Barry Fisher's Employment Law Blog

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.

In Oudin v Le Centre Francophone de Toronto, 2015 ONSC 6494 ( Can LII) , Justice Sean Dunphy of the Ontario Supreme Court was faced with a contract that limited the the employees’ rights on termination to the minimum requirements of the Employment Standards Act        ( ESA) . The plaintiff attacked the clause on various grounds claiming that parts of the clause were void as they contradicted the ESA and that other parts were ambiguous.

The termination provision contained the following clause ( as translated from French in the judgement ):

12. Waiver and Severability
12.2 If any of the provisions of the present agreement is invalid or unable to be performed by virtue of any law, regulation, order or any other requirement or other principle of law, this modality shall in such case be considered to be modified or nullified, but only to the extent necessary to comply with the statute, regulation, order, legal requirement or principle and the other dispositions of the present agreement shall remain in force.

Dunphy J. used this clause to in essence fix up the void provisions of the termination clause and rewrite them so as to be in compliance with the minimum provisions of the ESA. Here is his reasoning:

39] The plaintiff relies upon the decision of the Supreme Court of Canada in Machtinger (supra). In Machtinger (supra), whether through deliberate action or accidental slip, it was common ground that provisions of the contract had the effect of providing a lower standard than that prescribed by the ESA. The issue in Machtinger (supra) was whether the court could have regard to the admittedly invalid termination provisions of the employment contract in determining what level of reasonable notice should be implied in construing the contract. Iacobucci J. delivered the judgment of the majority and held that if the clause is void for one purpose, it cannot be looked at for another where there was no evidence as to what the intention of the parties would be in the event the clause was found to be void.

[40] That is simply not the case here. The parties have explicitly spelled out what they intend to do in the event any part of the contract is found to be unenforceable. In s. 12(2) the parties have provided that “[i]f any of the provisions of the present agreement is invalid or unable to be performed by virtue of any law, regulation…this modality shall in such case be considered to be modified or nullified, but only to the extent necessary to comply with the statute, regulation, order, legal requirement or principle and the other dispositions of the present agreement shall remain in force” [translation].

[41] Section 4 contains a precise list of reasons (“motifs”) for which immediate termination of the employment relationship without notice is authorized. Among the reasons listed was “continuing incapacity considered permanent”. That particular reason for immediate termination is invalid. The excision of the offending reason from the list does no violence to the integrity of the remainder of s. 4 which contains a list of other unrelated grounds for termination. It is significant that s 12(2) does not direct the court to do anything as clumsy as deleting the entire section or clause of the employment agreement. Rather, it directs that the “modality” be modified or nullified to the extent necessary.

[42] I conclude that section 12(2) directs that section 4 must be modified to remove the reference to permanent disability from the list of reasons (“motifs”) in s. 4. Removing that reason alone is the minimum extent necessary to give effect to s. 5(1) of the ESA and can be simply and logically done while introducing neither ambiguity nor uncertainty in the remainder of the clause as so modified. That is precisely what s. 12(2) directs be done in plain and simple language. There is no reason to disregard the express direction of the parties as contained in s. 12(2).

As read this judgement, as long as an employment contract contained this savings clause, the remaining parts of the contract could violate as many statutory provisions as they want because the Court would simply rewrite the contract so as to bring it into compliance with the offended statute.

Imagine  a contract that had the above mentioned savings clause but also contained the following provisions :

1. This is a “at will ” contract and therefore the Employer can terminate this contract without any notice or pay in lieu of notice.

2. Overtime will be paid only after 75 hours per week.

3. No parental leave is allowed.

4. The Employer has the right at any time to require you to undergo a lie detector test .

5. If you become disabled for more than 5 days, you agree to immediately resign your employment.

Applying the reasoning of this case, the employment contract would be completely rewritten by the Court as follows:

1. Your only entitlement upon termination is as set out in the ESA. You are not entitled to reasonable notice.

2. Overtime will be paid after 44 hours.

3. Parental leave under the ESA is permitted.

4. The Employer cannot ask you to take a lie detector test.

5. If you are disabled for 5 days, we will not demand that you resign.

Needless to say that would be absurd, but apparently quite lawful, according to the logic of this case.

This decision fails to take into account the realities of the workplace. It assumes that employees are so highly educated in employment law  that they would know exactly which provisions of the contract breach the Employment Standards Act, 2000 ( and its many regs) the Labour Relations Act, the Occupational Health and Safety Act, the Workplace Safety and Insurance Act, the Human Rights Code, the Pay Equity Act, the Accessibility for Ontarians  with Disabilities Act, 2005. Moreover the employee would have to have a good understanding of Canadian constitutional law as well because he or she would first have to determine if their potential employer was covered by provincial or federal employment law . If covered by federal law, the above list of provincial statutes would be largely substituted by their federal counterparts.

Dunphy J addressed the point of the sophistication of the plaintiff in the following paragraph:

[47] Once again, the plaintiff cites Machtinger (supra) in support of this argument. The plaintiff contends that only the clearest of waivers of the reasonable notice standard will suffice since absent such a bright line, employers may be tempted to attempt to cheat employees of their minimum ESA entitlements. Indeed, In Machtinger (supra), Iacobucci J. noted that many employees might not be aware that there is such a thing as minimum required notice and employment contracts may often involve a disparity in bargaining power. Such considerations are not in fact present here. The plaintiff is a well-educated individual. Far from reflecting a disparity of bargaining power, the employment agreement in this case represented a significant opportunity for the plaintiff to earn additional income based on a higher guaranteed base salary and a higher commission rate.

This was a motion for summary judgement. There is no mention at all in the judgement as to what education the plaintiff had . All we know is that he was a 68 year old Project Manager for a company that produced a ” glossy magazine ” ( para 8 of the judgement) .

Let us  assume that he finished high school , maybe even had a college degree in something. How does that make him so well educated that he is deemed to have knowledge of the entire ambit of Canadian employment law so that he would be able to ascertain which parts of his contract are valid, which are void and for those void provisions, what exactly are the new substituted provisions?

Employers write contracts because they don’t like the implied term of reasonable notice. I get it. Why however, should Courts allow employers to use convoluted language like in this case to spell out what they will pay upon termination? Why not simply require employers who want to limit their termination obligations to spell it out in clear terms without reference to complicated statutes that many lawyers do not fully understand ?

The Supreme Court of  Canada has now brought to the common law of  contracts, including employment contracts, the doctrine of honest dealing. Surely an important component of that duty is to draft termination provisions that are easy to read and comprehend for the average employee.

Employment contracts are not like agreements between large entities, each with a battery of lawyers to draft and review their agreements . They are much more like consumer contracts where fairness and clarity rule the day.

I am advised that this case is under appeal. I am hopeful that the Ontario Court of Appeal uses this case to give some enlightenment to this contentious and  difficult area of employment law.

 

In Michela v St Thomas Villanova Catholic School       ( 2015 ONCA 801) the Ontario Court of Appeal held that “An employer’s financial circumstances may well be the reason for terminating a contract of employment – the event that gives rise to the employee’s right to reasonable notice. But an employer’s financial circumstances are not relevant to the determination of reasonable notice in a particular case: they justify neither a reduction in the notice period in bad times nor an increase when times are good.”

This case decisively ends the debate over the last 20 years as to the proper meaning to be drawn from a previous  case entitled Bohemier v Storwal International ( 1982 ) 40 O.R. (2d) 264 ( H.C.) . Here is what the Court said about that issue.

“[18] The confusion in this area stems from Bohemier v. Storwal International Inc. (1982), 40 O.R. (2d) 264 (H.C.), cited by the motion judge, at para. 91, to support the proposition that “[u]ncertainty, especially where an employee knows that there are financial concerns, can be a factor in reducing the length of notice that might otherwise be reasonable…” The motion judge quoted the following passage found at p. 268 of Bohemier:

An employee may be dismissed either on reasonable notice or by payment in lieu of notice. The latter alternative is almost invariably selected because, for obvious reasons, it is not helpful to a business to continue to employ a person who has received notice of dismissal. Payment in lieu of notice involves a cost to the employer for which there is no corresponding production or benefit. In my view, there is a need to preserve the ability of an employer to function in an unfavourable economic climate. He must, if he finds it necessary, be able to reduce his work force at a reasonable cost.

[19] However, the key sentence in Bohemier – not quoted by the motion judge – follows on from the passage quoted above, at p. 268:

It seems to me that when employment is unavailable due to general economic conditions, there has to be some limit on the period of notice to be given to discharged employees even if they are unable to secure similar employment within the notice period. [Emphasis added.]

[20] Bohemier does not hold, and this court has never held, that an employer’s financial difficulties justify a reduction in the notice period. It does no more than to hold that difficulty in securing replacement employment should not have the effect of increasing the notice period unreasonably. That is what this court should be taken to have meant when, in its brief endorsement in Bohemier, it said that the lower court judge was right to “tak[e] into account economic factors when considering the case for each of the parties”: (1983), 44 O.R. (2d) 361, at p. 362, leave to appeal to SCC refused, [1984] S.C.C.A. No. 343.

[21] Nevertheless, it is clear that Bohemier has caused some confusion in wrongful dismissal litigation. Most recently, it was relied on in Gristey v. Emke Schaab Climatecare Inc., 2014 ONSC 1798, 2014 C.L.L.C. 210-028, in reducing an employee’s notice period by one-third as a result of the relatively poor state of the market and the financial health of the employer.

[22] It is important to emphasize, then, that an employer’s poor economic circumstances do not justify a reduction of the notice period to which an employee is otherwise entitled having regard to the Bardal factors. See Anderson v. Haakon Industries (Canada) Ltd. (1987), 48 D.L.R. (4th) 235 (B.C.C.A.), at pp. 238-41 (Lambert J.A.), pp. 243-44 (Wallace J.A.); Farquhar v. Butler Bros. Supplies Ltd. (1988), 23 B.C.L.R. (2d) 89 (C.A.), at pp. 92-93; and Sifton v. Wheaton Pontiac Buick GMC (Nanaimo) Ltd., 2010 BCCA 541, 12 B.C.L.R. (5th) 90, at paras. 34-35, 47-50.”

Practitioners of employment law will be pleased that an otherwise uncertain area of the law( determining reasonable notice )  is now a little more certain.

In Gordon v Altus Group ( 2015 ONSC 6642) the Defendant was ordered to pay $225,000 plus disbursements on a partial indemnity basis after a 7 day trial in which the plaintiff was awarded $268,000 in damages. No Rule 49 offer from either party was operative. The plaintiff claimed $500,000 for substantial indemnity costs, meaning that he  presumably  actually paid his lawyer that amount. If that is true, the winning plaintiff was awarded a total of  $493,000 and then paid it all to his lawyer.. Assuming that the defence lawyer also charged his employer client $500,000, the net economic result is that Altus paid ONE MILLION DOLLARS to lawyers and Mr Gordon got nothing. Altus is appealing the judgement so the legal costs will presumably keep rising.

The lesson to be learnt from this tragic episode is that there is no rational reason why a plaintiff should not a make a fair and reasonable Rule 49 offer as soon as possible so that the substantial indemnity damages keep rising as the litigation proceeds. This is especially where the defendant  has made no reasonable offers at all and does not intend to ever do so.

When I practiced employment law I would often make a Rule 49 offer at the same time as filing the Statement of Claim if I acted for the Plaintiff, or if I was acting for the Defendant, at the same time as I filed the Statement of Defence.

This practice would insure that, unlike poor Mr Gordon, if I won at trial both the client and I would be appropriately compensated.

Needless to say,  I never billed a client $500,000 for a 7 day trial.

In Hall v Quicksilver Resources ( 2015 CarswellBC 1763 the BC Court of Appeal  said that usual range for cases involving employees with short periods of employment of people in their 40’s who are ” skilled employees ” is 2 to 3 months. In this case the Plaintiff was a Facilities Manager , age 42 with 8 months service. His notice period was 3 months, not the 7 months the trial judge awarded, which the CA found to be outside the “usual range “.

 

In Carpenter v Brains II ( 2015 CarswellOnt 15542) the Employer went through a CCAA reorganization in which a new company bought some of the assets and employed some of the employees of the previous company. Even though under the ESA the new company was a successor to the old ( and thus she had 17 years service ) under the common law test in Sorel v Tomenson Saunders, [1987] 15 BCLR ( 2d) 38 (CA), the implied term of continuous service was offset by the facts in the case, so she only got credit for 6.5 years. Her notice period was 8 months.

Stinson J listed the following factors in deciding that the implied term of continuous service after a asset sale did not apply :

1) the insolvency of the former employer.

2) the application under the CCAA

3) the termination of her employment by the former employer

4) her hiring on a temporary basis by the CRO ( like a trustee in bankruptcy)

5) the termination of her employment by the CRO

6) the purchase of some but not all of the assets of the former employer by the new employer

7) the provisions of a contract with the new employer which purported to limit her termination entitlements to the ESA, even though the judge found that the clause was illegal as it did not provide for benefits upon termination.

8) Even though the plaintiff continued to perform her same functions despite the change of employer, it was obvious that it was not “business as usual”

My only concern with the judges’ reasoning is that, having found that the ESA only termination clause is unenforceable as it violated the ESA by not including benefits, he then resurrects the same clause for another purpose.

The leading case in this area is Machtinger v HOJ ( 1992 1 SCR 986) in which it clearly states a provision that tries to contract out of the ESA is ” null and void”. If something is” null and void “it is as it it did not exist . How then can something that legally does not exist still affect the legal relationship of the parties?

Unfortunately this is not the first  time that judges have taken into account the existence of an null and void provision and drawn from that document some meaning about the true intention of the parties. This is exactly what the SCC told us not to do in Machtinger. In that case the employer was trying to say that even though the contract was illegal, we could still use it as a guide to determine the true intent of the parties. The SCC soundly rejected that theory and said that the illegal clause could have no effect on ousting the implied term of reasonable notice or implying that the notice period should be a modest one.

‘

 

In Morin v Gulf Operations ( 2015 CarswellNB 433) the Plaintiff gave a urine sample to a nurse  as part of a random  drug test. When he handed the sample to the nurse she noticed it was cold so he was asked to retake the test, which he did and passed. The Company took the position that the plaintiff had attempted to alter the first test by adding a foreign substance to the sample and without asking his side, fired him. At trial, the Plaintiff testified that he had snow on his clothes, which may have fallen into the sample and lowered the temperate of his urine sample. Just cause was not upheld,  in part because of the failure of the employer to ask the Plaintiff his side of the story and because he had previously passed about 8 drug tests.

Although this was not mentioned in the judgement, if his second urine sample was clean, why would he try to falsify his first sample when he would have known that he had no illegal drugs in his system?

In Bahrami v AGS Flexitallic ( 2015 CarswellAlb 1554 ) a 46 year old VP Finance with only 8.5 months service got 6 months notice. Following the case of Bramble v Medis ( 214 NBR (2D) 111, the Court said:

” I do not see on what grounds I can take judicial notice of the difference made by a distinction between an executive-level employee and a non-executive senior manager in Alberta at the time of Mr Bahrami’s termination. ”

This case again refers to the lesser importance of character of employment in determining the notice period  and the wide range of possible notice periods for short service employees.