Bonus Payout Owing After Resignation is Properly Forfeited says Ontario CA:

In Bois v MD Physician Services ( 2017 ONCA 857) the Plaintiff had received a bonus entitlement that was to be paid out over the following 3 years. He quit before the 3 years was up but claimed immediate entitlement to the unpaid bonus.

His bonus plan read as follows:

In the event a Participant’s continuous Active Employment terminates, either voluntarily or involuntarily and whether for cause or not for cause, the Participant will immediately forfeit any entitlement to any payments under this plan whether attributable to prior years or to the current year.

In any given year, you must be a permanent employee of the CMAH Group of Companies on December 31 of the year for which the incentive is paid and continue to be so employed on the payment date(s) to receive a payment. Any employee who is no longer employed with the organization or has given notice of termination prior to the payout date will not be eligible to receive a payment.

The Plaintiff relied upon Sections 11(5) and 13(1)  of the Employment Standards Act, 2000 to say that since he had already earned the bonus, it could never be forfeited and should be paid within 7 days of his resignation.

11(5) If an employee’s employment ends, the employer shall pay any wages to which the employee is entitled to the employee not later than the later of,
(a) seven days after the employment ends; and
(b) the day that would have been the employee’s next pay day.
13(1) An employer shall not withhold wages payable to an employee, make a deduction from an employee’s wages or cause the employee to return his or her wages to the employer unless authorized to do so under this section.
Both the trial judge and the Court of Appeal disagreed with the plaintiff’s position. Section 1 of the ESA clearly defines wages as including certain types of bonuses. So the bonus money was wages. However both Courts focused on the the words ” wages to which the employee is entitled to”.
This is what the CA said:
15      It was open to the parties to agree how and when any bonus was declared, earned, accrued and would be payable: Kielb v. National Money Mart Co., 2017 ONCA 356 (Ont. C.A.), at para. 12.
16      By the terms of the VIPs, the appellant was not entitled to the three bonus installments whose pay-out dates fell well after the date of his resignation. While those three installments would constitute wages payable upon each of the future pay-out dates, they were not “wages to which the appellant [was] entitled” when he resigned and his employment ended. Accordingly, we see no basis to interfere with the motion judge’s conclusion that where, as in circumstances such as those of the present case, the entitlement to an incentive plan payment does not arise until after an employee’s resignation or the expiration of the reasonable period of notice of termination, a plan’s requirement that the employee be actively employed at the time of a future pay-out does not contravene s. 11(5) of the ESA.
17      Nor does such an active employment provision contravene s. 13(1) of the ESA, as the future pay-outs do not constitute “wages payable to an employee” at the time of his resignation.
I find the comments in paragraphs 15 and 17 problematic as it implies that the parties can determine when a wage is earned or entitled, no matter how that private definition differs from the common understanding of that term. The term  in the ESA is ” wages to which the employee is entitled” . This does not mean that they are owing on that date, only that on some later date they will become owing.
Words in a statute are to be interpreted in accordance with their common meaning, and parties cannot contract out of a statute by redefining a statutory term to suit their individual needs.
Imagine this provision in an employment contract:
You will be paid an annual wage of $100,000 by way of a single payment on December 31st. If you are not actively employed on December 31st, you will not be eligible to be paid this amount or any part of this amount, other than the minimum wage under the ESA for the time actually worked. 
No one would seriously disagree that the employee “earned ” his wage on a daily basis but has simply agreed to defer payment to a later date. It seems absurd that this employee could work until December 25th, then quit and only get the minimum wage. But that is exactly what the Court is saying is OK.
Section 11 of the ESA only requires that an employee be paid on a recurring basis, not that the recurring basis be any minimum or maximum period. Thus it would not disallow a yearly lump sum salary.
There is a fundamental difference between when I earn a wage and when I can demand that I be paid that wage. If the Plaintiff had resigned, then simply waited until after the next payment was due before suing, how could the Court find that his wages were not due at that time?
In addition the same Court of Appeal has said in a previous case that  the term “active employment ” in a bonus agreement does not negate the concept of reasonable notice ( Pacquette v TeraGo Networks ( 2016 ONCA 618 ). Why is that the same clause used in this case has the effect of legalizing a forfeiture of an earned wage?
Moreover the clause itself violates the ESA in that it purports to immediately forfeit the future bonus payment ( which the Court found was a wage under the ESA) even where an the termination is without cause or where the employee simply has given notice of resignation but is still working for the employer. Now in this case the Plaintiff resigned and was not terminated, but still, if part of an contract provision is illegal, the whole clause is illegal, said the same Court of Appeal in North v Metaswitch Networks Corp, (2017 ONCA 790).
Perhaps the Court of Appeal realized that if the Plaintiff was correct, then employers would virtually never be able to deny earned bonuses to dismissed employees  whatever the language of the bonus plan was, as that would constitute a illegal withholding of wages, contrary to Section 13(1) of the ESA.
Perhaps that was ” a bridge too far ” for the Court.

Mental Distress/ Aggravated Damages Require Actual Third Party Evidence, Says BCCA:

In Cottrill v Utopia Day Spas and Salons  ( 2018 BCCA 383) Justice Goepel reviewed a mental distress award of $15,000. In this decision the Judge reiterated in order to win aggravated damages the Plaintiff must prove 4 elements :

a) That the employer engaged in conduct during the course of the dismissal that was unfair or in bad faith , AND

b) That the manner of dismissal caused the mental distress, AND

c) That the damages must be more than the normal distress and hurt feelings resulting from dismissal AND

d) There must be real demonstrable evidence regarding the mental distress .

Here is the quote regarding the 4th requirement.

In this case, as in Lau , there was no evidence from the plaintiff or from family members, friends or third parties concerning the impact of the termination on Ms. Cottrill and her mental state. Although not required, there was no expert evidence, medical or otherwise. The only evidence of mental distress is that Ms. Cottrill cried during the March meeting, following which she had to go home early because she was so upset, and that at the June meeting, she went numb and could not take anything in. The evidence of Ms. Cottrill’s reactions at the two meetings at its highest establishes a transient upset. It falls well short of the legal standard that requires a serious and prolonged disruption that transcends ordinary emotional upset or distress.

Remember this was a fairly modest award for aggravated damages and still the Court required real third party evidence of the mental distress.

What is interesting about the trial decision is that the Judge found that the Plaintiff’s employment agreement had an enforceable ESA termination clause so that her recovery was limited to a lousy 8 weeks pay.

I suspect that the trial judges willingness to award aggravated damages was in part influenced by his inability to award reasonable notice. The trial judge seemed determined to award this plaintiff more than her minimal contractual entitlement. After all, she was a 11 year employee who was fired for poor performance and given no termination pay at all.

Call me a cynic or a realist, but I bet that if there was no termination clause, the judge would have awarded her a generous notice period and nothing for aggravated damages.

But what do I know. I am just meditator.

Not a Privilege Between Management and HR:

In Guthrie v St Joseph Print Group ( 2018 ONSC 1411) Master Champagne had to decide whether a series of emails between senior management and the human resources department had to be produced in an Affidavit of Documents .

The Plaintiff alleged that he was constructively dismissed when after 34 years as a salesman his compensation was reduced by 10% after being placed on  Performance Improvement Plan.

The Defendant claimed privledge on two grounds:

Litigation Privilege: Because the emails in question were about a year before the constructive dismissal, the Master held that it is not plausible that the Defendant contemplated litigation that far in advance and that because the predominant purpose of the  emails was performance issues, no privilege applied.

Wigmore Test : There are 4 required parts to the common law test as to whether or not a non statautory  privilege should exist.

1. the information or communications must originate in a confidence that they will not be disclosed;
2. this element of confidentiality must be essential to the full and satisfactory maintenance of the relationship between the parties;
3. the relation must be one which in the opinion of the community ought to be sedulously fostered;
4. the injury that would inure to the relationship by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation.
The Master held that items 1 and 2 of the test applied.
Regarding item #3, the Master found that there was not convincing evidence that in the community there was an opinion that the relationship between management and HR required confidentiality inorder

 

 

 

Clarity of Fixed Term Wins Out Over Ambiguous Termination Clause.

In Lawis v ProCabinet Design and Coastal Marine ( 2018 CanLII 95659) Judge Orr of then Provincial Court of Nfld and Labrador has a situation where the contract contained the following provisions:

This contract shall have a duration of 24 months from the date the Employee assumes his functions.

Notice of Resignation Should he /she wish to terminate the present contract, The Employee, agrees to give the Employer written notice thereof at least one week in advance.”

“The Employer must give written notice before terminating the contract of the Employee if the Employee has completed 3 months of uninterrupted service with the employer and if the contract is not about to expire. This notice shall be provided at least one week in advance.”

The Employee was terminated after 12 months due to lack of work.

The issue thus was whether the Employee was entitled to the balance of the contract ( 12 months ) or the one week notice.

Interestingly the Judge noted that ” there no provisions with respect to notice periods”.

In finding that the Employee was entitled to the 12 month balance of the term, the Judge said as follows:

 In Miller v. Convergys CMG Canada Limited, 2014 BCCA 311 (CanLII) 

The Court of Appeal considered the interpretation of employment contracts holding:

  • The court should strive to give effect to what the parties reasonably intended to agree to when the contract was made.
  • The language of the contract should be given its plain and literal meaning, and be interpreted in the context of the entire agreement. Consideration also may be given to the factual matrix surrounding the creation of the contract.
  • If the contractual language reveals two possible interpretations, the court should seek to resolve this ambiguity by searching for an interpretation that reflects the true intent and reasonable expectations of the parties when they entered the contract, and achieves a result consistent with commercial efficacy and good sense. Considerations of reasonableness and fairness inform this exercise.
  • If these principles do not resolve the ambiguity, then extrinsic evidence may be admissible to assist in ascertaining the parties’ intent.
  • As a last resort only, the principle of contra proferentem may be invoked to favour construction of the ambiguity against the party who drafted the agreement. The principle of contra proferentum may not be used, however, to create or magnify an ambiguity.
  • Employment contracts should be interpreted in a manner that favours employment law principles, specifically the protection of vulnerable employees in their dealings with their employers. Even so, the construction of an employment contract remains an exercise in contractual interpretation, and the intentions of the parties will generally prevail, even if this detracts from employment law goals that are otherwise presumed to apply.

[21]        In Mr. Lawis’s case, it would be unreasonable to interpret the clause in such a way that it allowed the employer to terminate the agreement without cause on one weeks’ notice. Considering all the facts and specifically that the agreement was for a term of two years and involved the employee leaving his current employment and traveling from the Philippines at his own expense. The clause does not specify any notice period and as a result must be read as not setting out a notice period. I find as a result that Mr. Lawis is entitled to be paid the balance of the unexpired term of the agreement.

The contract interpretative principles cited in this case are very similar to those set out in the Ontario Court of appeal case called Wood v Fred Deeley Imports (2017 ONCA 158) where Laskin J. set out the following guiding principles:

(c)       The jurisprudence on interpreting employment agreements

[25]     The question of the enforceability of the termination clause turns on the wording of the clause, the purpose and language of the ESA, and the jurisprudence on interpreting employment agreements. That jurisprudence is now well-established. I will summarize it briefly.

[26]     In general, courts interpret employment agreements differently from other commercial agreements. They do so mainly because of the importance of employment in a person’s life. As Dickson C.J.C. said in an oft-quoted passage from his judgment in Reference re Public Service Employee Relations Act (Alberta), 1987 CanLII 88 (SCC), [1987] 1 S.C.R. 313, at p. 368:

Work is one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being.

[27]     As important as employment itself is the way a person’s employment is terminated. It is on termination of employment that a person is most vulnerable and thus is most in need of protection: see Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701. 

[28]     The importance of employment and the vulnerability of employees when their employment is terminated give rise to a number of considerations relevant to the interpretation and enforceability of a termination clause:

•        When employment agreements are made, usually employees have less bargaining power than employers. Employees rarely have enough information or leverage to bargain with employers on an equal footing: Machtinger, p. 1003

•        Many employees are likely unfamiliar with the employment standards in the ESA and the obligations the statute imposes on employers. These employees may not seek to challenge unlawful termination clauses: Machtinger, p. 1003

•        The ESA is remedial legislation, intended to protect the interests of employees. Courts should thus favour an interpretation of the ESA that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible”, over an interpretation that does not do so: Machtinger, p. 1003.

•        Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship: Machtinger, p. 1004.

•        A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Employees should know at the beginning of their employment what their entitlement will be at the end of their employment: Machtinger, p. 998.

•      Faced with a termination clause that could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee: Ceccol v. Ontario Gymnastics Federation (2001), 2001 CanLII 8589 (ON CA), 149 O.A.C. 315, Family Counselling Centre of Sault Ste. Marie and District (2001), 2001 CanLII 4698 (ON CA), 151 O.A.C. 35.

In spite of these clear statements from two Courts of Appeal, in my opinion some judges still seem to apply a strictly commercial interpretation to employment agreements and simply do not properly follow the special rules of interpretation that apply to employment agreements .

Working Beyond a Fixed Term Does not Automatically Turn the Employment Relationship into an Indefinite Term :

In Fontaine v White Buffalo Youth Inhalant Treatment Centre ( CLC -YM2707-10984) Adjudicator Koskie had a a situation where the employee on a fixed term contract worked for one week after the expiry of the contract and was then terminated.

Normally when one works beyond a fixed termination date, the contract morphs into a term of indefinite employment which can only be terminated upon providing reasonable notice.

However in this case the parties were in the process of actively negotiating whether to extend her contract, renew it for another term or bring the relationship to an end. As such there was no agreement between the parties and therefore the employers’ decision to not renew was not a dismissal, even though it was a week after the expiry date in the original contract.

11 Day Trial Awards Plaintiff’s Costs of $546,684:

In what what must be one of the largest award of costs in a wrongful dismissal actions Justice Chiappetta in Ruston v Keddco ( 2018 ONSC 5022) awarded the plaintiff full indemnity costs of this extraordinary amount. The trial judgement was for $604,627, of which $125,000 was for extraordinary damages.

This was the Judges reasoning :

(1) The costs requested are proportionate to the result. $700,000 was in dispute for the plaintiff’s claim plus $1,750,000 in the conter-claim. Out of a total of $2,450,000 in dispute, the plaintiff was successful on $2,354,628.00, calculated as the amount won, plus the entire value of the conter-claim which was dismissed in its entirely.

(2) The defendant pursued unfounded allegations of fraud. This was a matter of utmost importance to the plaintiff. Both his financial and professional future were at risk if the allegations were proven in court.

(3) It was the defendant’s conduct that contributed to the plaintiff’s costs. The plaintiff’s costs can be said to be what a reasonable party would expect to spend upon pursuing litigation against a party who engaged in conduct like that of the defendant. The defendant refused to admit facts but failed to contest them at trial. The defendant only provided relevant financial documents after the plaintiff brought a motion. The defendant provided will say statements 14 days in advance of the trial and not 30 days in advance as ordered. The defendant relied on only 45 of the 163 documents it produced on the first day of trial. The defendant caused an adjournment of the first trial less than six weeks before the date scheduled due to the introduction of a 25 person witness list. This led to a one year delay, double preparation and the requirement to have a second pre-trial. The defendant called only two fact witnesses at trial. By this conduct, the defendant caused the plaintiff to incur far greater costs than expected, substantially increasing the costs of trial preparation and the length of trial.

(4) The counter-claim rendered this action much more complex than a simple case of wrongful dismissal. Because of the fraud accusations the plaintiff had to hire an expert witness costing approximately $30,000. 

(5) The defendant threatened the plaintiff with expensive litigation if he pursued his wrongful dismissal matter and then proceeded to follow through on the threat. The plaintiff would have been denied access to justice had his lawyers not agreed to defer their fees. The plaintiff survived financially by relying on his RRSP’s, selling his house below market value and breaking his car lease.

(6) The use of two counsel at trial was reasonable for this case, considering the complexity of the counter-claim and the serious consequences to the plaintiff if he was unsuccessful in defending the counter-claim. Having adjudicated the trial, I observed that the work done during the trial by both counsel was different.

(7) The amounts claimed by the plaintiff to prepare the trial record were reasonable as the plaintiff had to determine if it was appropriate to set the matter down for trial. This requires a detailed documentary review to ensure full disclosure and that there will be no need for further motions.

(8) Having reviewed the costs outline submitted by the plaintiff, I have concluded that the time spent for various steps in the litigation is reasonable. It cannot be compared to the costs outline submitted by the defendant which is not certified. Further, my observation at trial was that plaintiff’s counsel was well prepared for trial while the defendant’s counsel was comparatively unprepared in that he arrived late or not at all in one instance, could not advise the court of the sequence and timing of his witnesses, failed to effectively use his book of documents and delivered materials at the last minute. The plaintiff’s costs outline is reflected of more time spent than the defendant in preparing for trial. This difference was demonstrated at trial to the detriment of the defendant’s counsel.

(9) The plaintiff was awarded both punitive and moral damages. The costs awarded herein are done so to indemnify the plaintiff, as the successful litigant, for the costs of litigation. Any references to the defendant’s conduct are meant to explain why the plaintiff’s costs are higher than one would reasonably expect from litigating a simple claim for wrongful dismissal and in no way reflect an overlap of the punitive or moral damages awarded.

That is what happens when the Judge hates what your client and/or lawyer has done.

Compare that with Justice Arrell in Wickens v Chambers Insurance Professionals ( 2018 ONSC 2412). In a three day wrongful dismissal trial in which the judge commented on the co-operation of counsel and their conduct of the trial in a ” most efficient manner ” he awarded the winning defendant costs of only $18,000.

Acting like a jerk cost the loser in Keddco the sum of $49,698 per day of trial.

Acting like a mensch cost the loser in Wickens only $6,000 per day of trial

Plaintiff’s counsel in Rushton  was Andrew Monkhouse and Samantha Lucifora of Monkhouse Law.

Once Resignation Accepted by Employer , Employee Cannot Resile :

In English v Manulife Financial Corp ( 2018 ONSC 5135 ) Edwards J. had a situation where an employee gave her employer 4 months notice of her resignation because she did not want to be involved in an upcoming computer conversion that was planned. The Employer accepted her resignation and started to make plans to redistribute her work. About a month later the employer changed their mind and cancelled the computer conversion. Since this was the basis for the employees’ decision to resign, upon hearing this news, she told her employer that she was withdrawing her resignation notice. The employer waited about a month later to say that they were not accepting her withdrawal and said that she would be expected to leave on the date she originally set.

The Court held that where a resignation is clear and unequivocal , as soon as it is accepted by the employer, then it cannot be withdrawn. Only where the employer has not accepted the resignation and has not detrimentally changed their position ( for example by hiring a replacement ) can the employee withdraw the resignation. In simple contract terms, the resignation is offered and then  accepted and thus a contract is formed.

Quere: Where the entire basis of the plaintiff’s resignation was the upcoming computer conversion, which was then cancelled by the employer, can it truly be said that her resignation was unequivocal ?

Would it not be fairer to say that her resignation was conditional on the computer conversion going ahead, and when that precondition changed , she was free to withdraw her resignation ?

What if the situation was reversed. The Employer announces a layoff four months in the future and then a month later changes their mind and cancels the layoff . If an employee tried to say that the layoff could not be cancelled and demanded their full common law notice, surely the employer would argue that if the employee refused to work after the original layoff date that action would constitute either a quit or at least  a complete failure to mitigate their damages.

I guess what is good for the goose is not always good for the gander.

 

Employer Responsible for Extra Income Tax Burden of Dismissed Employee:

In Schram v Govt of Nunavut, ( 2018 CarswellNB 280) the NB Court of Appeal had a situation where the plaintiff was employed in Nunavut on a fixed term contract. She was terminated before the end of the term and returned to New Brunswick, her home. Once she won her case in the NB courts, she was awarded a retiring allowance of $213,000.

As she was now a resident of NB, she paid tax at the NB rate which is higher than the tax she would have paid if she was permitted to work out her fixed term contract and pay rates applicable to Nunavut residents.

The CA awarded her additional compensation equal to the difference between the higher NB tax rate and the lower Nunavut rate.

This was done on the principle that she should be put into the same economic position as had the breach of contract not occurred.

 

Employer Can’t Require Employee to Sign Release In Order to Receive Contractual Severance:

In Tong v Synerion North America ( 2017 CanLII 145091) Prattas D.J. had a situation where the employment contract called for 6 weeks pay for this 3 year employee but because the employee refused to sign a release, the employer only paid 3 weeks, contrary to its own contract.

The judge had found that the contract was illegal  as it violated the ESA ( no termination pay for under 1 year service and no benefits ) so reasonable notice was the only option but still the judge mentioned three times in the judgement this action by the employer as one of the grounds to find that 6 months was proper notice.

Quere: Does this mean that anytime an employer does not pay out what their own contract requires that they later on cannot seek to limit  their liability  to the contract? If the contract provides for only the ESA amount on termination but the employer pays zero because they allege cause but fail, does this mean that the employee gets reasonable notice ?

Doctrine of Frustration Doesn’t Apply to Unjust Dismissal under Canada Labour Code :

In Lewis v Whiteline Trucking ( 2018 CanLi 72555 ) Adjudicator Pallard had a situation where the employers’ new insurance company would not cover the plaintiff in the company insurance program. As this made it impossible for the plaintiff to drive, his employment was terminated as the contract was frustrated.

However the Adjudicator ruled that the common law doctrine of frustration did not apply under the unjust dismissal section of the Code as ” just cause” must be based on culpable conduct by the employee. As there was no evidence of this in the hearing the discharge was found to be unjust. Mr Lewis was awarded his Code severance pay .

Quere, what if he was uninsurable because of something he did while not at work, like being convicted of impaired driving ? Does this make his uninsurability culpable ?