Holding Companies of Operating Companies not Common Employers

In Sproule v Tony Graham Lexus Toyota et al ( 2016 ONSC 2220) the Court held that operating companies can be common employers but that is not the case for pure holding companies .

The Court said as follows:

20. The defendants have conceded that there is a potential for a finding at the conclusion of the trial that the operating companies were one “common employer”. The evidence may potentially lead to the conclusion that they all had “effective control over the employee”. However, the defendants’ position with respect to the holding companies is that there is no genuine issue for trial, in that there is no evidence that could possibly give rise to a finding that the holding companies are common employers.
21. I agree with the position advocated by the defendants. The fact that these companies are intermingled financially, even to a great extent, will not result in a finding that they had effective control over the employee. They are holding companies — nothing more, nothing less. They do not exercise directly or indirectly any control over the employees. The doctrine of common employer has no application to them on any analysis of the evidence. As such there is no genuine issue for trial.

Furthermore there is no claim against the individual owners of the companies, even when they are the controlling minds of the employer companies unless there is an allegation of fraud, deceit, dishonesty or want of authority against the individuals.

Yukon Court of Appeal Says Short Service Employees usually get 2-3 months.

In Cabot v Urban Systems ( 2016 YKCA 4) the plaintiff was employed for only 14 months as a Professional Planner. Her age seems to be in the late 40’s.

The trial judge awarded her 6 months notice but the CA reduced it to 4 months.

This is what they said about notice periods for short service employees:

23. For a short term employee the useful starting place in discussing range is the two to three months spoken of in Saalfeld and Hall. The only feature of this case that would extend that range (there being no special circumstances such as inducement, bad faith or a poor labour market) is a level of responsibility not present in those cases.
24. Adjusting the judge’s finding that six months was a reasonable notice period to take account of his erroneous reference to Ms. Cabott’s hope of returning to British Columbia, and considering the range for this type of case which I would put generally at three to four months, I would allow the appeal, set aside the order and grant judgment to Ms. Cabott based upon four months’ notice.

It should be noted that two of the judges in this case ( Mr Justice Goberman and Madam Justice Saunders) are on the BC Court of Appeal , so in essence this could easily be viewed as the BC view of notice for short service cases.

Availability of Other Employment Requires Evidence

The BC Court of Appeal in Munoz v Sierra Systems Group ( 2016 BCCA 140) commented on the burden of proof in the Bardal Factor of availability of other employment .

The Court commented as follows:

48) The employee bears the burden of proving that the notice period should be longer because of the lack of availability of suitable work. As Madam Justice Baker said in Desaulniers v. Wire Rope Industries Ltd., [1995] B.C.W.L.D. 1332 at para. 14 (S.C.):
“If the plaintiff asks the court to depart from the general range of notice periods recognized by other courts in respect of plaintiffs of similar age, seniority and position, she must establish an evidentiary basis for such a departure.”
49) In the present case the trial judge found that “neither party produced cogent evidence of similar employment at the time of termination”. Since it was Mr. Cuesta’s burden to prove a lack of availability of work, this failure falls to him.
50) Typically the burden is met by a plaintiff demonstrating his efforts to find work through job postings and applications made. In this case that evidence was not available because Mr. Cuesta chose to focus on his existing private IT company. There is no suggestion that he did not pursue other work because none was available. Mr. Cuesta deposed that this seemed to be the sensible thing to do:

At first blush it looks like the failure of the Plaintiff to lead this type of evidence would be fatal, however the Court recognized that the burden of evidence is satisfied where the Plaintiff simply shows that his diligent job search has not resulted in a job.

This case reminds us of how important it is for the Plaintiff to present a thorough and comprehensive job search record to not only show the Court that he reasonably mitigated his damages but to  further provide an evidentiary basis to find  that the lack of available jobs is a factor that should extend the notice period.

In my experience as a mediator of employment matters,  comprehensive evidence of this type of mitigation evidence is seen in perhaps 50% of the cases. This failure of the Plaintiff to properly document their job search costs the Plaintiff money at the mediation as it gives the Employer a bargaining chip to reduce the notice period.

Contract must Comply with ESA in the Future to be Enforceable:

In Garreton v Complete Innovation ( 2016 ONSC 1178 ) the Divisional Court, on an appeal from a Small Claims Court matter, found that the time to examine a contract for its enforceability is at the time of execution, not at the precise date of termination.

This was the contractual provision under review:
Otherwise Complete Innovations Inc. may at any time terminate this agreement by providing the Employee with (1) one week notice if their duration of continuous employment with the Company is more than 3 months but less than 1 year. (2) weeks prior written notice of intention to terminate if the Employee duration of continuous employment with the Company is more than 1 year but less than (3) years. If the duration of continuous employment with the Company is more than 3 years each additional year will entitle the Employee to (1) one additional week of notice to a maximum of 8 weeks. … Complete Innovations Inc. shall maintain on your behalf your employee benefits for a period of not less than the period required by applicable statute.

The defect was that it failed to provide for the payment of severance pay under the Employment Standards Act. At the time of her dismissal the plaintiff has just over 2 years service, therefore not entitled to ESA severance pay (as you must  have at least 5 years service unless it is a mass layoff).

The Employer argued that at the time that they terminated her employment, giving only two weeks notice under the contract was legal and it mattered not if she had been terminated after 5 years of service that the contract would not have been in accordance with the ESA and thus the employee would have been entitled to common law reasonable notice.

This is what the Court said on this issue:

23 While the termination clause is therefore void and unenforceable for a CI employee of more than 5 years, is it so for Garreton who was an employee of less than 3 years?
24 Garreton relies on Wright v. Young & Rubicam Group of Cos., 2011 ONSC 4720 (Ont. S.C.J.). In that case, Low J. found that a notice provision in an employment contract was void for potentially violating the Act.
25 In that case, as here, the contract provided for the proper notice under the Act given the employee’s years of employment but was contrary to the severance provisions in ss.64 and 65.
26 In reaching her decision, Low J. relied on Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986 (S.C.C.); Shore v. Ladner Downs, [1998] B.C.J. No. 1045 (B.C. C.A.) and the obiter comments by M. D. Forrestall J. in Slepenkova v. Ivanov, [2007] O.J. No. 4708 (Ont. S.C.J.) aff’d [2009] O.J. No. 2680 (Ont. C.A.). CI in turn relies on the more recent case of John A. Ford & Associates Inc. v. Keegan, [2014] O.J. No. 3995 (Ont. S.C.J.) where Price J., after considering the above cases disagreed with Low J.’s decision and held that the contract of employment, “must conform to provincial employment standards legislation for the particular employee, in the particular circumstances (para. 150).
27 With the greatest of respect, I disagree with Price J.’s conclusion. In my view, the employment contract must be considered at the time it is executed. If the termination provision is not onside with notice provisions and severance provisions (if applicable) of the Act at the outset, then it is void and unenforceable. Potential violation in the future is sufficient. As Low J. states, “It is not that difficult to draft a clause that complies completely with the Act, no matter the circumstance.”
28 Accordingly, for the above reasons, I find the termination provisions of the Agreement respecting notice to be void and unenforceable.

In the end the the 43 year old Trainer with 2.3 years service who was making $62,500 per year got a 5 month notice period, well above her ESA minimums.

In my opinion this is the correct approach as otherwise an employment contract could be legal one day and void the next, which would add considerable uncertainty to an already difficult time for both employers and employees.

Employers can easily draft clear and legal termination clauses. The Courts should not help them clean up poorly drafted ones.

Cannot Discipline an Employee by Demoting Him

In Cousins v QEC, ( 2016 NUCJ 01) the Nunavut Court of Justice held that because the Employer had a policy on progressive dismissal that did not include demotion as a disciplinary tool, when the Employer demoted the Maintenance Supervisor responsible for 14 plants to a non-supervisory position, this constituted a constructive dismissal. The 16 year employee received 18 months notice, but had it reduced to 11 months due to poor mitigation efforts.

The Court refused to read into the Discipline Policy an implied term that the Employer had the right to use a temporary demotion as part of its discipline tool chest.

Quere, if there had not been a Discipline Policy, would the Court have allowed the disciplinary demotion where they found that discipline was warranted ?

What if the Employer could show that they had just cause to terminate the employment but instead chose to only demote the employee? Would the Employer be penalized for not being tougher on the employee?

5 Year Employee Can Give One Months Notice of Resignation:

In Consbec v Walker et al ( 2016 BCCA 11 ) a 5 year employee employed as an estimator should have given one months notice of his resignation instead of walking out immediately  and going to work for a competitor.

However the Employer failed to prove any damages as it did not show that it would have incurred any significant different expenses if the departing employee would have given the required notice. Moreover this added expense has to be reduced by the savings that the employer utilized by not having to pay the departing employee’s salary for the one months notice that he failed to give.

The damages for a wrongful resignation are not the costs of replacing the employee but rather the extra costs incurred because the employee did not give reasonable notice of his or her resignation.

Court Awards Low Cost Awards for Low Recovery Judgements :

In Dynamic Tire v Borelli ( 2016 ONSC 1526 ) the plaintiff was awarded 16 months notice, exactly what the defendant offered in its pre-litigation offer.  His partial indemnity costs were $20,334.

In light of the fact that the plaintiff  acted unreasonably in not accepting the pre-litigation offer which if he had would have resulted in more money than he got at the trial, the judge awarded him nominal costs of only $6,000 plus HST.

In Muntean v Enablence Canada Inc. ( 2016 ONSC 1521) the Plaintiff sued in Superior Court but only recovered two months salary, which came to $13,076.

The plaintiff had partial indemnity costs of $20,702.

The defendant said that the plaintiff should not get any costs as he should have either started or transferred his case to Small Claims Court and because he had refused a time limited offer of $20,000 inclusive of costs.

Justice Timothy Ray awarded the Plaintiff only $5,000 costs based on the the issues referred to above and ” the overarching principle of proportionality”

If in fact the two lawyers in these cases actually charged their clients even what they told the Court their partial indemnity costs were, then both clients would have been much better off accepting the employers’ pre trial offers.


Employee Receives Severance Pay and Continues Employment:

In Roberts v Zoomermedia Ltd ( 2016 ONSC 1567) the executive employee had a fixed term contract ending Oct 31, 2011 which provided for a lump sum payment of two years salary plus a 6 month paid sabbatical leave if either the employee was terminated before the end of the term or if the term expired. The term expired and the employee stayed on as an employee until terminated by the employer in March of 2012 when he was given working notice of termination of  6 months notice plus 2 months severance.

The Employee took the position that as the term of his employment contract had expired on October 31. 2011, he was entitled to his contractual severance payment of 2 years plus the 6 month paid sabbatical even though he continued on in his employment for another 4 months.

Mr Justice Perell agreed with the plaintiff. The judge treated the employment as being divided into two periods; the period covered by the term certain contract  and the period after the term had expired. After the expiry of the term the employee was under the doctrine of reasonable notice, which the plaintiff did not pursue.

Thus the employee was paid severance pay even though his employment had not ended. Great deal if you can get it.

This was a very unusual termination clause. One wonders why they bothered to make it a term certain contract with an express end date. If the purpose of the termination cause is to agree what the employee will receive in the event his employment ends without just cause, then you are better off not making a term certain contract and just keep it a term of indefinite duration.

I find that employment contracts drafted by corporate lawyers often having a definite end date, even when the contracting parties have no business need for such a term. Worse, these clauses can be misleading to the employee who mistakingly believes that he has a guaranteed 2 year contract, only to find that a later provision in the contract allows the employer to terminate the contract prior to its term upon one month notice.

I used to tell clients that the term of their contract is equal to the shortest amount of time in which  one party can lawfully terminate the relationship.

Not Limiting Customers = Unenforceable Non-Solicitaion Clause

In Specialized Property Evaluation Control Services Ltd v Les Evalauations MarcBbourret Appraisals Inc and Ross Huartt ( 2016 ABQB 85) the Court was faced with a non-solictation clause which prohibited the Defendant from doing business with any customer of the Plaintiff for a period of 6 months from the date of termination of employment.

The Court found that this provision was too broad because it forbade the ex-employee from soliciting the Plaintiffs’ customers for any business at all, not just from solicting them for business competative with the business of the Plaintiff.

For example, if the employer is in the business of providing forensic accounting services to law firms, and in particular the ASBC Law Firm , this prohibition would purport to prevent the ex-employee from selling office supplies to the ABCS Law Firm.

On this basis alone the judge found that the non-solicitation clause was unenforceable.

The better practice is to:

a) Restrict the solicitation of customers only to the same business as the Employer’s, in other words, you cannot go after the ABCS Law Firm for the provision of forensic accounting services.

b) Define the term ” customer ” in some fashion in a temporal sense. A common definition is ” any customer who has purchased goods from us in the 12 months prior to the date in which you left employment”

c) Define “customer” to include only those customers with which whom the employee has had contact. This is especially true in a large organization that may have thousands of clients.

One should realize however that a strategy of counsel for ex-employees faced with a cease and desist letter or a lawsuit from the ex-employer is to request that the ex-employer provide a complete list of those customers that they consider covered by the non-solicitation clause to insure that their client does not inadvertently violate the agreement. Most employers are quite reluctant to give out such a list, especially to an competing ex-employee and his or her new employer. If they refuse to provide such a list, it might be difficult later on to allege a breach of the clause as the employee could rightly claim that he or she  was not sure who was on this list and who was not.

Probationary Employment Inconsistant With Inducement:

In Nagribianko v Select Wine Merchants ( 2016 ONSC 490) Sanderson J. , in an appeal from a Small Claims Court judgement, had the following comments about probationary employment :

40) A reasonable person in the same circumstances as the Respondent/Plaintiff would have understood the term “probation” to mean a period of tentative employment during which Select would determine whether the Respondent/Plaintiff would be a suitable employee and would decide whether or not to make him a regular/non probationary employee.

41) On his own evidence, the Plaintiff /Respondent understood that during the 6 month probationary period he would be at risk. He may have believed that the employer would find him to be a suitable employee, but a reasonable person in those circumstances would also have understood that that might not happen.

42) A reasonable person would have understood, and on his own evidence, the Plaintiff/Respondent did understand that probationary is inherently unstable and tentative.

43) Probationary employment, on its face and by its nature, is inconsistent with any inducement or promise of long-term employment.

I find the comment in paragraph 43 most interesting. On many occasions an employee who claims that they have been induced away from prior secure employment then signs an employment contract with a probationary clause. This case stands for the proposition that the mere existence of a probationary clause would likely negate the issue of inducement. This concept would apply whenever the employee was terminated, whether during or after the probationary period, because it is evidence at the time of hiring as to what was is the mind of the contracting parties. This case also stands for the proposition that a reasonable person, having decided to leave his or her current position and join a new employer, would know that there was not any promise of long term employment if the new agreement contained a probationary clause.
Of course, if the probationary period exceeds three months, the employee is still entitled to his termination pay under the Employment Standards Act of Ontario, even though the he or she was properly terminated pursuant to the probationary regime. Therefore a probationary clause in excess of three months should contain a clause that limits one’s recovery to a termination within the probationary period to one weeks termination pay plus benefits and accrued vacation pay, as long as the probationary period is less than one year.

In fact, if the probationary clause was in excess of three months and purported to say that an employee could be terminated within the notice period without just cause and without any notice, then there is a good argument that the entire clause would be illegal as it offends the ESA. This would mean that employer had lost the protection of the probationary clause and the employee would be entitled to common law reasonable notice.