Court Upholds Arbitration Clause that Requires Adjudication in Texas :

In Morrison v Ericsson Canada ( 2016 ONSC 3908 Madame Justice Darla Wilson was faced with a dispute over a sales plan that contained the  following clause:

H. Arbitration. Should the participant be dissatisfied with the final outcome of the Dispute Resolution procedure, the participant and Ericsson agree that any dispute or controversy arising under or concerning this Plan (including the payment and amounts of commissions and bonuses) shall be settled by final and binding arbitration in the City of Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association…. The participant’s and Ericsson’s signature upon the participant’s Goal Sheet reflects the parties’ agreement to be bound by this arbitration provision.

As the employee was not paid what he felt he was owed, he claimed that he was constructively dismissed and sued both for the commission owing as well as damages for wrongful dismissal.

The Court found that they were obligated to enforce the choice of arbitration and dismissed the lawsuit.

The final paragraphs of the judgement says it all :

23 In my opinion, the matters at issue fall directly within the terms of the SIP agreement, which requires that if a dispute arising out of the agreement cannot be resolved, the parties must arbitrate the dispute in Texas. The Plaintiff cannot avail himself of the appeal procedures specified in the agreement and when he does not like the decisions rendered, choose to abandon the final dispute mechanism that is set out and which he agreed to. The arbitration has not taken place because the Plaintiff has refused to participate. The fact that it might be inconvenient or expensive for Morrison to arbitrate in Texas is not a compelling reason to find that he ought to be permitted to pursue the Ontario action. Even if there were an issue of whether the dispute was properly sent to the arbitrator, which was not an argument advanced before me, the matter must be referred to the arbitrator for that determination. In my view, the issues Morrison complains of arise from his employment and in particular arise from the administration of the SIP program and as such, he must proceed to arbitration in accordance with the agreement.
24 The motion of the Defendant is granted. The Ontario action is stayed and the Plaintiff is directed to proceed with arbitration of his dispute in accordance with the terms of the agreement he signed.

As the judge noted, this was not a case involving the issue of forum conveniens or choice of law. Once Section 7 of the  Arbitration Act, 1991 is invoked, there is no discretion in the Court to allow a lawsuit to continue. That section reads as follows:

If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

Therefore it is incumbent on lawyers for both parties to closely examine these types of agreements to see whether an arbitration clause is applicable. Arbitration clauses are quite common in US based employment agreements, where they are used primarily to avoid crazy jury verdicts.

Refusing Lesser Job from Terminating Employer Not Failure to Mitigate :

In Fillmore v Hercules SLR Inc ( 2016 ONSC 4686 CanLII) , Justice Diamond had a situation where the plaintiff , at the time of termination , was offered a choice between termination and a demotion with a 20% pay cut ( to be implemented in 6 months ). The employee did not elect to take the demotion. The defendant argued that this constituted a failure to mitigate his damages. This is what the Court had to say:

Issue #2: Should the plaintiff’s damages be reduced by reason of his alleged failure to mitigate?

[17] On Thursday, August 20, 2015, the plaintiff was asked to meet with the defendant’s general manager, Randy Tollefson (“Tollefson”). The plaintiff sat down with Tollefson, who presented the plaintiff with two separate letters, both dated August 20, 2015.

[18] The first letter, marked “Without Prejudice”, advised the plaintiff, inter alia, as follows:

“Further to our conversation today, this letter confirms that upon review of our business operations, it has been determined that your services with the Company are no longer required. Your employment with Hercules SLR Inc. is being terminated on Monday, August 24, 2015 without cause.”

[19] Accordingly, the plaintiff’s employment as Director (Purchasing) would be terminated the following Monday. The first letter further advised that the defendant would provide him eight weeks’ written notice in accordance with the requirements of the Employment Standards Act, 2000, S.O. 2000, C. 41, and offered the plaintiff an additional payment of 12 weeks’ severance in exchange for the plaintiff executing and returning a Full and Final Release no later than Friday, August 28, 2015 (the “Severance Offer”).

[20] The plaintiff also received a second letter dated August 20, 2015. In that second letter, the plaintiff was offered the “permanent, full time role of Supervisor Service”, with an expected start date of Monday, August 24, 2015. The salary for this new position would be $60,000.00 per annum (i.e. more than 20% less than his former salary). The defendant’s offer further provided the plaintiff with a six month income guarantee at his old salary to “assist him in the transition from current role to new role”. In other words, the defendant was prepared to maintain the plaintiff’s old salary for six months before the new salary would commence (the “New Employment Offer”).

[21] Both the Severance Offer and the New Employment Offer were open for acceptance until Monday, August 24, 2015. The plaintiff did not accept either offer by the defendant’s deadline.

[22] On Tuesday, August 25, 2015, the plaintiff sent an email to Laura Hubley (“Hubley”), the defendant’s Human Resources Generalist. The plaintiff asked for confirmation that the “termination letter is now in effect” and that “as of Monday, August 24 he was no longer employed with the defendant”.

[23] In response, Hubley delivered the following email to the plaintiff:

“This is to confirm our conversation this morning that as a result of a review of business operations and a restructuring initiative, your current role as Procurement Director has been eliminated as of August 24, 2015. On Thursday, August 20, you were presented with 2 options to consider.

The first option in the letter dated Thursday August 20, we have offered you a termination letter which outlined a severance package. This package includes a Full and Final Release Agreement with an expiry date of Friday, August 28, 2015. If you agree to the terms of the severance package and return the signed release agreement, we agree to pay you a severance package equal to 20 weeks of pay in a lump sum on the next regular pay date of September 3, 2015. If we do not receive the signed release agreement, we will pay you a lump sum of 8 weeks in accordance with Ontario Employment Standards.

The second option is to consider a job offer also dated August 20, 2015. If you accept the new job offer, your employment will continue with Hercules SLR Inc. To assist you in transitioning to the new role, we are offering you a 6 month income guarantee ending February 26, 2016.

If you decide not to accept the job offer, your employment with Hercules SLR Inc. ended on Monday. August 24, 2015. We have not had specific direction from you stating which option you prefer. Therefore, unless otherwise directed, we will proceed with termination.”

[24] The defendant submits that Hubley’s email renewed the expired New Offer of Employment to the plaintiff, and as such the plaintiff was offered a reasonable opportunity to mitigate his damages by returning to work for the defendant. The defendant thus submits that by not accepting the New Offer of Employment, the plaintiff failed to discharge his duty to mitigate his damages. For clarity, I note that the defendant is not challenging any of the plaintiff’s other mitigation efforts (or lack thereof) on this motion. The defendant’s position is that the plaintiff failed to mitigate his damages solely by reason of his refusal to accept the New Offer of Employment.

[25] As held by the Supreme Court of Canada in Evans v. Teamsters Local Union No. 31 (2008) 2008 SCC 20 (CanLII), S.C.J. No. 20, in some circumstances it may be necessary for a dismissed employee to mitigate his/her damages by returning to work for the same employer. As wrongful dismissal damages are intended to compensate for the lack of reasonable notice, in the absence of the employee facing a potential hostile atmosphere, embarrassment or humiliation, the Court may require the employee to mitigate his/her damages by “taking temporary work with the dismissing employer” (my emphasis in bold).

[26] The plaintiff relies upon the decision of the Court of Appeal for Ontario in Farwell v. Citair, Inc. 2014 ONCA 177 (CanLII), and specifically the following extract:

“To paraphrase Evans, the appellant’s mitigation argument presupposes that the employer has offered the employee a chance to mitigate damages by returning to work. To trigger this form of mitigation duty, the appellant was therefore obliged to offer Mr. Farwell the clear opportunity to work out the notice period after he refused to accept the position of Purchasing Manager and told the appellant that he was treating the reorganization as constructive and wrongful dismissal.”

[27] Both of the offers presented to the plaintiff were set to expire on Monday, August 24, 2015, being the date the plaintiff’s position with the defendant was being terminated. The New Offer of Employment is not an offer to work through the notice period (which the defendant originally suggested was 20 weeks). The nature of the New Offer of Employment was not time restricted or limited. It was a new, full time position with the defendant.

[28] The Farwell decision obliges the defendant to offer the plaintiff the “clear opportunity to work out the notice period” after the plaintiff refuses to accept the new, lesser position. I do not view Hubley’s email as being consistent with Farwell. Hubley’s email seems to keep both the Severance Offer and the New Offer of Employment on the table even though the plaintiff’s employment as Director (Purchasing) was “eliminated” the previous day. The New Offer of Employment does not trigger the duty to mitigate as discussed in Evans and particularized in Farwell; rather, it was an offer to accept a demotion.

[29] The defendant further submits that even if the New Offer of Employment failed to comply with Evans or Farwell, it was nevertheless a reasonable offer of employment which the plaintiff ought not to have refused in the circumstances. I disagree. Had the exact same offer been presented to the plaintiff by a third party employer during the notice period, and even assuming the terms of that third party employer’s offer were reasonable enough for the plaintiff to accept, as the offer included a lesser salary than the plaintiff should have received from the defendant during the notice period, the plaintiff could still look to the defendant for compensation for that missing amount. In other words, had the plaintiff accepted such an offer from a third party employer, he could still seek compensation from the defendant for the difference between his new salary and his old salary during the notice period.

[30] The defendant’s New Offer of Employment invites the plaintiff to become the “permanent, full time Supervisor Service” at a lesser salary going forward with no end date. Unlike traditional offers from dismissing employers that the employee work through the notice period, the New Offer of Employment required the plaintiff to accept the terms of the new position “as is”. There is nothing in the second letter which confirms that the potential acceptance of the New Offer of Employment would be without prejudice to the plaintiff’s rights arising from his dismissal from his former position.

[31] Had he accepted the New Offer of Employment, the defendant would likely have argued that the plaintiff condoned his right to seek additional compensation. The proposed transitional six month salary guarantee could arguably amount to consideration in exchange for a waiver of the plaintiff’s rights arising from his dismissal. There is no obligation on the plaintiff to effectively risk handing the defendant a Full and Final Release through the back door and under the guise of mitigation efforts.

On the other hand had the Employer told the Plaintiff that his job would be eliminated  6 months in the future but that if he wanted to stay on after that at a reduced position and salary, then the employer would have received credit for the 6 months working notice, whether the employee worked it or not. Moreover after 6 months of looking for a comparable job, the employee may have been more inclined to take the lesser position than face the continued uncertainty of unemployment.

In my experience, having been terminated from one job, the next job that people obtain is very often of a lesser quality than the one from which they recently removed. This is especially true when the employee does not have the paper qualifications for the job that new employers insist upon even though they are perfectly capable of performing the job functions. For example, the Controller who never completed her CMA degree.

SCC Upholds that Just Cause Required in Unjust Dismissal Provisions under the Canada Labour Code

In Wilson v AECL ( 2016 SCC  29  ) the Supreme Court of Canada clearly set out that  an employer must prove just cause in order to avoid an order of reinstatement under the Unjust Dismissal provisions of the Canada Labour Code. This is from the headnote of the majority opinion.

Returning to this case, the issue is whether the Adjudicator’s interpretation of ss. 240 to 246 of the Code was reasonable. The text, the context, the statements of the Minister of Labour when the legislation was introduced, and the views of the overwhelming majority of arbitrators and labour law scholars, confirm that the entire purpose of the statutory scheme was to ensure that non‑unionized federal employees would be entitled to protection from being dismissed without cause under Part III of the Code. The alternative approach of severance pay in lieu falls outside the range of “possible, acceptable outcomes which are defensible in respect of the facts and law” because it completely undermines this purpose by permitting employers, at their option, to deprive employees of the full remedial package Parliament created for them. The rights of employees should be based on what Parliament intended, not on the idiosyncratic view of the individual employer or adjudicator. The Adjudicator’s decision was, therefore, reasonable.

When the provisions were introduced, the Minister referred to the right of employees to fundamental protection from arbitrary dismissal and to the fact that such protection was already a part of all collective agreements. These statements make it difficult to draw any inference other than that Parliament intended to expand the dismissal rights of non‑unionized federal employees in a way that, if not identically, at least analogously matched those held by unionized employees. This is how the new provisions have been interpreted by labour law scholars and almost all the adjudicators appointed to apply them, namely, that the purpose of the 1978 provisions in ss. 240 to 246 was to offer a statutory alternative to the common law of dismissals and to conceptually align the protections from unjust dismissals for non‑unionized federal employees with those available to unionized employees. The new Code regime was also a cost‑effective alternative to the civil court system for dismissed employees to obtain meaningful remedies which are far more expansive than those available at common law.

The most significant arbitral tutor for the new provisions came from the way the jurisprudence defined “Unjust Dismissal”. In the collective bargaining context, “unjust dismissal” has a specific and well understood meaning: that employees covered by collective agreements are protected from unjust dismissals and can only be dismissed for “just cause”. This includes an onus on employers to give reasons showing why the dismissal is justified, and carries with it a wide remedial package including reinstatement and progressive discipline. The foundational premise of the common law scheme — that there is a right to dismiss on reasonable notice without cause or reasons — has been completely replaced under the Code by a regime requiring reasons for dismissal. In addition, the galaxy of discretionary remedies, including, most notably, reinstatement, as well as the open‑ended equitable relief available, is also utterly inconsistent with the right to dismiss without cause. If an employer can continue to dismiss without cause under the Code simply by providing adequate severance pay, there is virtually no role for the plurality of remedies available to the adjudicator under the Unjust Dismissal scheme. Out of the over 1,740 adjudications and decisions since the Unjust Dismissal scheme was enacted, only 28 decisions have not followed this consensus approach.

The remedies newly available in 1978 to non‑unionized employees reflect those generally available in the collective bargaining context. This is what Parliament intended. To infer instead that Parliament intended to maintain the common law under the Code regime, creates an anomalous legal environment in which the protections given to employees by statute — reasons, reinstatement, equitable relief — can be superseded by the common law right of employers to dismiss whomever they want for whatever reason they want so long as they give reasonable notice or pay in lieu. This somersaults the accepted understanding of the relationship between the common law and statutes, especially in dealing with employment protections, by assuming the continuity of a more restrictive common law regime notwithstanding the legislative enactment of benefit‑granting provisions to the contrary.

The argument that employment can be terminated without cause so long as minimum notice or compensation is given, on the other hand, would have the effect of rendering many of the Unjust Dismissal remedies meaningless or redundant. Only by interpreting the Unjust Dismissal scheme as representing a displacement of the employer’s ability at common law to fire an employee without reasons if reasonable notice is given, does the scheme and its remedial package make sense. That is how the 1978 provisions have been almost universally applied. It is an outcome that is anchored in parliamentary intention, statutory language, arbitral jurisprudence, and labour relations practice. To decide otherwise would fundamentally undermine Parliament’s remedial purpose.

Per McLachlin C.J. and Karakatsanis, Wagner and Gascon JJ.: The standard of review in this case is reasonableness and the Adjudicator’s decision was reasonable and should be restored. Justice Abella’s disposition of the appeal on the merits and her analysis of the two conflicting interpretations of the Unjust Dismissal provisions of the Code are agreed with. 

It is wonderfully refreshing that our Supreme Court took a thoughtful review of this issue and actually got it right. This should put to rest a controversy that never should have happened in the first place.

Moreover this decision may well spark a renewed interest in this little known section of federal employment law that many employees and many lawyers are not aware of . The rights and remedies available to non-unionized federally regulated employees under the Code are far superior to those available under the common law.

Maybe one day the Supremes will have a chance to look at the confused state of the law on ESA only termination agreements and also provide some thoughtful law on that topic.

Off Duty Criminal Charges not Necessarily Just Cause:

In Merritt v Tigercat Industries ( 2016 CarswellOnt 2508) the employer terminated a 66 year old general labourer with 12.5 years service solely because he had been charged with two counts of sexual assault against minors. The alleged events did not take place in the workplace and did not involve any employees of the defendant.

The Court , in finding that there was no just cause, had the following to say about this situation.

32 Criminal charges alone, for matters outside of employment, cannot constitute just cause.

33 Improper conduct of an employee while not at work can only form grounds for termination with cause in limited situations. There must be a justifiable connection to the employer or the nature of employment.

34 Counsel also referred to two arbitration cases. In Millhaven Fibres Ltd. and OCAW, Local 9-670, Re, [1967] O.L.A.A. No. 4 (Ont. Arb.), the majority on the panel addressed conduct in paras. 19 and 20 as follows:
19 There are a number of arbitration cases which deal with disciplinary matters arising out of the conduct of an employee at a time when he is not in the Plant. Generally speaking, it is clear that the right of management to discharge an employee for conduct away from the Plant, depends on the effect of that conduct on Plant operations.
20 In other words, if the discharge is to be sustained on the basis of a justifiable reason arising out of conduct away from the place of work, there is an onus on the Company to show that:
(1) the conduct of the grievor harms the Company’s reputation or product
(2) the grievor’s behaviour renders the employee unable to perform his duties satisfactory
(3) the grievor’s behaviour leads to refusal, reluctance or inability of the other employees to work with him
(4) the grievor has been guilty of a serious breach of the Criminal Code and thus rendering his conduct injurious to the general reputation of the Company and its employees
(5) places difficulty in the way of the Company properly carrying out its function of efficiently managing its Works and efficiently directing its working forces.
See, also: O.P.S.E.U. v. Ontario (Ministry of Natural Resources), [2008] O.G.S.B.A. No. 102 (Ont. Grievance S.B.), at paras. 140-141.
35 The principles are correctly stated. The cases, however, are not comparable. Mr. Merritt was a general labourer, one of several hundred at Tigercat. He was not a manager, professional or senior employee.

43 As before, there is no evidence to support Tigercat’s position. Mr. Merritt was under no obligation to disclose the criminal allegations. At the time, the investigation was ongoing and he had been charged. Mr. Merritt is entitled to the presumption of innocence and the right to silence. An employee cannot be compelled to discuss the criminal allegations as any disclosure to an employer could easily be forwarded to the police.

What I found most interesting about this case was the comments by the judge of the presumption of innocence and the employee’s right to silence. In most situations a criminal lawyer will tell his client not to say anything to anyone about the charges. This seems to conflict with an employee’s duty to participate in an employer’s legitimate investigation.

This case may give some clarity in trying to balance the employer’s need or legal obligation to conduct an investigation and the employee’s Charter right to be presumed innocent of criminal charges and his right to remain silent.

Would you go to Trial for $1,618 ?

In Streng v Northwestern Utility Construction ( 2016 CarswellBC 1555) the self represented plaintiff won his case by defeating an allegation of just cause and won an award potentially worth $23,400. However he had mitigated his damages over the 4 month notice period by making $21,782, thus his win was only worth $1,618 plus $176 for costs.

The defendant was apparently defended by a lawyer.

The Judge wrote a 39 page decision.

I certainly hope that the defendant felt that the “principle ” in this case was worth the effort and expense.

Why do Judges Still Get Character of Employment Wrong?

In Summerfield v Staples Canada Ltd ( 2016 ONSC 3656) Perell J. had this to say when determining the notice period for a  salesperson:

The character of employment factor tends to justify a longer notice period for senior management employees or highly skilled and specialized employees and a shorter period for lower rank or unspecialized employees: Cronk v. Canadian General Insurance Co., supra; Bullen v. Proctor & Redfern Ltd., supra, at paras. 7-10; Teitelbaum v. Global Travel Computer Holdings Ltd. (1999), 41 C.C.E.L. (2d) 275 (Ont. S.C.J.); Bernier v. Nygard International Partnership, 2013 ONSC 4578 (CanLII) at para. 57; Tull v. Norske Skog Canada Ltd., 2004 BCSC 1098 (CanLII).

However the definitive word on this issue is found in  a case not cited by the Court called Di Tomaso v Crown Metal Packaging Canada LLP ( 2011 ONCA 469) where the Ontario Court of Appeal had this to say about the issue:

27 Crown Metal would emphasize the importance of the character of the appellant’s employment to minimize the reasonable notice to which he is entitled. I do not agree with that approach. Indeed, there is recent jurisprudence suggesting that, if anything, it is today a factor of declining relative importance: see Bramble v. Medis Health & Pharmaceutical Services Inc. (1999), 175 D.L.R. (4th) 385 (N.B. C.A.) (“Bramble”) and Paulin c. Vibert (2008), 291 D.L.R. (4th) 302 (N.B. C.A.).
28 This is particularly so if an employer attempts to use character of employment to say that low level unskilled employees deserve less notice because they have an easier time finding alternative employment. The empirical validity of that proposition cannot simply be taken for granted, particularly in today’s world. In Bramble, Drapeau J.A. put it this way, at para. 64:
The proposition that junior employees have an easier time finding suitable alternate employment is no longer, if it ever was, a matter of common knowledge. Indeed, it is an empirically challenged proposition that cannot be confirmed by resort to sources of indisputable accuracy.
29 In my view, the motion judge conducted an appropriately holistic review of the case before her. She did not give disproportionate weight to any of the Bardal factors. She dedicated nine paragraphs of her reasons to the character of employment factor but it was simply not as relevant in these circumstances as the other three factors. She did not err in doing so.

In other words the assumption that lower ranked people get lower notice periods than higher ranked people has not been the law in Ontario since 2011.

Why then do judges and lawyers still rely on a faulty statement of the law ?

Ontario Court of Appeal Upholds ESA Only Clause With Little Comment:

The Ontario Court of Appeal in Oudin v Le Centre Francophone de Toronto, Inc. ( 2016 ONCA 514 ) upheld the trial decision of Dunphy J. which I reviewed on November 16, 2015 under the title “Waiver and Severability Clause Cures All Defects in Employer Contract”.

In my previous blog I was critical of the Judge’s use of a vague waiver and severability clause to cure multiple defects in a ESA only termination clause.

Although this issue was a major point on the appeal, the Court did not even address this issue in their short four page endorsement other than to say that ” The motion judge’s interpretation of the contract is entitled to deference.”

It is very unfortunate that the Court of Appeal did not use this opportunity to clarify the many conflicting cases on the enforceability of these ESA clauses. The issues regarding these clauses deal with the following issues :

1) Does the agreement have to make specific reference to benefits ?

2) Does the agreement have to make specific reference to severance pay ?

3)  Does there have to be a provision which  explains that the plaintiff is limited to these termination benefits and that he has explicitly given up his right to common law reasonable notice ?

4) Does a just cause provision breach the rule that under the ESA there is a higher standard of wilful misconduct ?

5) Does the agreement have to make specific reference that the employee is also entitled to vacation pay on the termination pay ?

6) If the clause requires the employee to sign a release before receiving any payments , is the clause invalid?

7) If the clause gives the employer the right to have the employee work out both the termination pay period and the severance pay “period” , is the clause invalid?

8) To what degree, if any, does the employer need to prove that the termination clause was brought to the attention of the employee at the time of hiring ?

9) Are employees deemed to know exactly what the termination provisions of the ESA are and therefore what the employee is giving up by signing the agreement?

10) What if the person signing this agreement on behalf of the employer also does not know what the ESA provides for ? Can there be a meeting of the minds when neither party understands what they are signing?

11) Does a waiver and severability clause cure all defects in the agreement or does this offend the “no blue pencil ” rule set out by the Supreme Court of Canada ?

12) What if the clause  does not even properly refer to the Employment Standards Act, 2000 ? Are laymen supposed to figure out which statute applies to their situation? What if the employer references the wrong section of the ESA?

13) As employment contracts are usually between parties of grossly unequal bargaining power, should the doctrine of good faith administration of a contract require the employer to obtain from an employee a Certificate of Independent Legal Advice as a condition precedent to enforcing a ESA only termination clause ?

I sincerely hope that this case finds it way to the Supreme Court of Canada and that they take the opportunity to give the public ( who at the end of the day consists almost entirely of employers and employees) some well needed guidance  on this important issue affecting all of Canada , except Quebec. In the Quebec Civil Code there is an express provision providing that all termination clauses must be reasonable and thus the Court can overrule any termination provision  that the Court finds is unreasonable. Vive La Difference!