Author: barryfisher

In a unanimous decision, the Supreme Court of Canada in Matthews v Ocean Nutrition Canada ( 2020-SCC 26 ) made the following statements of law.

1. The issue of good faith and bad faith in contractual relations is distinct from the issue of calculating damages due to the failure of the employer to provide reasonable notice of termination. There was no need in this case to determine whether or not the employer acted in bad faith as the same  outcome can be determined without the need to determine the bad faith issue.

The Court made the following comments about the issue of the duty of good faith in employment contracts:

[84]                         Further, I note that Mr. Matthews and several interveners argue that the general organizing principle of good faith described in Bhasin manifests itself in various ways throughout the whole of the contractual performance. Ocean answers that any extension of good faith would be an unwieldy precedent.

[85]                         Mr. Matthews’ argument is a serious one. Not all mistreatment by an employer will result in a constructive dismissal — some employees, for financial or other reasons, might choose not to leave their job. It might be that, as argued by various parties in this appeal, a duty of good faith will one day bind the employer based on a mutual obligation of loyalty in a non-fiduciary sense during the life of the employment contract, owed reciprocally by both the employer and employee. I recognize, however, that whether the law should recognize this is a matter of fair debate.

[86]                         This is a dismissal case. In light of the comment in Bhasin (at para. 40) that the common law should develop in an incremental fashion, I would decline to decide whether a broader duty exists during the life of the employment contract in the absence of an appropriate factual record.

2. Courts should ask two questions when determining whether the appropriate quantum of damages for breach of an implied term to provide reasonable notice includes bonus payments. First, courts should consider the employee’s common law rights and examine whether, but for the termination, the employee would have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period. Second, if so, courts should determine whether the terms of the employment contract or bonus plan unambiguously take away or limit that common law right.

The actual clause purporting to limit the plaintiff’s entitlement to the bonus was as follows:

2.03 CONDITIONS PRECEDENT:

ONC shall have no obligation under this Agreement to the Employee unless on the date of a Realization Event the Employee is a full-time employee of ONC. For greater certainty, this Agreement shall be of no force and effect if the employee ceases to be an employee of ONC, regardless of whether the Employee resigns or is terminated, with or without cause.

2.05 GENERAL:

The Long Term Value Creation Bonus Plan does not have any current or future value other than on the date of a Realization Event and shall not be calculated as part of the Employee’s compensation for any purpose, including in connection with the Employee’s resignation or in any severance calculation.

This is what the Court said about why this limiting clause did not apply :

[65]                         To this end, the provisions of the agreement must be absolutely clear and unambiguous. So, language requiring an employee to be “full-time” or “active”, such as clause 2.03, will not suffice to remove an employee’s common law right to damages. After all, had Mr. Matthews been given proper notice, he would have been “full-time” or “actively employed” throughout the reasonable notice period (Paquette, at para. 33, citing Schumacher v. Toronto-Dominion Bank (1997), 147 D.L.R. (4th) 128 (Ont. C.J. (Gen. Div.)), at p. 184; see also para. 47; Lin, at para. 89). Indeed, the trial judge and the majority of the Court of Appeal agreed that an “active employment” requirement is not sufficient to limit an employee’s damages (trial reasons, at para. 398; C.A. reasons, at para. 66).

[66]                         Similarly, where a clause purports to remove an employee’s common law right to damages upon termination “with or without cause”, such as clause 2.03, this language will not suffice. Here, Mr. Matthews suffered an unlawful termination since he was constructively dismissed without notice. As this Court held in Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102, at p. 108, exclusion clauses “must clearly cover the exact circumstances which have arisen”. So, in Mr. Matthews’ case, the trial judge properly recognized that “[t]ermination without cause does not imply termination without notice” (para. 399; see also Veer v. Dover Corp. (Canada) Ltd. (1999), 120 O.A.C. 394, at para. 14; Lin, at para. 91). Yet, it bears repeating that, for the purpose of calculating wrongful dismissal damages, the employment contract is not treated as “terminated” until after the reasonable notice period expires. So, even if the clause had expressly referred to an unlawful termination, in my view, this too would not unambiguously alter the employee’s common law entitlement.

[67]                         I therefore agree with the trial judge that clause 2.03 does not unambiguously limit or remove Mr. Matthews’ common law right. In my respectful view, the majority of the Court of Appeal erred in concluding otherwise.

My Comments :

1. To me this means that bad faith in relation to employment terminations becomes just another way of awarding damages beyond the reasonable notice calculations. This same principle has been called damages for mental distress, moral damages , Wallace damages, aggravated damages, punitive damages and some that I probably have forgotten. I actually watched the oral argument at the SCC and I was immediately struck by how reluctant the Court was to expand or even apply the bad faith analysis.
2. Calculating damages should now be easier. In my first year contracts course at Osgoode Hall Law school ( way back in 1975) Professor Larry Taman taught us how to calculate damages in a breach of contract case. You simply put the innocent party in the same position as if the contract had not been breached. ( Hadley v Baxendale ) In an employment termination the implied term is that to discharge an employee without just cause you must give reasonable WORKING notice. If you fail to give such WORKING notice, then you must pay the employee the same amount that he or she would have earned had they been permitted to work out the notice period. Only then do you look at the bonus or the LTIP plan to see if there is any clear and ambiguous language which would exclude some element of the compensation if the employer fails to give working notice and opts to give pay in lieu of notice.
3. What is clear and unambiguous language sufficient to oust the inclusion of a bonus ? There are many ways to approach this issue , but here are my ideas of the most common ones other than the ” active employment” clause set out in this case .  First of all it cannot breach any statutory requirements like the Employment Standards Act which requires that there can be no change to an employee’s wages ( which normally includes bonus ) during the termination period , which is a maximum of 8 weeks. Many bonus plans breach this provision  by saying ” your entitlement to bonus ends on the day you receive notice of termination.” Secondly, an element of clear and unambiguous that has developed recently in the case law is that this limiting cause must not be buried in a long and complex agreement that no one would actually be expected to read. The limitation should be clearly brought to the attention of the employee both at the time he or she is hired, or brought into the plan and ,even better, every time they are awarded a bonus. Moreover, now that the Waksdale decision tells us that any defect in the termination provisions of a contract voids the entire termination clause, what if the bonus termination language is found to be illegal, does that mean the termination provision in the main employment contract also bites the dust?
4. By downplaying the importance of bad faith and focussing on the core issue of reasonable notice, the Court is repeating what many experienced employment lawyers ( and some mediators ) have known all along, which is , that 99% of the money in a wrongful dismissal case is simply figuring out what a month of notice is worth and then figuring out how many months is in the notice period. Add some costs to that number and amazingly, most of these cases settle. Perhaps now lawyers will spend more of their effort on resolving these basic issues  rather than focussing on the more  exotic issue of extraordinary damages which seems to find its way into almost every lawsuit but rarely results in a meaningful payout in either a settlement or a trial decision.

In Sewell v Provincial Fruit ( 2020 ONSC 4406) Mandhane J. had to determine if the following clause invalidated the termination provision of an employment contract:

“b) Termination by the Company for Just Cause
The Company is entitled to terminate your employment at any time and without any notice or any further compensation for just cause and the Company will not have any further obligations to you whether at contract, under statute, at common law or otherwise.”

In setting out why this made the whole termination clause, including the not for cause provision, illegal, the Judge said :

[19] Second, applying Waksdale, I find that the “Termination for Just Cause” provision of the contract was illegal insofar as it contracted around the ESA requirement to provide notice except in cases where an employee engaged in “willful misconduct.” Based on the Court of Appeal’s reasoning, I must read the contract as a whole and set it aside if one or more of the terms are illegal, even if the offending term is not at issue in the instant case.

This case is important because in Waksdale the parties agreed that the for cause termination clause was illegal. That clause was very different from this one as it set all sorts of things as just cause, including breaching any federal or provincial law.

In this case the reference to just cause is in line with most termination clauses which simply reference ” just cause” . More importantly, in this case the Court ruled that the clause was illegal, and thus sets a clear judicial precedent.

This case had a number of other issues :

1. Even though the Plaintiff had been contacted by a head hunter the judge found that that did not constitute inducement:

“Rather, the arrangement was mutually beneficial as the plaintiff had tried to change jobs prior to accepting the defendant’s employment offer and seemed ready for a change.”

2. The not for cause provision read as follows

c) Termination by the Company without Just Cause

(A) The Company will be entitled to terminate your employment at any time without just cause by providing you with the following

(ii) a payment, or at the Company’s sole option, notice or combination of notice and pay in lieu of such notice representing termination pay and, if applicable, severance pay, as may be required under the Employment Standards Act, 2000, as amended from time to time (the “Separation Period”);

It is agreed that upon compliance with the above provisions, the Company will be release from any and all obligations to you, whether statutory, under contract, at common law or otherwise.

When I first read that clause it looked fine to me because it looked like you would get both termination pay and severance pay. The Judge saw it differently :

First, a plain reading of the contract supports the plaintiff’s argument that it combines notice and severance pay entitlements in violation of the ESA requirement to pay both notice and severance. The provision states:

The Company will be entitled to terminate your employment at any time without just cause by providing you with … a payment, or at the Company’s sole option, notice or a combination of notice and pay in lieu of such notice, representing termination pay and, if applicable, severance pay

[17]       Indeed, this provision is substantially similar to the one deemed illegal by the Court of Appeal for Ontario in Wood. The Wood termination clauses stated:

[The  Company]  is  entitled  to terminate your   employment   at   any   time   without cause  by  providing  you  with  2  weeks’ notice of termination or pay in lieu thereof for   each   completed   or   partial   year   of employment… The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay

[18]       The only substantial difference between the provisions is that the Wood clause specified a notice and severance period of 2 weeks per year, whereas the contract in this case left the amount of notice and severance open. This difference is not significant in terms of the Court’s reasoning in Wood and I find that the contract at issue in this case is void.

It is not entirely clear to me what it is about this clause that ” combines notice and severance pay requirement “.

It appears that the judge read the clause as saying that the employee would get either :

a) a payment of termination pay and severance pay ( this is OK)

OR

b) working notice of the amount of weeks in the termination pay and severance pay provisions ( which is illegal as you cannot be required to work out the severance pay period, rather it must be paid as a lump sum )

3. The Judge made the following comments about the signing of the agreement when the Plaintiff was hired:[

8]       I accept the plaintiff’s evidence that he signed the contract expecting that it would accurately set out the main terms of his employment as discussed with the defendant, as well as comply with employment standards legislation. I also accept that he did not understand the full implications of the “termination” clauses and that they were never explained to him.

In Hefkey v Blanchfield Roofing ( 2020 ONSC 5094) Bawden J. awarded 7 months notice to a 6.5 year foreman. However because the Defendant had made a payment during litigation of almost $11,000 the extra payment awarded by the Court came to just under $7,500.

Regarding cost submissions the Judge ruled as follows:

1) Even though the recovery was within Small Claims limits , it was reasonable to start the case in the Superior Court because there was a real issue as to whether his seniority was 6 or 13 years.
2) The Defendant’s actions increased the costs, including spending a whole day on whether the action could be heard by way of summary judgement , which they lost. Even though both lawyers were based in Toronto, the defendant insisted that the cross examinations take place in North Bay, where the defendant lived.
3) The motion itself took three days spread out over a year.

In Wilste v Saestar Chemicals ( 2020 BCSC 658) Saunders J. determined that an employee fired without cause in July of 2018 was entitled to 16 months notice. About 1/3 of his total comp was pursuant to a bonus plan which had a clause which said that in order to be entitled to a bonus payment, the employee had to be employed as of March 31st, the end of the fiscal year.

The judge awarded him the bonus for the period ending March 31, 2019 as he would have been employed on that date had he been given 16 months of working notice. However in order to be entitled to receive a bonus for the next fiscal year end  ( March 31, 2020) , he would have had to receive a notice period of 20 months. thus he did not receive any bonus payment for the period from March 31, 2019 to the end of his notice period , which was November 2019.

My Comments:

This judge did exactly what we are supposed to do in these cases, which is put the employee in the same financial position as if he been given 16 months working notice, or to phrase it another way, as if the plaintiff quit his employment at the end of the notice period. No more and no less.

If you keep this simple concept in mind ( which I learnt in first year contracts at OHLS way back in the 70’s) the issue of how to calculate damages in a wrongful dismissal action becomes quite straight forward.

In Maticevic v Bank of Montreal ( 2020 CarswellNat 2661 )  Adjudicator Marvy had to determine the damages owing to an employee who had been out of work for 29 months following an unjust dismissal.

The employee had done nothing to look for a job in those 29 months. The Adjudicator found that for about 22 months he was too sick to work but that he had no good excuse for the other 7 months so he reduced the compensation by 25%.

As ia said,  he was too sick to work for 22 months. The Bank said that he should not be paid for this period either. They quoted a case where a part time employee with no disability benefits and who was ill during the while notice period received nothing as he would have earned nothing even if he had been dismissed.

But the Bank had both STD and LTD which one can only think the employee would have been on had he not been dismissed.

The Adjudicator however awarded him FULL PAY for the 22 months that he was too sick to work. This is what he said:

29. The Bank acknowledged the issue it relied on was only “briefly addressed”. I agree and I do not find that it provides sufficient support for the position the Bank asserts. I prefer the decision in Sylvester v. British Columbia, 1997 CanLII 353 (SCC), where the Supreme Court of Canada in finding that an employee, who was on a disability leave when he was terminated, was not entitled to both his disability payments and reasonable notice damages, but rather the salary he would have earned during the notice period. The SCC stated the following:

9. On appeal to this Court, there was no challenge to the finding that the respondent was entitled to short-term disability benefits under the STIIP from June 1, 1992 to December 31, 1992, and to long-term disability benefits under the LTDP from January 1, 1993 to December 31, 1993, nor to the finding that the respondent was entitled to 20 months’ notice from July 23, 1992. The appellant did not challenge the finding that the respondent was entitled to damages of $102,100, being the salary he would have earned had he worked during the notice period. This is consistent with the principle that an employee who is wrongfully dismissed without adequate notice of termination is entitled to damages consisting of the salary the employee would have earned had the employee worked during the notice period. The fact that an employee could not have worked during the notice period is irrelevant to the assessment of these damages. They are based on the premise that the employee would have worked during the notice period. Therefore, an employee who is wrongfully dismissed while working and an employee who is wrongfully dismissed while receiving disability benefits are both entitled to damages consisting of the salary the employee would have earned had the employee worked during the notice period. 15. [Damages] for wrongful dismissal are designed to compensate the employee for the breach by the employer of the implied term in the employment contract to provide reasonable notice of termination. As discussed above, the damages are assessed by calculating the salary the employee would have received had he or she worked during the notice period, notwithstanding that the employee may, in fact, have been prevented from doing so. The damages are based on the premise that the employee would have worked during the notice period. [Emphasis added]

30 Given the above principles, the fact that I have found that his medical issues reasonably prevented him for some time from mitigating his damages does not lead to the conclusion that this time must be deducted from his damages award. He was clearly still entitled to the salary he would have earned during this period.

My Comments :

First of all,  it is interesting that the Adjudicator deducted the entire 7 months from the award as the employee did nothing to look for a job during that period. However there was no evidence led by the Bank which would have showed that had he looked for a job that he would have got  one immediately. Imagine that the employee did nothing for the entire 29 month period and that he was not sick. Would this mean that he would get nothing? Other cases that I have recently blogged about show that even in those situations, the employer must lead some evidence that had he looked for a job he would have found one in some reasonable  time frame.

Secondly, I do not understand why the Bank took the position that when he was sick he should get no back pay. The better position would be to say as follows>

” If  the Bank had not breached his rights under the CLC and had not terminated him, then let us look at what he would have earned in the last 29 months, Well we know that for 22 of those months he would not have worked . Our STD plan pays 100% for 6 months and then LTD pays 66% . Oh, by the way the Bank pays all the LTD premium. For 22 months those payments equal $75,000 . That is what we owe him . That puts him in the exact same financial position had he not been terminated.”

What about Sylvester v. British Columbia? 

First of all this is not a wrongful dismissal case where the only remedy is damages for reasonable notice. Under the CLC the adjudicator is to make the employee ” whole” which can include reinstatement . The case law is clear that in assessing damages under the CLC one is not limited to reasonable notice .

Second making someone “whole ” is neither under compensating them nor over compensating them.

Third,  Sylvester was really about where a person receives a disability payment during the notice period, does this act as a  reduction to his wrongful dismissal damages. The SCC decided that where the employee pays the premium for the LTD, the damages are not reduced but where the employer pays the premium ( or in STD simply continues his salary) there is an offset otherwise the employee would be overcompensated.

There is no finding in the case as to who paid the premiums on the LTD policy .

In Vienna v Joy Global ( Canada) ( 2020 NBBR 76) Justice Dysart upheld the validity of the following termination clause.

“Termination. The Company shall be entitled to terminate your employment without just cause for any reason upon the provision of reasonable notice or payment in lieu that meets the requirements of the applicable employment or labour standards legislation. By signing this Employment Agreement, you agree that upon the receipt of your entitlements and benefits in accordance with such legislation, no further amounts will be due and payable to you whether under statute or common law. Specifically, you understand and agree that your acceptance of this Employment Agreement limits your ability to claim any further damages for termination pay, termination notice, severance pay, payment in lieu of reasonable notice, or any other damages, other than as provided for in this Employment Agreement and that you are giving up any right to claim reasonable notice under common law. In the event the Company elects to pay you compensation in lieu of notice, the Company reserves the right to require you, prior to receipt of the payment, to sign the Company’s form of Release for the amount of the payment that exceeds the minimum termination pay required by the applicable employment or labour standards legislation.”

“I, Stephane Vienneau, have had a reasonable opportunity to obtain independent legal advice and to consider this Employment Agreement and the matters set out therein. I acknowledge that I have not signed this document under any type of duress and hereby accept the above terms and conditions as outlined in this Employment Agreement, pages one (1) through three (3) and certify that I am legally entitled to work in Canada.”

The Plaintiff’ s main attack on  this clause was as follows:

The reference to ” reasonable notice ” in the first sentence means that the clause was not intending to exclude the common law or at least is ambiguous . The judge disagreed  and pointed out the following :

[64] In my view, it would be nonsensical to conclude that that Mr. Vienneau had a legitimate expectation that upon termination without cause, he was entitled to reasonable notice under the common law, and that he was entitled to sue Joy Global for reasonable notice at common law. The termination clause clearly provides “you are giving up any right to claim reasonable notice under common law.” That sentence simply cannot be reconciled with the Plaintiff’s argument, nor does that wording bring this within the Cybulski, Gillespie and Bellini line of cases.

My Comments:

This was a New Brunswick case, not an Ontario case.

Under the current law in Ontario, because the clause refers to “just cause”, it would be in violation of the ESA and thus void . As The New Brunswick ESA refers to ” cause” and not the ” wilful misconduct ” language in the Ontario ESA, this argument would not work in this case.

Furthermore, in Ontario the ESA termination language ( section 57)  requires the the dismissed employee receive ” at least” so many weeks. There is a line of cases that stand for the proposition that simply referring  to ” meeting the requirements ” of the ESA is not enough because the requirements themselves only set the floor . The better language is to refer to ” the minimum requirements of the ESA ” . Again, the New Brunswick ESA does not use the “at least” language.

Third, the language says “upon the provision of reasonable notice or payment in lieu that meets the requirements of the applicable employment or labour standards legislation.

The use of the word ” or” could be read two ways :

1.Both “reasonable notice” and “payment in lieu” are subject to the condition that this payment “meets the requirements of the applicable employment or labour standards legislation.” 

OR

2. “Reasonable notice” stands alone and only the ” payment in lieu ” is required to”meets the requirements of the applicable employment or labour standards legislation.” 

The caselaw says that where there is a ambiguity, the interpertation that favours the employee wins.  So unless the second interpretation is simply ridiculous, this alone should create a sufficient ambiguity that requires the clause to be read in a way most favourable to the employee, which in this case means reasonable notice.

The fact that the clause also refers to the employee giving up “any right to claim reasonable notice under common law”  simply adds more  fuel to the ambiguity argument rather than clarifying the parties intentions.

The net result is that a 40 year old Technical Service Rep making over $100,000 who had 11 years of service got only 4 weeks termination pay, all in accordance with the New Brunswick Employment Standards Act, set out below:

The judge found that had the contract not been enforceable, he would have awarded 12 months notice .

In Gaucher v Manitoba Public Insurance ( 2020 MBQB 84) Justice Perlmutter had a situation involving a 18 year manager with colitis who asked her subordinate ( and good friend) to buy her cannabis edibles at the same time he was ordering some for himself. She did this because she was scared to order it herself. At that time cannabis were illegal unless she had a medical certificate, which she did not . The stupid subordinate delivered the dope to the manager while the manager was at a meeting with other managers.

They caught her. They fired her .

When she asked the Court to consider mitigating factors, the Court said:

1) The conduct was both criminal and contrary to the defendants policies.
2) As a manager she was responsible for managing the behaviour of her staff but instead she used her staff to commit the criminal act.
3) She had her staff do the buying because she knew it was illegal.
4) She did not come forth and admit her actions even when she knew they were questioning her stupid subordinate .

The termination for just cause was upheld.

Lessons Learned: Buy your own dope.