but argued about the entitlement to aggravated damages, punitive damages, and whether or not the employer was liable for "malicious prosecution". The trial judge dismissed the malicious prosecution claim, but awarded aggravated and punitive damages on the wrongful dismissal claim.
Malicious prosecution is a hard claim to make, but the trial judge found that this was a close case, then proceeded to refuse the claim...but made a couple of mistakes in doing so. He set the bar too high, finding that the necessary intention of the employer would have to have been to pervert the administration of justice, and also found that the employer did not 'initiate' the prosecution...failing to fully consider the effects of its failure to disclose the material exculpatory facts in its possession. To top it all off, the trial judge did find malice in the wrongful dismissal context, so the conclusion that there was no evidence of malice in the malicious prosecution context is inconsistent.
The other issue on the appeal was the quantum of punitive damages: The judge awarded $25,000, essentially saying that the principle of proportionality prevented him from awarding more. The Court of Appeal found that the reasons the judge provided for limited himself were inadequate.
So we're more than twelve years past the termination date, and the Court of Appeal sent the matter back for a new trial on those two issues.
The lesson for employers is simple: When referring a matter to the police, make sure you're certain of your reasons for doing so, and make sure you disclose everything to the police.
Also, I should highlight that the "Resign and we won't call the police" bit is most certainly not conduct the Court would look kindly upon. As a lawyer, I am prohibited by the Rules of Professional Conduct from threatening criminal proceedings to secure a civil advantage. It smells like blackmail, and that's how the Courts are likely to see 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.
Subscribe to:
Posts (Atom)