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.

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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.

'Bullied' Manager was Constructively Dismissed

In the recent case of Strizzi v. Curzons Management Associates Inc., a manager took on what is always a difficult hurdle in wrongful dismissal litigation: Overcoming the fact that he resigned. But he did so successfully.

Mr. Strizzi started as a sales representative in a health and fitness centre in Ottawa, but within about a year rose to the position of General Manager, where he remained until he resigned about five years later. In that time, the Club deteriorated, as Head Office failed to (despite Strizzi's recommendations) upkeep and renovate the Club. As well, billing issues began to arise, and - despite recommendations from Strizzi - Head Office failed to take any measures to address these. Membership waned in light of the increasingly competitive Ottawa market, and the profitable club slowly went into the red. Other issues included Head Office frequently tinkering and modifying Strizzi's remuneration package, excessive hours, and excessively harsh behaviour by Strizzo's supervisor. One of the Club's managers could no longer handle the atmosphere, and submitted a resignation letter which praised Strizzi's "compassion, guidance and motivation", but expressed that the climate of the workplace was not conducive to his continued health.

Finally, on September 30th, 2003, a telephone argument between Strizzi and his supervisor led to Strizzi's resignation.

The text of the decision portrays Strizzi as an exceptionally hard-working manager who did his best to run the Club, but was thwarted at every turn by a lack of support from the Head Office. Moreover, Strizzi's supervisor, Cardillo, is described as being a "bully", treating Strizzi excessively harshly.

The most serious work-related problem that Strizzi had, however, was in having to deal with Cardillo who was, to put it bluntly, a bully. Strizzi had experienced Cardillo’s unreasonableness and aggressivity during the telephone call in March 2003 which had left Strizzi and his wife in tears. He had again experienced it during the interchange at the beginning of September in regard to the September launch meeting. Cardillo’s behaviour during the opening few minutes of the September 30, 2003 telephone conversation brought home to Strizzi the impossibility of his continuing to work in an environment where his employer yelled at him, called him all kinds of names, falsely accused him of ruining his business, refused to have a dialogue or engage in reasonable, civil conversation, told him repeatedly how useless he was, made threats, and generally treated Strizzi in a way that no employee should be subjected to.

In wrongful dismissal litigation involving small- or mid-sized businesses, this is remarkably common. Involving larger businesses, it is occasionally seen in managers who are not particularly closely supervised and/or are exceptional producers. Aggressive type-A personalities who can be less-than-forgiving when things don't go their way. It can be great for growing a business, and there are definitely times and places where aggression is very useful and productive, but employee relations can require a different approach. The lesson to be learned from such cases is that an employee is not a punching bag. The employment relationship is not conducive to angry speech or behaviour, in either direction. There is appropriate discipline for employee misconduct, but this will never include profanity or name-calling.

Even in this case, where Cardillo's conduct had persisted over years without a complaint by Strizzo, this was still sufficient for Strizzo to make out a constructive dismissal case.

Food for Thought

This matter took nearly 8 years to come to trial, and Strizzo ultimately achieved a $45,000 damage award. $10,000 of it was for wages owing, which the employer had contested until the opening of trial. That is likely to hurt when it comes to the costs award, but costs awards are still just a portion of the actual legal expenses, and those legal expenses could easily be well into the six-digit range.

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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.

Grievance dismissed to pursue Human Rights remedy

The Human Rights Tribunal is quite exceptional in that a bargaining unit employee can seek a remedy directly against the employer without the requirement of involvement by the union.

For many employees who distrust or dislike their unions, this has some appeal, though there are obvious limitations in the Tribunal's jurisdiction.

The central issue for many unionized employees is that they personally are not, in the strictest sense, parties to grievance arbitration proceedings. So unions can decline to advance the grievance, or settle a grievance without the employee signing off, or proceed in a manner with which the employee disagrees. Moreover, it is very rare that the employee can obtain any remedy against the union, because that turns on a high-threshold test of arbitrary, discriminatory, or bad faith conduct by the union.

Which makes the direct access to the employer available through the HRTO quite valuable, in the appropriate case.

There is some discord in the jurisprudence where both a grievance arbitration and HRTO application are initiated: While they are both ongoing, the HRTO tends to defer the proceeding until the grievance is dealt with. If the grievance process has already been finalized, the HRTO turns to s.45.1 of the Human Rights Code, which permits it to dismiss a grievance if the subject matter has been "appropriately dealt with" in another proceeding.

The meaning of "appropriately dealt with" is pretty loose. In Barker v. SEIU, Arbitrator Surdykowski had made a finding that the Code hadn't been breached, but the HRTO disagreed with his analysis and so concluded that the subject matter wasn't appropriately dealt with, so refused to dismiss the Application. In Rysinski v. Aecon Industrial, the Union had reached a nominal settlement with the employer over the loud objections of the employee, and the HRTO concluded that the subject matter had been appropriately dealt with, so dismissed the Application. By contrast, in Parliament v. Metro Ontario, where the union had declined to refer the proceeding to arbitration, the HRTO concluded that the subject matter was not appropriately dealt with, so did not dismiss the Application.

In other words, if you pursue human rights remedies through another venue, and in particular through a union grievance, it's hard to tell whether or not the right to pursue an HRTO remedy will remain intact.

In the recent case of Paragon Health Care Inc. v. SEIU, Arbitrator Kaplan was faced with an employee who wanted out of the grievance process. Her lawyer asked the Arbitrator to defer jurisdiction to the HRTO, but lacking party status the request was denied. Her lawyer subsequently wrote several strongly worded letters making it clear that she had no intention of being at all involved with the process moving forward. The employer, accordingly, brought a motion seeking dismissal of the grievance, and the Arbitrator allowed the motion.

The question now is whether or not this dismissal actually opens the door to HRTO consideration of the issue. I suspect that it will, but given the way that "appropriately dealt with" has been applied in the past, it's hard to be certain of that.

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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.

Stranger than Fiction, Volume I

Not to say that workplace law doesn't yield a wide variety of mind-boggling and entertaining cases (the employee who, while on disability leave due to back pain, wins a golf tournament; the Human Resources personnel who, upon being asked to schedule an exam around a required religious observance, told the employee that she was sure God would be very understanding that he had to work...etc.), but civil litigation generally has a wide spectrum of cases that just make you want to shake your head.

Fire-Breathing Dragons on the CBC

Most of you will have heard of the CBC's show Dragon's Den (I believe it's a Canadian syndication of a BBC show). As reality shows go, it's a little less of a game and a little more reality. It involves entrepreneurs (or, in cases that are usually unsuccessful, wannabe entrepreneurs) making a pitch to five of Canada's most successful people (the "Dragons"), trying to get investments.

It isn't free money, even for those who succeed in their pitch: They're trying to sell a part of their company to the Dragons, and the Dragons are trying to make purchases that will make them money. (That said, even for those who don't get an offer, it can be great publicity for good ideas.)

But the Dragons are not only scrutinizing; they can be vicious and unforgiving. Anyone who has watched the show, even once, knows this well. Unfortunately for John Turmel, he had never seen an episode before he went on the show, and was, perhaps, unprepared for the roasting he had in store.

Hence, the litigation, Turmel v. CBC, with three reported decisions:

Justice Lofchik's decision of September 27, 2010, dismissing Mr. Turmel's suit on motion by CBC;
Justice Arrell's decision of March 17, 2011, dismissing a second suit on motion by CBC; and
The decision by the Ontario Court of Appeal, dismissing Mr. Turmel's appeals on both of the above decisions.

So what happened?

Well, this is best summed up by Justice Lofchik in the second paragraph of his decision:

The producers of the show decided, in their discretion, to include excerpts of Mr. Turmel’s appearance on the show in a one minute segment that was broadcast on the January 13, 2010 episode of the Dragons’ Den. In the segment broadcast, the panel of Dragons was, to say the least, not kind to Mr. Turmel, one member of the panel having told him she had no idea what he was talking about, another invited him to burst into flames, and a third told him he was “blowing air up a dead horse’s ass”.

Mr. Turmel sued in defamation (without having complied with notice requirements under the Libel and Slander Act) though Justice Lofchik noted that "[u]pon examining the statement of claim, one might also glean the suggestion of a claim for breach of contract."

Justice Lofchik examined the information and warnings that had been given to Mr. Turmel prior to the taping of the show, including the Contestant's Guide which warns that "Anything goes" and a Consent giving the CBC full discretion in deciding what to broadcast, if anything. He concluded that there was no genuine issue for trial, and dismissed the action.

In the mean time, eight days before the motion before Justice Lofchik was heard, CBC broadcast the segment again. So Mr. Turmel initiated a second action in November 2010, this time expressly pleading breach of contract, on the basis of the second broadcast.

Not surprisingly, CBC brought another motion for summary judgment, and not suprisingly, they won this too.

Mr. Turmel, of course, appealed both Orders, again unsuccessfully.

Interesting facts: Mr. Turmel represented himself, but has been ordered to pay over $18,000 toward CBC's costs. This is likely a fairly small fraction of CBC's overall costs of defending the action, and enforcing costs awards is not always easy.

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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.

Restrictive Covenant Language

I posted yesterday about the Superior Court enforcing a non-solicitation clause in an employment contract. This is actually fairly rare, as restrictive covenants are quite difficult to enforce.

In order to enforce a restrictive covenant in an employment contract, the employer first has to show that there is some legitimate proprietary business interest which couldn't be protected by lesser means, and then further has to establish that both the geographical restrictions and the temporal restrictions are reasonable. So a non-competition clause that says "You can never compete with my business, anywhere" would likely be unenforceable. What constitutes "reasonable" limitations is a matter of judgment, and varies from circumstance to circumstance. So in a particular circumstance a provision might say "You can't compete within a period of 18 months within 25 km." If the Court finds that only a 12 month covenant is appropriate, the clause doesn't get written down, but is void entirely. This forces employers to err on the side of caution and to be conservative with non-competition agreements.

A couple of years ago, I received a job offer that included restrictive covenant language in it along the following lines:

In the event of termination, commencing with the termination date, [employee] shall not practice law for the greatest of the following periods:
three years, or
two years, or
one year
within the largest of the following areas, being within a radius of:
35 kms, or
25 kms, or
10 kms
of the incorporated municipalities within which [employer] have offices at the time of termination. At the present time [employer] have offices within [location]. The clauses in this paragraph shall be read severally, and any clause found to be excessive or invalid shall be severed, leaving the next most restrictive clause in place.

When I first read it, I couldn't help but think that it was clever. I hadn't seen language like it before. And I was surprised, because it was clear that the specific law firm was not sophisticated in the ways of employment law. (Their HR recruiter - outsourced - found me and essentially the first three questions he asked were my age, marital status, and family status, and later the principals of the law firm asked the same questions repeatedly.)

Now, there are a number of potential problems with the implementation of the clause, but what interests me, and what I would welcome discussion on, is the overall concept of the clause, having a series of lesser alternatives built in.

There's nothing in the concept that is fundamentally at odds with the existing case law on restrictive covenants, but there still seems to be something...perhaps too good to be true...about the clause, from an employer's perspective. Conversely, there is something troubling about the way that it puts the ball entirely into the employee's court in terms of risk and legal costs. Imagine a clause that prevented competition "for the maximum time and geographical scope as a Court of competent jurisdiction finds reasonable". The effect is essentially the same, conceptually, and yet the trouble is that there's a lack of clarity, a failure to tell the employee exactly what terms the employee is going to be held to.

So I think that's the crucial flaw in the language: Saying "this or this or this" doesn't specifically tell the employee which one, and thus becomes unclear and ostensibly unenforceable.

I would back up this assertion with reference to Shore v. Ladner Downs, in which the question was whether or not a termination clause with a formula for notice which exceeded the statutory minimum at the time of termination but failed to formulaically meet the statutory minimums in other circumstances:

The policy considerations applied in Machtinger, supra, would not be served if the contract were to be interpreted in favour of the employer so as to leave the individual employee responsible for determining, at the point of termination, whether the statutory minimum had risen above the notice period stated in the contract. It is neither reasonable nor practical to leave the individual employee in the position of having to keep an eye on the relationship between the statutory minimum and the contractual term.

I would argue that the same policy considerations would lead to a conclusion that it cannot be put on the employee to determine which of several options is the applicable one. (Of course, it occurred to me that, as a labour and employment lawyer, I was ill-positioned to make such an argument. But I didn't accept the position for other reasons.)

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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.

Interlocutory Injunctions and Restrictive Covenants

A recent case from the Superior Court involved a relatively rare event in Ontario: An employer obtained an interlocutory injuntion, relying on a non-solicitation clause, preventing a former employee from soliciting its customers.

In DCR v. Vector, Vector is a company started by a former executive of DCR, Ted Nham, among others. Nham's employment was subject to a non-competition clause that prevented him from doing anything to compete during his employment, and a non-solicitation clause preventing him from soliciting customers for a year after the end of his employment.

Nham provided one month's notice of resignation on July 20th, 2010, to be effective August 20th, 2010. The judge doesn't survey the evidence in much detail, but points out that Nham's evidence is largely undermined by the fact that he appears to have registered Vector's domain name on July 26th, 2010. (Though, quite frankly, if the employer is putting much stock in that fact alone as offending the non-comp clause, I would doubt the viability of that claim. Registering the domain name is purely preparatory. Preparatory actions aren't considered to violate any fiduciary duty, and I would expect the same thing to apply here. Ordering stationery, entering into discussions to rent a facility, etc., are not actually acts of competition. If I'm entitled to set up a competing business on August 20th, 2010, I'm entitled to take every step necessary to be able to actually open my doors to the public on that date.)

The employer became aware that Vector was soliciting its clients (using information taken from DCR) and brought a motion for an interlocutory injunction, which was obtained (presumably on an ex parte basis, without notice to the defendants) on April 12th, 2011, preventing Vector from soliciting DCR's customers. When an injunction is obtained ex parte, it has to be for a short period of time, until the parties can all show up in Court to argue the case. Vector filed affidavits, and DCR wisely cross-examined on the affidavits, and the motion ultimately wasn't heard in full until June 20th, 2011, but the injunction was continued until that time, and from there until the release of this decision on July 13th, 2011.

The judge accepted that the non-solicitation clause was valid and enforceable, finding its terms reasonable, and granted the injunction. However, the judge did not see any reason to impose fiduciary obligations in excess of those contained in the written contract, and so the injunction will expire after August 19th.

Given that the evidence is that Vector doesn't actually have any customers yet, that's actually kind of a loss for the plaintiff.

Commentary

The judge's decision to terminate the injunction after August 19th minimizes the effect of the fact that the defendants apparently misappropriated DCR's customer lists. There is a line of cases involving misappropriated customer lists, starting with 1259695 Ontario Inc. v. Guinchard in 2005, in which abuse of misappropriated customer lists warrants long-term continuation of such injunctions.

The trouble with this decision is that it appears that Vector, a few weeks from now, will be free to pull out DCR's customer list again and start sending out a new round of solicitations.

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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.

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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.