More on Court Finds That Limitation Period Restricts Vacation Pay Recovery to 2 Years:

In Mazanek v Bill & Son Towing ( 2021 ONSC 4512) Justice Steele awarded a 6 month notice period to a 44 year old tow truck driver with 5.5 years service. The employer failed to prove multiple allegations of theft and other misdeeds.

At no time during his employment was he paid statutory vacation pay as he was wrongly considered to be an independent contractor. The Court considered the usual factors and found that he was an employee and not an independent contractor .

This finding that the Plaintiff was in fact an employee governed by the Employment Standards Act led to a claim for vacation pay for the entire period of employment. However  the Judge found that the Limitations Act restricted claims for unpaid vacation pay to the date 2 years from the commencement of the claim. However the comments on this issue  was very brief on this issue, one single paragraph in an award of 80 paragraphs. This is all that the  judge said on the vacation pay issue :

[77] As I have determined that Mr. Mazanek was an employee of Bill & Son, he is also entitled to damages on account of vacation pay under the ESA. Mr. Mazanek claimed damages for accrued but unpaid vacation. Bill & Son argues that if there was any vacation pay due and owing it would only be due and payable two years preceding the commencing of the action. Any claimed amount preceding that date would be statute barred under the Limitations Act. I agree. 

My Comments:

The Judge did not list any of the counterarguments that I assume were made by the Plaintiff’s lawyers. This issue has come up before me in many mediations and  it would appear that the issue may not be as cut and dry as set out in this case.

For instance, since the Plaintiff was treated by the defendant as a contractor and not an employee, how could he “discover ” his entitlement to vacation pay until a Court , the Ministry of Labour or CRA declared him to be an employee?

This principle of discoverability was set out in the leading case of Evangelista v. Number 7 Sales Limited ( 2008 ONCA 599) in which the Ontario Court of Appeal said as follows:

[43]         Finally, the appellant argues that the trial judge erred in allowing public holiday and vacation pay going back to 1996 notwithstanding the two year statutory limitation period in s. 96(3) of the Act and/or the two year limitation period in the Limitations Act 2002, S.O. 2002, c. 24, Sch. B

[44]         Section 96(3) of the Act does not apply to civil lawsuits.  It applies to filing complaints with the Ministry of Labour.[2]

[45]         As to the Limitations Act, 2002, the appellant first paid the respondent vacation pay in December 2003.  The trial judge accepted the respondent’s evidence that he was not aware of his entitlement to vacation or public holiday pay before that time.  The trial judge held that the respondent’s lack of awareness as to his entitlement went to the issue of discoverability.  As a result, the respondent’s action, which was commenced in July 2004, was well within the two year limitation period in the Limitations Act, 2002

[46]         I see no basis to interfere with the trial judge’s conclusion that the respondent’s entitlement to public holiday and vacation pay should not be reduced on the basis of the operation of a limitation period. 

In this case it was only when the Court determined that the Plaintiff was in fact an employee and not a contractor that the Plaintiff could have ” discovered ” that he was entitled to vacation pay. Therefore , following the logic of the Court of Appeal in Evangelista, should he have not been awarded his unpaid vacation pay for his entire period of employment?

I am not sure that this case is the final word on this issue.

For a copy of this case email me at barryfisher@rogers.com.

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.

” Subject to the ESA ” Does Not Validate an Illegal Termination Clause”

In Perretta v Rand A Technology ( 2021 ONSC 2111) Sanfilippo J. considered the following termination clause

Termination With Cause – We may terminate your employment for just cause at any time without notice, pay in lieu of notice, severance pay, or other liability, subject to the ESA. For the purposes of this Agreement, “just cause” means just cause as that term is understood under the common law and includes, but is not limited to: [list of Eleven Categories of Just Cause].

In light of Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Court found that without the ” subject to the ESA ” language, this clause was clearly void.

The question then  becomes does the addition of these magic words save the day ?

This is what the Judge said :

[53] I accept Rand’s submission that, considering the entirety of the 2018 Employment Contract and the Termination With Cause Provision as a whole, there is a way that the Termination With Cause Provision can be read that is compatible with the ESA. The words “subject to the ESA” would have to be found to disqualify or neutralize the Offending Categories of Just Cause.

[54] Read generously, and by an employee well-versed in the ESA, the Termination With Cause Provision states in its first sentence that Ms. Perretta’s employment could be terminated at any time, without notice or pay in lieu of notice or severance pay, only if her conduct rose to the level of O. Reg. 288/01 of the ESA. However, the next sentence of the Termination With Cause Provision says the opposite. It says that Ms. Perretta’s employment can be terminated at any time, without notice or pay in lieu of notice or severance pay on the basis of the Offending Categories, which do not rise to the level of O. Reg. 288/01 of the ESA. Put differently, the second sentence of the Termination with Cause Provision would activate the Offending Categories as grounds for a ‘with cause’ termination, and the first sentence of the Termination with Cause Provision would deactivate the Offending Categories as grounds for a ‘with cause’ termination.

[55] The test of validity of a termination provision is not to struggle to find a way that the provision can be read consistent with the ESA, however convoluted. When the clause is ambiguous, as it is here, it must be read in a manner that provides the highest benefit to the employee. I adopt the statement by Sossin J. (as he then was) in Alarashi v. Big Brothers Big Sisters of Toronto, 2019 ONSC 4510, at para. 54-55: “While the clause can be read in a way that is compatible with the ESA, that is not the test for a valid termination clause, as affirmed in Andros. Because the clause could also be conveying to Alarashi that he may not be entitled both to termination pay and severance pay, the clause is at best ambiguous. In the face of ambiguous wording, the terminated employee is entitled to an interpretation that would lead to the highest level of benefit.”

[56] Although Rand says that its provision is “subject to the ESA”, the inclusion of the Offending Categories “flies in the face” of compliance with the ESA: as in Rossman, at para. 39. The ambiguity must be resolved in favour of Ms. Perretta by finding that the termination provision contravenes the ESA and is thereby invalid.

[57] The Defendant submitted that the ambiguity can be saved by the later provisions that state that when Rand’s employment contract results in a contravention of the ESA, Rand will comply with the ESA. These are ‘saving provisions’, and their proper use would be to safeguard against changes to the legislation made after the contract is concluded.

[58] An employer’s attempt to contract out of the ESA cannot be saved by a ‘saving provision’: Rossman, at para. 35: “It cannot be the case that the saving provision here – designed to make the Termination Clause compatible with future changes to the ESA – could reconcile a conclusory provision that is in direct conflict with the ESA from the outset”. Rand’s contract did not comply with the ESA “from the outset” and cannot now be saved by a savings provision.

My Comments:

In light of Waksdale, many employment contracts in Ontario need rewriting. This case should be of great benefit to those drafting new contracts who believe that all they have to do is include ESA savings  language .

Rather than write an illegal clause with ESA savings language, it is better to write the entire clause to be in compliance with the ESA from the beginning. These saving clauses are only relevant if the underlying statute or regulation change in the future. They do NOT cover changes in the common law or in how a Court may interpret a clause over time.

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

 

 

 

 

 

Court Awards $5,660 in Notice But $60,000 in Aggravated & Punitive Damages :

In Fobert v MCRCI Medicinal Cannabis Resource Centre ( 2020 BCSC 2043) Fleming J. awarded 8 weeks notice to a 25 year old clerical employee with 1.5 years service.

However, the Judge was very concerned about the treatment the young employee received as she was being terminated. Here is what the Judge said:

[99] I note the employer’s dealings with the employee after the dismissal may be considered as part of the manner of dismissal: see Acumen Law Corporation v. Ojanen, 2019 BCSC 1352 at para. 126.

[100] I have no difficulty in concluding aspects of the defendants’ conduct during the dismissal process, after the termination meeting on May 24, 2019 significantly breached an employer’s obligation of good faith and fair dealing. That conduct included the ongoing withholding of Ms. Fobert’s unpaid wages and statutory severance, both modest amounts, well after the defendants were aware of their statutory obligations, and most significantly Mr. Liu’s conduct during the June 6 meeting.

[101] To be clear, I view Mr. Liu’s conduct during the June 6 meeting as appalling, harsh and reprehensible. He made false and serious allegations of financial impropriety, used aggressive and intimidating language and repeatedly engaged in a range of bullying tactics. Further, although he did not yell, his tone and manner of communicating were intimidating.

[102] To be specific, Mr. Liu alleged more than once that Ms. Fobert was part of a group of employees who had engaged in the misuse of enormous amounts of money although she never had any spending authority. In an obvious attempt to intimidate, he told her that the rest of the group had signed off without any severance. He made it clear the defendants were willing to sue and withstand being sued, emphasizing their financial advantage and his own. After indicating she would be offered nothing, he offered $500 severance, an amount well below her statutory entitlement. Mr. Liu then pressured Ms. Fobert into accepting the offer immediately, telling her it would be revoked after the meeting and refusing to put it in writing. He also commented that meeting over such a minor financial matter was not worth his time, which was disparaging if not contemptuous. The same is true of his response to a perfectly reasonable question about contact information, “I’m not you legal counsel. Go find the guy, 500 bucks an hour, to tell you “

That got her $25,000 in aggravated damages.

When it got to assessing punitive damages, the Court also focused on the Defendant’s litigation conduct.

[117] Ms. Fobert also relies on the defendants’ conduct in the litigation, namely making allegations of serious misconduct in the response to civil claim, despite admitting she was dismissed without cause. The pleaded allegations include Ms. Fobert breaching a non-competition term in the Employment Agreement by accepting employment with an MCRCI competitor “immediately subsequent to her termination”; and disparaging the defendants and their Directors to four MCRCI employees around the time of termination, which caused lost business and the resignation of employees. None of the allegations were even raised at the trial.

Having described the Defendant’s conduct as ” harsh and reprehensible ” as well as ” vindictive and malicious ” the Judge also awarded $35,000 in punitive damages.

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

 

 

Judge Warns Against Employer Motions for Summary Judgement:

In Brown v Bank of Nova Scotia ( 2021 ONSC 2696 ) Myers J. dismissed a motion brought by the defendant for a motion for summary judgement alledging that there was a pre-litigation settlement.

On the issue of costs the Judge had the following to say

It is relevant to me as well that the motion was brought in a wrongful dismissal action by an employer against a former employee who seeks notice pay. The risk to the plaintiff of motion practice in wrongful dismissal actions is obvious and significant. This is especially the case where the employer does not allege that it had cause for dismissal. In the overwhelming majority of those cases, the employee is owed some amount of money by its former employer. There are few circumstances in civil litigation where the strategic risk of motion practice is higher. The thought of an unemployed employee, who is owed money by the employer, having to pay costs to its former employer is a massive strategic lever due to the vulnerable circumstances often occupied by wrongful dismissal plaintiffs and the gross imbalance of economic power. There is therefore additional reason to dissuade motion practice in wrongful dismissal actions generally and to ensure that deep-pocketed employers do not make strategic gains by bringing longshot motions that they can afford to lose. Costs on a substantial indemnity basis could well be available in such circumstances. 

 

Court Rules on Repudiation of Termination Clause and Awards Punitive Damages for Litigation Conduct :

In Humphrey v Mene Inc ( 2021 ONSC 2539) Justice Papageorgiou in a 68 page decision awarded 12 months notice to a 32 year old COO making $90,000/year with 2.7 years service.

There was a number of interesting issues decided by the Court :

  1. The Court found that the  termination provision was unenforceable because there was no fresh consideration when it was introduced mid term. The Court found that merely changing her status ( but not her pay ) from a consultant  to an employee did not suffice as she had in law been an employee throughout this period anyways .
  2. More interestingly, the Court also invalidated the without cause termination clause on the basis of repudiation. This is the concept that an employer cannot rely on an otherwise lawful  without cause termination provision in certain circumstances . This is how the Judge set it out

[135] I do not read any of the cases before me as laying down the proposition that in all cases where an employer asserts cause and fails it may nevertheless rely upon a without cause termination provision afterwards. The law of wrongful dismissal is based in contract. In all of the above cases, the courts had before them specific agreements with specific clauses which the courts construed. If the parties specifically agreed that the without cause termination provision required an election at the time of termination or that it expressly covered only certain acts of constructive dismissal, I see no reason why a court should not enforce that.

[136] In my view, the following principles emerge from the above cases:

a. Where an employer alleges cause and fails, or withdraws its cause allegation, or repudiates an employment agreement through acts which constitute constructive dismissal, the employer is not precluded from subsequently invoking a without cause termination provision for the purpose of calculating the employee’s damages: Roden, Moore, Simpson

b. However, in all cases, it is a question of construction of the without cause termination provision before the Court as to whether, properly construed, the without cause termination provision applies. Such clauses are subject to strict construction: Ebert, Matthews.

c. Even if the contract, properly construed, permits an employer to terminate without cause after a failed for cause termination, there are some breaches or acts of repudiation which are so significant, or of such an order of magnitude, that they render a without cause termination provision unenforceable: Dixon. Although Dixon has not specifically been considered and accepted by appellate courts I find the reasoning compelling. All employment agreements are negotiated and agreed to on the basis of certain implied minimum expectations as to how the employer will conduct itself, the duty of good faith being one. An employee’s agreement to accept terms which significantly impact on the employee’s common law rights must be taken to be made in the expectation that the employer will comply with these minimum implied expectations. Where the employer significantly departs from such expectations, in my view, the employee should not be held to extremely disadvantageous provisions which he, she or they agreed to. This is not rewriting the contract but giving effect to what the parties must reasonably have intended.

d. However, minor or technical mistakes made in good faith by the employer will not constitute a repudiation sufficient to prevent the employer from relying upon the without cause termination provision: Amberer, Oudin.

In other words, if the Employer acts in a manner inconsistent with the duty of good faith, this may invalidate the termination clause because good faith is part of all contractual provisions.

The Judge then goes on to set out why in this case the Employer’s conduct was such that it had repudiated its own agreement

[137] I am satisfied that in the circumstances of this case outlined above, Ms. Humphrey has established on a balance of probabilities that Men’s conduct, objectively viewed, demonstrates an intention to no longer be bound by the December 2018 Employment Agreement, thus repudiating it. The conduct which I have found includes setting her up to fail, subjecting her to a toxic workplace, embarrassing and humiliating her before co-workers and clients after her suspension, significantly exaggerating performance issues and the evidence it had in support of these at the time of termination, and alleging cause when it knew or should have known it did not have it. These are not mere technical breaches made in good faith. Men’s conduct in this case goes to the heart of the employment relationship.

My Comment on Repudiation:

This concept of repudiation has the potential of forever changing the way employment law is practiced. It is an unfortunate common employer practice to allege just cause in situations where it is clear that it will fail and is being alleged simply as an intimidation tactic in order to get a better deal for the employer.  In this same category is the defendants’ counterclaim which alleges huge damages because of the plaintiff’s actions.

In the past if this tactic did not succeed in getting a settlement, the employer could simply drop the defence with little worry of any serious consequences. Now it seems that deploying tis tactics could have a serious blowback by invalidating an otherwise valid termination clause.

It is important to know that in this case, the Defendant had originally alleged just cause but had dropped the allegation before trial.

3. The trial judge also awarded the Plaintiff $25,000 punitive damages  because of the Defendant’s litigation tactics. The Judge referred to these actions of the Defendant as grounds for awarding these damages :

a) They led extensive evidence as to the Plaintiff’s poor performance even though they no longer alleged just cause .

b) Some of these performance issues related to a time before the Plaintiff was promoted to her COO position.

c) The Defendants pleadings referred to irrelevant matters which rose to the level of malice.

d) The Defendants never formally amended their pleading withdrawing the just cause allegation so that the public record was not corrected .

e) The Defendant either lied about the existence of certain documents or destroyed them.

f) The defendant breached two Court orders regarding production.

g) Most upsetting, the Defendant in their material made reference to the Plaintiff’s dating patterns in that she used an on line dating service . As the Judge said “ I find that Mene’s. need to refer to Ms Humphrey’s personal life very troubling. Who and how Ms Humphrey dates is no business of Men’s or they Court’s. 

By the way, the Court also awarded $50,000 in aggravated damages because of the mental distress suffered by the Plaintiff given the manner of the dismissal

Lessons to be Learned:

Although it seems OK for Plaintiff’s to routinely make out sized claims for unfair treatment, harassment and discrimination, it now seems quite risky for Defendant’s to use the same scorched earth tactics.

In any event, it is becoming clearer that the Court will scrutinize employer’s actions both before and during litigation and severely punish employers who act in a fashion outside the Courts’ vision of acceptable  behaviour.

Employment litigation may not be a tea party, but neither is it supposed to be a fist fight.