In Cormier v 1772887 Ontario Limited cob as St Joseph’s Communications ( 2019 ONSC 587) Justice Perell had to determine the enforceability of the following ESA termination clause:
In Dawe v Equitable Life Insurance Company ( 2019 )NCA 512) the Ontario Court of Appeal struck down a 30 month notice period and reduced it to 24 months .
The Plaintiff hit all the Bardal Factors. He was a senior Vice President. He had 37 years of service. He was 62.
The Court of Appeal reiterated that although there no absolute upper limit or cap, reasonable notice in excess of 24 months is only justified in “exceptional circumstances “.
The Court of Appeal was critical of some of of the factors that the trial judge referred to :
- Rather than focus on any ” exceptional circumstances” the judge commented that now that we no longer have age 65 mandatory retirement, ” presumptive standards should no longer apply. The OCA noted that mandatory retirement was abolished in Ontario in 2006 so this is by no means a recent event. In any event the Plaintiff testified that he actually planned to retire at age 65.
- The trial judge said that the termination was a ” forced retirement” when in fact the Plaintiff requested an exit package as a result of a conflict he was having with some fellow executives.
In essence what the Court was saying is that “exceptional circumstances” cannot simply be the same Bardal Factors that you use to figure out the normal notice period.
What are exceptional circumstances that will warrant a notice period of more than 24 months ?
Stay tuned as new cases and creative lawyers will undoubtably come up with new arguments as to what are or are not ” exceptional circumstances “.
Although plaintiff lawyers may well disagree, I believe that this is a good legal development as it brings a modicum of certainty to a very uncertain world.
By the way, this was the same trial judge who commented in his award that he personally would have awarded 36 months notice but as the plaintiff only asked for 30 months, he was awarding only 30 months. Perhaps the Court of Appeal was using this decision to bring to an abrupt halt this idea of ever expanding notice periods.
In Mikelsteins v Morrison Herschfield Ltd. ( 2019 ONCA 515) the Court of Appeal revised a trial decision where an executive was given 26 months notice. The Plaintiff, in addition to his salary, was a shareholder in this private company and as such received dividends from time to time. The Shareholders Agreement also had a section which said as follows:
A Shareholder whose association with the Corporation and its Affiliates ceases by reason of termination by the Corporation of his/her employment with the Corporation and its Affiliates shall, immediately after such termination, be deemed to have given a Transfer Notice covering all of the Shares held by him/her on a date which is 30 days from the date he/she is notified of such termination by the Corporation.
The trial judge interpreted this clause to mean that the ” termination of his employment ” had to mean his lawful termination, in other words at the end of the 26 month notice period.
The Court of Appeal disagreed. They said that it was an error of law to incorporate a common law employment analysis to a corporate document like a Shareholders Agreement.
With respect, contractual rights differ from common law rights. Contractual rights depend on the terms of the contract to which the parties have agreed. The principle enunciated in Love, and reiterated in Evans, is that there is a difference between what a dismissed employee is entitled to as damages in lieu of notice upon termination of the employment contract and what the employee is entitled to under the terms of more specific contracts.
What is the policy reason referred to by the Court for this distinction ?
Similarly here, the Shareholders’ Agreement uses the cessation of Mr. Mikelsteins’ employment as the triggering event for the process to transfer his shares. The termination occurred on October 26, 2017. There is a very plain and obvious reason why a corporation, that is employee owned, and which has terminated an employee who also happens to be a shareholder, would wish to commence the process of repurchasing the employee’s shares the moment that employee is told of his or her dismissal, rather than at the end of the notice period. Understandably the corporation would not wish an employee to be able to exercise all of the rights of a shareholder once their employment is terminated.
This case follows another Court of Appeal case called Love v Acuity Investment Management , ( 2011 ONCA 130) in which a share repurchase agreement was interpreted the same way.
The policy reason set out by the Court seems odd. Of course the Company, aka the Employer, would want to avoid paying dividends to an employee they illegally fired. So what ? Why not ask what the the shareholder, aka the employee, would like ?
Since when is what one party likes a ground for interpreting a contract?
Since the plaintiff’s entitlement to even be a shareholder was tied to him being an employee, why make this artificial distinction between common law employment rights and contractual rights ?
Why do contractual rights override common law rights?
It seems that if instead of being a shareholder per se, the plaintiff had a a provision in his employment contract that his bonus would equal the dividend paid to shareholders, the Court would have allowed him to receive dividends throughout the notice period.
It is important to note that both in this case and in Love that the employees were shareholder in privately held companies, not publicly traded ones.
Perhaps I could suggest a different rationale for why Courts seem to treat these cases of repurchase agreements differently than the employee owning stock options in public companies type of cases where it is clear that the termination date is the lawful termination date, not the actual date .
- Private companies require certainty in who the owners are at any given time more than public companies. If the repurchase date were at the end of the notice period then no repurchase could take place until a Court determined that date. This could take years and what shareholder rights would the dismissed employee have during that time? The interests of a current employee/ shareholder are vastly different than those an ex-employee/ soon to not be an ex-shareholder.
- If the share price fluctuated wildly after the actual termination, then each party would argue the notice period that happened to favour their desired stock price. For example, if 3 months after termination the price dropped and continued to drop for the next 9 month, the plaintiff would argue the notice period was 2 months and the employee would say that the proper notice period was 12 months.
This case reminds me why I used to tell my plaintiff clients not to be enthralled with the idea of being a minority shareholder of their employer. If you want a share of the profits, negotiate a profit sharing arrangement without the necessity of actually being a minority shareholder.
This case accentuates the advantage of being an employee over being a powerless minority shareholder.
In Rhinehart v Legend 3D Canada ( 2019 ONSC 3296) Justice Sanfilippo was faced with a motion by the defendants to stay the action as the employment contract had an arbitration clause that said as follows:
All of us at Legend are very excited about you re-joining our team and look forward to a beneficial and fruitful relationship. However, should any dispute arise with respect to your employment or the termination of that employment, we both agree that such dispute shall be conclusively resolved by final, binding and confidential arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) in San Diego, rather than by a jury, court or administrative agency.”
This agreement was signed by the Plaintiff when he worked in California for the US parent. He was then was moved to Ontario and employed by the Canadian subsidiary, but he never signed an agreement with the Canadian company.
The judge ruled on a number of issues:
- As there was no arbitration agreement between the Plaintiff and his Canadian employer, it was not applicable to his termination of employment from the Canadian company .
- It is for a Court, not the arbitrator, to determine the validity of the arbitration clause because the court shall only stay arbitration proceedings that flow from a valid arbitration agreement . ( Heller v UBER Technologies 2019 ONCA 1, appeal pending to the SCC) .
- As the arbitration clause purports to cover all claims arising from employment , this offends the Employment Standards Act which provides for a complaint and enforcement process that cannot be contracted out of. ( see Heller).
The action was therefore not stayed.
I find the third reason very interesting. The clause in question refers to purporting to oust the jurisdiction of any ” administrative agency “.
The same logic would seem to apply to invalidate this type of clause in the following situations:
- A complaint under the Human Rights Code.
- A complaint under the Labour Relations Act
- A complaint under the Occupational Health & Safety Act
All of these statutes have administrative complaint procedures that cannot be contracted out of, thus an arbitration clause that purports to deny access to these tribunals would be additional grounds for invalidating an arbitration clause.
Almost every arbitration clause in an employment contract that I have ever seen would seem to have this fatal defect. Does this mean that they are all null and void?
How does one avoid this issue ?
I suppose one way would be to try to limit the arbitration clause only to those matters that would otherwise be determined by a court and not purport to cover those items covered by administrative tribunals or the types of statutes that I referred to above.
In Evans v Paradigm Capital, ( 2019 )NSC 3046) Gans J was called upon to reconsider his trial award of costs after the Court of Appeal reduced the Plaintiff’s damages from $137,000 to $57,000.
At trial the Plaintiff was awarded costs of $171,000 plus disbursements . On the reconsideration of costs, for reasons which are not all that clear, Justice Gans said as the results were mixed, there would no order as to costs.
So originally the Plaintiff the Plaintiff won a total of $308,000.
After her failed appeal, she is only getting $57,000.
In other words by appealing, she lost over $250,000.
Remember the old adage:
Quit when you are ahead.
In McKercher v Stantec Architecture ( 2019 SKQB 100) Justice Elson had a situation where at the time of his hiring as a staff architect , the plaintiff signed an enforceable contract limiting his notice to a maximum of 3 months.
When he was terminated 11 years later, he had been promoted a number of times and ultimately held the position of Business Centre Sector Leader, reporting to a VP.
Applying the change in substratum argument, the judge had this to say :
Further, and as informed by the longstanding authority in Bardal v Globe & Mail Ltd. (1960), 24 DLR (2d) 140 (Ont H Ct) [Bardal], the period of reasonable notice increases with, inter alia, the length of service and the level of responsibility. In my view, it necessarily follows that where an employer wishes to rely on a comparatively short notice limit in the original employment contract, it must take reasonably consistent and meaningful efforts to protect the limit’s enforceability. This means that where an employee advances to higher levels of compensation and responsibility, it is incumbent on the employer to reassert its reliance on the contractual notice limit and to ensure that the employee both understands and accepts the employer’s position.
Having failed to this, the Judge found that the termination clause was unenforceable and awarded reasonable notice of 12 months.
There are three ways that an employer can avoid this from happening :
- Include a clause in the original contract that the termination clause continues to apply throughout the employment period notwithstanding any change in position or compensation.
- Include a line in all promotion and compensation letters reconfirming the termination clause.
- Have a termination clause which is more reflective of common law reasonable notice.
In Sosnowski v McEwan Petroleum ( 2019 ONSC 1860) Macleod-Beliveau J. had a situation where the following chronology applied:
November 2009 – Plaintiff fired for cause
July 2010- Plaintiff charged with theft by Crown
August 2010 – Plaintiff convicted and sentenced
November 2014 – Conviction set aside on appeal
July 2015 – Plaintiff starts civil action for wrongful dismissal
The Court found on a summary judgement motion that the 2 year limitation period started when the plaintiff was fired in 2009 and was not delayed or “tolled” because of the subsequent criminal proceedings.
In Torres v Vancouver Native Health Society ( 2010 BCSC 523) Justice Murray awarded 24 months notice to a 58 year old Project Manager with 20 years service.
The Court also awarded $30,000 for aggravated damages for the following reasons:
In Menard v The Centre for International Governance Innovation ( 2019 ONSC 2467 ) Justice Gray noted that the Plaintiff beat two his own Offers to Settle, one of which was made at the beginning of litigation.
The Plaintiff claimed substantial indemnity costs of $217,265 for two lawyers. The Defendant claimed its own substantial indemnity costs were only $120,031.
This wasn’t the sort of case where the judge despised the defendant’s behaviour. In fact this is what the judge had to say about the Plaintiff:
” While I did not find that the plaintiff’s conduct to be sufficient to amount to cause for dismissal withoiut notice, neverthelessI I found that the plaintiff had committed serious misconduct , and wrote a letter before commencing proceedings to an attempt to blackmail the defendant ”
Lessons to be learnt :
- The cost to the defendant of this Trial was as follows:
Judgement of 12 months notice : $175,000
Costs to Plaintiff $175,000
Defence Costs to Own Lawyer $120,000
We don’t know what the plaintiff’s very first offer was but it was less than $175,000. Thus the employer paid at least $300,000 more than it could have if it had settled in the beginning.
2. If the plaintiff makes an early and sensible Rule 49 Offer to Settle, the payoff can be considerable. Making ridiculous offers does not offer that benefit .
So next time you are close to settling a case at mediation and your client says ” Forget it. I am not paying a dime more or I am not giving up a dime off my last offer . Lets go to Court ! ” , show him or her this case.
Plaintiff’s counsel was Andrew Monkhouse and Stephen Le Mesurier of Monkhouse Law.
In Markicevic v York University ( 2018 ONCA 813) The Ontario Court of Appeal upheld the lower courts’ decision to set aside a settlement with its ex-employee to whom they had paid 36 months severance pay only to find out later than he had actually ripped them off for a million dollars.
As part of the deal the parties signed a mutual release.
York first became aware of the accusations of the Plaintiffs’ dishonesty before they terminated him and before they settled . Even though they had sworn statements from other employees about this dishonesty, they said they believed the Plaintiff when he denied the accusations.The Court held that his protestations of innocence constituted a fraudulent misrepresentation. The York representative said that if he had known the true story at that time, he never would have paid the 36 month severance package.
After York paid the Plaintiff his huge severance they investigated the allegations and found them to be true .
The Court said:
” A contracting party who is induced to enter into a contract as a result of a fraudulent misrepresentation is entitled to rescission, and restoration of the benefits conferred on the other party to the contract. The question of whether a contracting party did in fact rely on the misrepresentation, at least in part, to enter into the contract is a question of fact to be inferred from all the circumstances of the case and evidence at the trial.”
“The trial judge’s finding that York was induced to enter into the severance agreement by the appellant’s fraudulent misrepresentation that he was innocent of any financial dishonesty is supported by the evidence and no palpable or overriding error has been shown. It is difficult to imagine circumstances in which an employer acting responsibly would pay three years severance pay to an employee it knew had misappropriated large sums of money from it.”
I have a lot of concerns about this case.
First of all why did York give a mutual release?
In most wrongful dismissal actions only the plaintiff releases the defendant. Only where there is a potential of a counterclaim is a mutual release used. In other words only where there is a real concern by the plaintiff that the employer may have a claim against him does the plaintiff have the right to ask for a mutual release.
In this case therefore, by agreeing to sign a mutual release, York should or must have known that the Plaintiff was concerned that the employer may have a claim against him and thus would want that claim extinguished.
Secondly, in my 40 years of practice, I have rarely seen an employee accused of fraud do anything other than deny it when confronted by their employer. Only a complete idiot would admit to such a thing and only a fool would rely on this claim of innocence without first conducting a thorough investigation before, not after, the settlement.
Thirdly, this was an extremely sophisticated employer, containing the best law schools in Canada ( I went to OHLS) . The fact that for some inexplicable reason York decided to pay this guy way more than any Court would ever order ( 36 months severance !!!!) should not give them an out because they later determined that it was a dumb decision.
In my opinion this case will lessen the willingness of parties to settle actions because it takes away the certainty of a release. The whole point of a settlement is that, having done their due diligence, both parties have agreed to stop looking to the past and focus only on the future.
Anything that deviates from that sacred principle will only harm the important societal interest in settling disputes.