Month: December 2015

In Chapman v GPM Investment Management ( 2015 ONSC 6591) the CEO was found by the Court to be entitled to a bonus payment of $328,862 as per his contract. When he was not paid this bonus he claimed constructive dismissal. The Court held that the non payment of this bonus was not a constructive dismissal as it was one off and the situation would not arise again. Moreover as his total compensation was $1,173,239 , it was only a reduction of 28%. The judge emphasized that nothing had changed regarding his role and in the future the Employer was committed to honouring the contract.

In what I find is a surprising decision  the Court of Appeal of Ontario ( Justices Miller, Hourigan and van Rensberg upheld the trial decision ( 2017 ONCA 227) .

Trial Decision :

So what is an employee to do when he is screwed by his employer out of a $328,862 payment? This is what Gunsolus J. had to say:

67 Mr. Chapman’s position that he was left in a position such that he would have had to sue his employer, and thus would be in the untenable position of having to leave his employment, does not persuade me that this was a constructive dismissal. In today’s modern commercial world, there were many other steps that Mr. Chapman could have considered. For example, mediation and/or arbitration could have been pursued. Mr. Chapman could have pursued the other investors in the EE Project as suggested by Mr. Johnson. Mr. Chapman was not put in an untenable position. He left his employment at a time when he had earned more than he ever had in his nine year history with the defendants. In addition to that, he received over $557,000.00 as a return on his personal investment in the EE Project. No reasonable person, in the shoes of Mr. Chapman, would consider themselves to have been constructively dismissed.

Court of Appeal Decision :

The Court of Appeal found that the trial judge made no overriding error in his reasoning. Of particular interest was what the Court said about the trial judges comments quoted above .

34]      Furthermore, the trial judge considered all of the relevant surrounding circumstances in concluding that there were no other factors that could lead a reasonable person in the appellant’s position to conclude that GPM’s breach indicated an intention not to be bound by the memorandum of understanding.

[35]      Against this, the appellant argues that the trial judge erred in not finding that he had been placed in the untenable position of having to either forego the $329,000 in bonus income and keep his job, or sue to recover the $329,000 and lose his job.

[36]      The trial judge, however, found on the evidence that the appellant had options other than suing GPM on the one hand and foregoing the bonus on the other, including proposing arbitration and/or following up on Johnson’s suggestion that GPM might reconsider paying something towards a bonus if the other investors in the Ellerslie lands agreed. 

[37]      In my view, it was open to the trial judge to find that there were, on the facts of this case, dispute resolution alternatives that the appellant, a commercially sophisticated party, could have been expected to explore, and that a reasonable person in the appellant’s position would not have considered himself to have been constructively dismissed when the bonus on the sale of the Ellerslie lands was refused.

There is no indication in the judgement that  there was an arbitration clause in the CEO’s employment agreement. As one cannot be forced into either mediation or arbitration absent a contractual provision, it is difficult to understand this logic. Furthermore suggesting that he pursue a remedy against other entities rather than the one with which he had a direct contractual relationship seems rather  odd.

Why should an aggrieved employee have to chose an ADR process to resolve this issue? Surely they have the right ( absent a mandatory arbitration clause ) to pursue their remedy in Court ?

Does this now mean that that the law in Ontario is that is perfectly  OK for an employee to sue their current employer over an allegation of unpaid wages  and remain at work ?

Another option that would have been open to the Plaintiff was to file a complaint with the Ministry of Labour under the ESA for non-payment of wages, as bonuses are wages under the ESA, and there is no longer any monetary cap on recovery. Any attempt by the employer to terminate or discipline the employee for filing a claim would bring about further liability to the employer under the Reprisal section ( s.74) of the ESA.

The message from this case must be that quitting to obtain back wages is highly risky. You are much better off remaining in your job and commencing some sort of adjudication or litigation. According to this judgement, you can pursue legal remedies against your current employer and not have to worry about the problem of a conflict of interest.

Speaking for myself, if you screwed me out of $328,262, you sure would not want me working for you any more.

If the test for a constructive dismissal is based on the ” reasonable employee”, then I am pretty sure that if you polled 100 working people and asked them how they would feel is they were illegally denied $328,262 of their wages, virtually everyone of them would think that the employee would be amply justified in feeling they had no option but to quit, even if their boss promised that he was only going to screw them this one time.

What if the shoe were on the other foot and the employee stole $328,262 from his employer but, after being caught, returned it and promised never to do it again ?

Would the Court of Appeal say that this was not just cause for dismissal ?

How is wrongfully not paying me what I am owed any any different from me wrongfully taking what is yours?

 

In Drysdale v Panasonic Canada ( 2015 ONSC 6878) Mr Justice Lederman gave 22 months notice to a 58 year old shipper with 23 years service.

The Employer tried to attack the Plaintiffs’  mitigation  efforts by producing at trial, for the first time, 380 job ads. The Court commented that of the 380 jobs, 348 either did not state a wage rate or the rate stated was $17/hour or less. The Plaintiff was making $28/hour or $60,000 with overtime plus a pension.

The Judge then made this comment about the Employer’s trial tactic of showing up with job openings for the first time at trial.

22 The defendant offered the plaintiff no assistance in searching out these job postings and therefore it does not lie readily in the defendant’s mouth to criticize the plaintiff afterwards for not pursuing these specific job opportunities. As stated by Taylor J. in Maxwell v. United Rentals of Canada Inc., 2015 ONSC 2580 at para. 40 “… if an employer intends to argue the failure to mitigate on the part of the former employee, it would be well advised to present evidence of assistance that was offered to the terminated employee during his or her job search.” Here, the defendant raised the issue of available job postings after the fact and only in the course of this litigation. Prudence would have dictated that the employer make this information available to the employee in a timely way to assist him in his transition.

What can an employer do to help the former employee find alternative employment and save themselves lots of money on notice?

1) Give positive reference letters, backed by oral references. If you have a “policy ” saying you cannot do this, then change the policy.

2) Provide relocation counselling.

3) Send relevant job leads to the plaintiff on a regular basis. Call other employers in your industry and try to find a place for your former employee.

4) Don’t allege just cause as a litigation tactic.

Only # 2 costs money, the rest is just being a mensch.

 

In Evans v Avalon Ford Sales ( 1996) Limited, ( 2015 NLTD (G) 100 Mr Justice Butler applied the SCC case of Bhasin to a fact situation regarding an emotional resignation. The Judge made the following comments :

” [114] I conclude therefore on the facts of this case that even if the Plaintiff had resigned, the implied term of good faith and fair dealings which applied to both parties and to the employment contract required the employer to give Mr. Evans time to cool off and reconsider. The Defendant’s failure to do so represents a breach of the implied major term of good faith and fair dealings.

[115] Further, returning again to Bru, I accept that the Defendant’s actions and inactions following Mr. Evans’ resignation on the evening of June 10, 2010 would also be characterized as a form of careless disregard. In contractual terms, this represents a breach of the implied fundamental term of good faith and fair dealings applicable regardless of whether the Plaintiff involuntarily resigned (as I have found) or voluntarily resigned but in circumstances of confusion or uncertainty.

This is another example of how the Courts are utilizing the doctrine of honest contractual dealing in the employment context.

In Fraser v Canerector ( 2015 ONSC 2138) Dunphy J. denied a bonus payment in the year of termination and over the notice period to a three year employee who had received substantial bonuses in all of his past years ( $50,000 in year one, then $75,000 and in his last full year $175,000). He did this  because:

1) There was no formula in determining the bonus rather it was based on the owners determination of the employees’ contributions and the company performance.

2) In the past other eligible employees had received nil bonuses, although not the plaintiff. Furthermore the bonuses were confidential so the Plaintiff would have no information about what other executives did or did not get .

3) There was no evidence of any contribution of the Plaintiff in his final year that showed his  contribution. He was fired mid year.

4) They fired him because he was lousy at his job, although it did not amount to cause. Although he had performed well in his previous position, once he got a new position and a new boss ( the owners’ daughter) he apparently was a disaster.

5) Even if he had worked out his notice period ( which the judge determined was only 4.5 months for a 46 year old executive with 34 months service) he still would not have been employed at the end of the year, therefore no bonus would have been payable, even though such a rule had never been articulated by the employer.

6) As he had done well in all the other years, and thus benefitted by the disceretionary nature of the bonus, so should he not complain when the exercise of the discretion was not to his benefit.

7) Any attempt to assess the bonus would be arbitrary so the Court should not even try to do so.

This approach to bonus entitlement over the notice period is at serious odds with the case law, where mere difficulty in determining the bonus does not lead to no award of bonus. The bulk of the cases involve either a backward looking average ( usually the last 2 to 3 years ) or a determination of what the bonus would have been over the notice period. Dunphy J. seems to view a discretionary bonus as one  that is whatever the employer decides it to be, even when the existance of this bonus plan was part of the original compensation terms.

The root of the judges’ problem in this case seems to flow from his thought on how this would affect further cases:

[53] The plaintiff argues that bonus was an integral part of the remuneration package and submits that, even absent a formula, there must be an objective assessment of it. While participation in the plan itself was clearly an entitlement under Mr. Fraser’s employment contract, the plan itself was fundamentally and by its nature discretionary and thus subjective. The court is in no position to assess performance of an individual executive still less to compare his performance to others. The court has no basis to assess the merits of acquisitions originated by the plaintiff, the skill (or lack thereof) used by the plaintiff in managing them, the results obtained from divisions under his supervision and the degree to which he has managed them well or poorly.

[54] If the bonus plan were to be treated as objective for purposes of assessing damages in wrongful dismissal cases, then it must logically be considered objective for ALL purposes and not merely end-of-employment questions. Merely stating the proposition is sufficient to reject it – the court is in no position to sit as a court of appeal weighing allegedly unfair bonus calculations for active employees or to hear constructive dismissal suits based on allegations that a particular decision regarding bonus in a year was alleged to be unfair.( emphasis added)

In fact, given the new obligation of honest dealing in contractual relations as set out by the Supreme Court of Canada, I would argue that there is a contractual obligation for an Employer to assess a bonus entitlement in good faith and thus it is entirely proper for a Court to review an Employer’s decision to not award a bonus or to award an unfair bonus, even if the employee is actively employed at the time.

Bonuses are no longer viewed as gifts from a grateful master to a loyal servant at Christmas time. Rather they are a vital part of many employees’ compensation plan and should be entitled to the same contractual protection normally given to other contractual entitelements.

In this case there were objective criteria in determining the size of the bonus, namely the individual performance of the employee and the overall performance of the Employer. There was no indication in the judgement that the Employer had any financial problems in the year in question. The only comments about the Plaintiffs’ performance was that they fired him because they thought that he was not a good enough performer in his brand new role . There is no evidence of any goals set for him, any performance review procedure or any criteria at all in deciding how to evaluate his individual performance. There must have been criteria, because in the past he received substantial bonuses. Was this whole process just based on a whim?

Surely when one signs up for a new job with a bonus plan, one can reasonably expect that it will be administered in a responsible and consistent basis, not based on the current whim of the owner and his daughter.

Therefore if a employer chooses to have a bonus plan that is entirely discretionary without any criteria whatsoever, it should have to inform the employee as follows:

“In addition to your wage, we may or may not pay you a bonus. We are not telling you what you need to do in order to get a bonus. If we decide to pay you a bonus, the amount will be entirely up to us and you will have no input into that decision or have any clue how we arrived at the number.  If we decide to terminate your employment, you will not get any bonus whatsoever, no matter how hard you worked or how much you achieved. ”

The Plaintiff  filed an appeal of this decision. On October 4, 2016 the Divisional Court dismissed the appeal . ( 2016 ONSC 6071).

 

 

 

 

The Ontario Court of Appeal in Holland v. Hostopia.Com Inc. (2015 ONCA 762) had this to say about the whether it was relevant in determining the reasonable notice period the fact that the employee got a new position quite soon after the dismissal :

’61.There is, however, merit to the appellant’s submission that the trial judge should not have considered the speed with which he found new employment in determining the period of reasonable notice. Notice is to be determined by the circumstances existing at the time of termination and not by the amount of time that it takes the employee to find employment: see Panimondo v. Shorewood Packaging Corp. (2009), 73 C.C.E.L. (3d) 99 (Ont. S.C.J.), citing Harper v. Bank of Montreal (1989), 27 C.C.E.L. 54 (Ont. Div. Ct.). If two employees in identical circumstances are terminated at the same time, they are entitled to the same notice, regardless how long it takes each of them to find a new job. One may mitigate her damages by finding a comparable job shortly after being dismissed. The other may be unable to find work for years. They are entitled to the same notice, regardless of the outcome. The time it takes to find a new job goes to mitigation of damages, not to the length of notice.

62 I am unable to find, however, that the trial judge’s consideration of this factor had a significant impact on his conclusion concerning the proper notice period. Having regard to the authorities cited by counsel for the appellant, the appropriate range in this case was between eight and twelve months. While the eight months awarded by the trial judge was at the very low end of the range, I would not interfere with the exercise of his discretion, notwithstanding the error in referring to the time it took the appellant to find new work: See McNevan v. AmeriCredit Corp., at paras. 34-35.

This case is one in a series of cases which is finally clarifying what the rules of reasonable notice are, beyond the Bardal analysis. One can only hope that this trend towards simplification in determining notice periods continues at the appellate level, so that the trial judges, counsel, mediators  and the parties can more easily determine what the proper notice should be.

• In Karmel v Calgary Jewish Academy ( 2015 ABQB 731 ) MacLeod J of the Court of Queens Bench awarded a school principal the sum of $200,000 in aggravated or bad faith damages for the manner in which the plaintiff was terminated. Essentially the Principal and the Chairman of the Board of Directors had a fundamentally different approach to the Principal’s role. The Chairman felt that he was the CEO and the Principal was his employee. The Principal saw himself as the professional educator reporting to the entire Board which consisted of volunteers who were members of the Calgary Jewish community. The Chairman grew to despise the Principal and led a campaign to get him fired. The Court found that the allegation of just cause had no merit. The process of building a case against the  Principal and convincing the Board to fire the Principal was found to be done in bad faith.

As the plaintiff was terminated part way through a 5 year fixed term contract, he also received the sum of  $669,998 representing the balance owing until the end of the term.

After deciding that the conduct of the Defendant were ” particularly insidious” and ” sufficiently egregious as to warrant punitive damages” the Judge then went on to decline to award punitive damages because ” I do not believe that he ( being the Plaintiff) would wish to punish the Calgary Jewish Academy with further punitive damages”

This last note is rather odd. The plaintiff requested punitive damages. The Judge thought that they were warranted. However then  the Judge assumed that the Plaintiff really did not want the damages. Surely the better analysis would be to award the damages and if the Plaintiff choose not to collect them, that is his choice, not that of the judge. At the very least the Plaintiff should get a charitable tax receipt for the sum of the punitive damages that he should have got. In fact, had he been awarded say $100,000 for punitive damages that would have been received on a tax free basis. He then could have made a charitable donation to the school of say, $100,000, resulting in a significant tax credit which he could have used to offset the taxes owing on his wrongful dismissal damages of  $669,998.