Divisional Court of Ontario Clarifies that $2.5 Million Payroll for ESA Severance Pay is NOT Just Ontario Payroll:

In Hawkes v Max Aicher ( North America ) Lt ( 2021 ONSC 4290 Dambrot J. overturned a OLRB decision on judicial review and hopefully has ended the debate about whether when calculating the $2.5 million payroll threshold you only look at the payroll in Ontario or whether you look at the payroll of the the whole company and any related companies.

The Court found that the OLRB was plainly wrong and said as follows:

“The calculation of payroll under s. 64 of the ESA is not restricted to Ontario employment; employment outside of Ontario, including employment outside of Canada, must be included.”

Winning counsel was Wade Poziomka and Andrew Astritis at Ross McBride.

If you want a copy of this case email me at barryfisher@rogers.com

Judge Ignores Outliers in Determining Commissions over Notice Period :

In Hawes v Dell Canada ( 2021 BCSC 1149) Justice Iyer had to determine the amount of commission that would have been earned over the notice period, much of which had not yet occurred.

This what the Judge said

[24] The parties’ disagreement about the calculation of the commission component of damages revolves around Mr. Hawes’ commission earnings for 2018. He made a couple of large sales to one of his public sector clients that year, earning a significantly larger commission. Mr. Hawes’ commission earnings from 2013 – 2019, the last full year of employment are:

2013 $162,156

2014 $133,166

2015 $163,822

2016 $66,709

2017 $166,042

2018 $346,959

2019 $167,328

[25] Mr. Hawes argues that the best indicator of what he would have earned in commissions during the notice period is the average of his last three years, which is $226,776.

[26] Dell argues that Mr. Hawes’ unusually high commission in 2018 and his unusually low earnings in 2016 should be excluded as outliers, and that his average commissions from the other five years from 2013 to 2019 represent the best estimate of what he would have earned in the notice period. This figure is $158,502.

[27] It is clear from the authorities that, where an employee’s earnings are variable, there is no set formula. The court must award what is fair in the circumstances to approximate what the employee would have earned during the notice period. Sometimes courts have used the average of the past five years of commission earnings: Veach v. Diversey Inc., [1993] B.C.J. No. 2420. Where an employee’s commission earnings have been on an increasing or declining trend in the years prior to dismissal, it may be preferable to use only the last year’s earnings: O’Reilly, at para 43. Where the past is not a reliable indicator, the court has made an estimate based on the whole evidentiary record: TCF Ventures at para 43.

[28] Mr. Hawes’ annual commission earnings were not inclining or declining. The evidence shows that were usually in the range of $162,000 to $167,000. It is not appropriate to take the average of the last three years of commission earnings because 2018 was an outlier and the evidence shows Mr. Hawes was very unlikely to have comparable sales during the notice period. Further, there is some evidence that the pandemic-driven economic downturn was likely to adversely affect sales to Mr. Hawes’ client list and his sales in 2018 would have increased his quota during the notice period. Considering all of the evidence, I find that the best estimate of what his annual commission would have been during the notice period is $165,000.

My Comments :

The calculation of incentive income can be very important in wrongful dismissal cases especially where that type of income forms a significant portion of the total compensation plan .

This case clearly sets for the various ways that Courts have dealt with this issue and that there is not one perfect way of doing it.

What this judge effectively did was use the  statistical  median  rather than the average, which is found by ordering the set from lowest to highest and finding the exact middle.

If we arrange the numbers from lowest to highest it looks like this

$66,709

$133,166

$162,156

$163,822

$166,042

$167,328

$346,959

The exact middle number is $163,822 .

The Judge found the right number to be $165,000.

The advantage  of the medium rather than the average is that it ignores the distorting effect of outlier numbers.

What I find interesting is that neither party led any evidence as to what sales there actually were in the Plaintiff’s territory after he left, as presumably his territory and/or clients were given to another sales rep. If this evidence was ascertainable, it would have provided the Court with a more reliable basis for determining the actual income loss.

By the way, I never took a stats course and math was my second worse mark in high school.

P.S. My worst mark was French.

If you would like a copy of this case email me at barryfisher@rogers.com

 

Countinho v Taylor : Which One Will Prevail?

In Coutinho v Ocular Health the Court decided that IDEL did not change the common law of constructive dismissal so that the layoff, even though allowed under the ESA, was still a dismissal under the common law .

In Taylor v Hanley Hospitality the Court decided the opposite and said that IDEL oveturned the common law and thus a IDEL layoff was not a dismissal.

Ocular Health is seeking leave to appeal from Divisional Court ( to be heard in writing on September 22, 2021) . This is going to Div Ct because it is an interlocutory motion as the case will now proceed to a trial to determine the reasonable notice period.

But because the decision in Taylor brought the case to an end, the decision was final and thus the appeal will be to the Court of Appeal.

Will we possibly have two different decisions on the same legal issue ? 

I am advised by a good friend of mine who adores civ pro that the more likely result is that the Div Ct will defer to the Court of Appeal and not hear argument until the Court of Appeal renders their decision.

I hope so. We need an answer to this issue ASAP.

As someone said to me recently, ” I am getting whiplash reading your blogs .”

Court Rules That IDEL Leave is NOT a Constructive Dismissal:

In Taylor v Hanley Hospitality ( 2021 ONSC 3135 ) released June 7, 2021, Ferguson J. ruled that Countinho v Ocular Health Centre ( 20121 ONSC 3076 was wrongly decided and thus does not have to be followed. .The Plaintiff was put on IDEL leave on March 27, 2020, then recalled and returned to work on September 3, 2020.

In essence the Court found that the ESA provisions displace the common law which says that in most cases a temporary layoff is a termination . Furthermore to rule otherwise would make the ESA amendments irrelevant as it would not protect employers from lawsuits.

Here is part of the Judges’ analysis :

[21] I agree with the defendant’s submissions regarding this case:

(i) no matter which authority one wants to consider on the point – it offends the rules of statutory interpretation to give an interpretation that renders legislation meaningless. That issue was never addressed in Coutinho; 

(ii) Coutinho never addressed the consequential analysis – what does IDEL and the Regulation actually mean if not what Tim Hortons says it means?;

(iii) what we see from the cases is that s. 8(1) simply sets out that the ESA does not set out an exclusive forum for addressing matters set out in the Act. The employee can make a complaint under the Act or seek redress in the courts; 

(iv) the courts have never said that the Act does not or cannot displace the common law. In fact, they have said the opposite. The Court of Appeal addressed this in Elsegood4 (relied upon by the plaintiff in this case):

(v) if we paraphrase and apply that reasoning to this case, we get this: 

(a) the irony is that Elsegood was a constructive dismissal case; 

(b) the court put it succinctly: “Simply put, statutes enacted by the legislature displace the common law”; 

(c) in Elsegood, the court addressed the fact that s. 56 provides that a person was terminated “for the purposes of section 54″ of the ESA. The employer was arguing that the employee was not terminated at common law. The court disagreed. The court found that “A s. 56(1) termination is a termination for all purposes”. The court stated that it is a “faulty premise that the common law continues to operate independently of the ESA”.

v) if we paraphrase and apply that reasoning to this case, we get this: 

(a) The employee was on a leave of absence (IDEL) for all purposes; 

(b) The employee was deemed not to be laid off for all purposes; 

(c) The employee was not constructively dismissed for all purposes; 

(d) The employee cannot be on a leave of absence for ESA purposes and yet terminated by constructive dismissal for common law purposes. That is an absurd result. That is the same kind of “untenable” result that the employer was seeking in Elsegood.

(vi) in summary, s. 8(1) has never been interpreted to go as far as the court went in Coutinho and the courts have never before held that s. 8(1) prevents the ESA from displacing the common law. The Court of Appeal, which is binding on this court and the court in Coutinho, has said the opposite, in a constructive dismissal case;

(vii) S. 8(1) of the Act merely confirms that the ESA is not the exclusive forum to seek redress for issues involving the Act;

My Comments :

We now have two cases within two months which come to completely opposite conclusions. I am sure that this will be heading to the Court of Appeal soon. Hopefully they will give us a clear and concise answer.

Insofar as this Judge is concerned, an employee could be put on IDEL from March 2020 to July 3, 2021 ( 17 months) and have no remedy in law.

Presumably to this judge  the pre-COVID rules would also displace  the common law. This would mean that employers could temporarily layoff any employee for up to 35 weeks. Does the mean that an employee could be recalled from IDEL on July 3, 2021 and then immediately be put on a 35 week temporary layoff, again without any legal recourse? That would mean that employee could be without pay for up to 25 months without any legal recourse.

That would certainly be a very big change in the law.

Does this now mean that instead of terminating an employee, any employer could just  issue a temporary layoff notice of 35 weeks.? When they issued a recall notice 35 weeks later, many employees would either have started another job or simply did not wish to return to such unstable employment. Furthermore I am not sure that the ESA allows for the employee to claim that the layoff is a sham ( for instance because the employer immediately hires a replacement ) and therefore the temporary layoff is a disguised termination. This could easily lead to abusive employer behaviour.

In this particular case, the employer did in fact recall the employee after 5 months. What would be the result if instead of alleging constructive dismissal the Plaintiff claimed breach of contract for non-payment of wages? The law of contract allows the innocent party to either sue on the contract ( thus only claiming lost wages ) or to repudiate the contract ( by claiming constructive dismissal ). In this case, the employees’ loss would be limited to the actual loss which was 5 months, so suing for back wages vs claiming constructive dismissal damages would produce the same result. My quick reading of the IDEL rules would only seem to exclude the right to claim constructive dismissal, not wages owing from a breach of contract.

The one thing you can say about employment law in Ontario is that it certainly not getting easier or more predictable .

If you want a copy of this case email me at barryfisher@rogers.com

BCSC Holds that CERB Payments Reduce Wrongful Dismissal Damages:

In Hogan v 1187938 B.C. Ltd ( 2021 BCSC 1021 Justice Gerow held that the damages for wrongful dismissal damages should be reduced by the amount of CERB payments received by the Plaintiff for the time that these two periods overlapped.

This is what the Judge said on this issue:

[99]      The EI benefits should not be deducted. Section 45 of the Employment Insurance Act, S.C. 1996, c. 23, requires a claimant to repay any unemployment benefits if an employer becomes liable to pay their earnings. 

[100]    The plaintiff received $14,000 in CERB payments in 2020. The CERB payments raise a compensating advantage issue. If the CERB payments are not deducted the plaintiff would be in a better position than he would have been if there had been no breach of the employment contract. 

[101]    But for his dismissal, the plaintiff would not have received the benefit. The nature of the benefit is an indemnity for the wage loss caused by the employer’s breach of contract. There is no evidence that the plaintiff contributed to obtain the benefit by paying for it directly or indirectly. 

[102]    In my view, this case is distinguishable from Iriotakis where the CERB payments were not deducted. In Iriotakis, the plaintiff was terminated after 28 months. The court determined the reasonable notice period was three months, and determined that on the specific facts of the case, particularly the disparity between the payments and the employee’s loss of salary and significant loss of commission, it would not be equitable to reduce his entitlement to damages by the CERB payments. In Iriotakis, the employment contract provided the plaintiff was not entitled to commission income upon termination. The evidence in Iriotakis was that the plaintiff’s salary on which his past wage loss was based amounted to less than half of his actual income. 

[103]    In this case, the plaintiff’s damages per month are based on the income he would have earned if he had continued to work during the reasonable notice period. In other words, the plaintiff will be compensated for the income he would have lost. He did not suffer additional losses due a loss in commission income. As a result, there is not a large disparity between the plaintiff’s actual loss and the amount of damages he will receive. 

[104]    In Iriortakis the award for the lost wages was reduced by more than half as a result of the plaintiff’s employment contract, and retaining the CERB payments would not have put the plaintiff in a better economic position than he would have been but for the breach. In this case, if the CERB payments are not deducted the plaintiff will be in a better economic condition than he would otherwise be.

[105]    The CERB payments are not private insurance, and neither the employer nor the employee contributed to them. As a result, they are not delayed compensation or part of the plaintiff’s earnings. There is no evidence that the plaintiff will have to repay the CERB. 

[106]    The CERB payments were intended to be an indemnity for the type of loss resulting from the employer’s breach but the employee had not contributed in order to obtain the entitlement. In my view, this is similar to the situation in Sylvester and Ratych, where the benefits were deducted as the employee had not contributed in order to be entitled to the benefit. 

[107]    As a result, I see no basis to depart from the general rule that contract damages should place the plaintiff in the economic position he would have been in had the defendant performed the contract. 

[108]    Having considered the case law and the evidence, I have concluded the CERB benefits of $14,000 should be deducted from the award of damages. 

My Comments :

This case will undoubtably create a lot of controversy in the employment law field as the general practice up to this point is that the employer did not get to take into account CERB payments when calculating wrongful dismissal damages.

One of the main reasons that this judge ruled in this way was that EI is repayable and this avoids the overcompensation argument. However for EI benefit periods that started after September 27, 2020 and until September 25, 2021, this is no longer the case as a result of amendments to the EI regs, which are explained below :

Interim Order 8 under the EI Act reads as follows :

153.193 The following are to be excluded from the earnings referred to in section 35 of the Employment Insurance Regulations:

(a) any pay or earnings referred to in subsection36(8), (9) or (19) of those Regulations if

(i) the claimant’s benefit period begins on or after September 27, 2020, or

(ii) the pay or earnings are declared to the Commission on or after September 27, 2020 and would otherwise have been allocated under section 36 of those Regulations to a week beginning on or after September 27, 2020;

Here is the link to the Interim Order: https://lnkd.in/gfZCfni

What this would seem to mean is that if a person were terminated on or after September 27, 2020 then any termination pay, severance pay or wrongful dismissal damages they receive does not affect their EI entitlement.

Thus you can now get EI and termination pay etc for the same period.

AND

You presumably do not have to repay EI for wrongful dismissal damages received if the termination took place on or after September 27, 2020.

This provision expires on September 25, 2021.

Therefore for terminations that take place between September 27, 2020 and September 25, 2021 you need not even check with EI regarding any overpayment owing.

The question then becomes, since EI is not repayable now in certain cases, should the employer also get to claim that as a damage reduction? Personally I think not because the employee pays into EI and thus is dramatically different than CERB. In that case there is a tradeoff between two legal principles, the principle to avoid overcompensation vs the collateral benefit rule which says that the wrongdoer should not benefit from the innocent party purchasing insurance against a loss.

But who knows what will happen next in these weird times. Stay tuned.