Tuesday, January 20, 2015

Contractual Interpretation: Bonus Formulas

There's an interesting new decision, Hillman v. Bedford Consulting Group Inc., dealing with an argument over an employee's bonus eligibility.

Mr. Hillman worked as an executive search consultant, and was hired in 2009 by Bedford as a senior level recruiter.  In 2012, his compensation structure was changed, to a commission structure, plus a bonus contingent on achieving certain thresholds.  Exactly what those thresholds entailed, and whether or not they were reached in 2013, was the central issue in the litigation.

Basically, if Hillman billed and collected a million dollars or more, then he was entitled to a bonus of 3% of his billings.  However, the employer argued that there was another condition - that he also needed to collect a minimum of 5% in 'admin fees' over and above the placement fees.

And there was a basis for it in the contract language, too, with language fairly clearly stating that the admin fees were a precondition for the bonus.  However, one of the paragraphs in the contract added some uncertainty:
A Partner must achieve a minimum of 5% admin fees. *We still need to discuss if the bonus is affected for underachieving on this minimum threshold.
That's a problem.  It very much suggests that underperforming the admin fee target isn't meant to disentitle the employee to his bonus (or, at least, not completely), but might be the subject of a subsequent agreement.  Justice Stinson applied the doctrine of contra proferentum, interpreting the resulting ambiguity against the party who drafted the contract - i.e. the employer.

Yet another reason why having a lawyer review your contracts is important.

Equitable Setoff

Perhaps the most interesting element of this case was the treatment of the employer's claim for equitable setoff.

When the employee resigned, he started his own competing business, and before departing he advised a client of his plans.  That client subsequently ended its relationship with the employer, and moved over to Mr. Hillman.  Accordingly, the employer made a counterclaim for the lost revenues - $43,200, on its calculation, and relied on the doctrine of equitable setoff.

This is important, because the decision itself is in the context of a motion for summary judgment by the plaintiff:  The plaintiff is seeking judgment on his claim, while the employer is not seeking judgment on its counterclaim, but is nonetheless claiming an entitlement to apply the amount of the counterclaim against any judgment the plaintiff may obtain.

After the employee left, the employer withheld a large sum in commissions owing - over $129,000 in undisputed commissions, according to the decision.  After litigation was commenced, the employer paid the commissions owing (not including the bonus), less $43,200.

Justice Stinson wasn't convinced that this scenario was appropriate for equitable setoff - in essence, that wages owing are appropriately connected to damages for alleged misappropriation of an opportunity.  However, it appears that his decision to deny the claim for equitable setoff arises more from his distaste for the way that the employer conducted itself:
Initially, the defendant refused to acknowledge or pay the undisputed amounts owed to the plaintiff, with the result that the plaintiff had to commence litigation. The defendant then forced the plaintiff to go to the further trouble and expense of bringing a motion for summary judgment. Only then, faced with the prospect that it had no real defence to the majority of the claim, did the defendant finally pay the undisputed amounts. In my view, such conduct should be discouraged and fully justifies the refusal of the discretionary remedy of equitable set-off. This situation would appear to fall squarely within the examples given by Palmer, above, in which equitable relief may properly be refused where funds have been wrongfully retained or not dispersed as agreed.
Therefore, the plaintiff essentially has a judgment for the full amount of his claim, and can enforce that claim, even though the employer may maintain an action against him seeking payment of $43,200.

What Should the Employer Have Done Differently?

At a glance, the equitable setoff decision reads a little oddly:  The employer felt it was entitled to claim against the employee, and unilaterally withheld money from the employee to offset the claim, and that was wrong, so we're not going to let the employer continue to withhold that money.  If there were a legitimate claim to equitable set-off in the first place, then surely the employer is entitled to withhold the amount of that claim in the first place.

But it seems that the judge is more concerned about the unjustified amount withheld.  Had the employer simply withheld the $43,200, then it is likely that the judge would have regarded the employer's conduct as more reasonable.

That being said, I suspect that Justice Stinson was also right that this wouldn't be an appropriate case for equitable set-off anyways - and indeed that application of the doctrine is precluded by statute.  The unpaid commissions are likely 'wages' within the meaning of the Employment Standards Act, and there are very limited scenarios in which employers can withhold amounts from wages.  The "pay the wages, and then pursue your own remedies separately" approach is very often the legally mandatory approach for employers who feel they are owed money by departing employees.

*****

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Tuesday, January 13, 2015

Three Year Employee Awarded $345k in Lieu of Notice

Every so often one comes across a case where the sheer numbers make you do a double-take.  The recent case of Rodgers v. CEVA is one such case.

Prior to starting with CEVA, Rodgers had been president of Sameday Worldwide, where he had worked for over a decade.  An acquaintance of his who worked for CEVA approached him about potentially joining them to run their Canadian operations, and after seven interviews, including two in Texas, CEVA made an offer of employment.  He didn't accept the first one, but when they revised the offer, he did accept, starting in September 2009.

His annual salary was $276,000, plus a signing bonus, plus other benefits.  As well, as a condition of his employment he was required to make a substantial investment ($102,000) in CEVA Investments (senior managers were expected to have "skin in the game"), and sign a shareholder's agreement that came together with non-competition and non-solicitation obligations.

He was dismissed in June 2012, on a not-for-cause basis.

After his dismissal, he inquired about the status of his investment in the company, and was basically told to go away:  "The investment remains in the care of the company.  There is not currently a process that would enable you to exit the plan by selling your CEVA Investments Limited stock."

He later received a mass shareholder mailing indicating essentially that his stock in CEVA Investments was worth nothing.

Rodgers sued in wrongful dismissal.  The decision on the merits was made in November, and the costs award was released last week.

The Decision

Rodgers took the position that he had been 'induced' away from his previous employer, and therefore was entitled to a longer notice period.  The Court was satisfied that there was 'some' inducement, but not at the level of some of the other case law on the point.

He was 55 years old, and in a position of very significant responsibility, but also not a long-service employee.

As well, there's a morally persuasive question of what to do about the investment.  It's not necessarily the case that there's a legal remedy for the loss of an investment - that's the risk you take when you buy stock.  But the Court regarded the investment as indicative of the expectation of the parties that this would be a longer-term relationship - presumably, if he's investing six digits into the company, there's an expectation that he's not going to be summarily dismissed on minimal notice.

On the basis of the factors, the Court awarded 14 months' pay in lieu of notice.  After mitigation, this was over $345,000.

Commentary

Overall, while the numbers are a little surprising at a glance, there's little to criticize about the decision.

Inducement - the notion that an employer might be on the hook for representations made to draw the employee away from other secure employment - is always a little bit tricky.  As the late Justice Echlin once put it:
Recruitment is akin to "the dating game".  Employers and employees both preen themselves, put on their best faces, sometimes overstate themselves, and try to look attractive to the other.
If employees were not interested in moving, they would not even give the recruiter the time of day.
Typically, the courts are looking primarily for representations of job security.  If I already have a secure job, and I jump ship because you're offering more money, then that may not be regarded as inducement.  However, if I'm reticent to give up a sure thing for a company I don't really know, and you convince me that the new job is just as sure...then that's another matter.

On the facts of this case, the finding of some inducement seems fair.  It was the employer who initiated discussions; the employer facilitated multiple interviews; and the employee declined the first offer by the employer, being satisfied with his current secure position.  But it's also fair to temper the impact of the inducement, because there don't appear to have been any express representations about job security.

What's particularly novel here is the Court's dealing with the investment.  There's an overarching feel here that Rodgers got a bit of a raw deal.  He's hired away from a secure job, he's asked to put up over $100,000 as an investment, and then he's fired less than three years later...and can't even redeem his investment.  On the 'traditional' Bardal factors, you'd probably be looking at a notice period in the single-digit months, which after tax may not even cover the lost investment.

But yes, it's highly unusual for an employer to ask for a sizeable up-front investment, and I agree with the Court's decision to treat it as indicative of an expectation that the relationship would be long-term.  Which both stands as a relevant factor on its own, and also dovetails somewhat with the concept of inducement.  On all the facts, it seems that the parties anticipated a long-term relationship.

Avoiding Such a Mess

It may be that both parties are at fault for ending up having to litigate this.  The reality is that you don't often see wrongful dismissal litigation on this scale, because employers looking to hire senior employees like Rodgers are *usually* going to have the forethought to hire a lawyer to draft the contract, who will clarify expectations as to the end of the relationship.

It's not so unusual, however, for US-based employers to fail to do so.  US law is very different.  If they use the same contractual frameworks for their Canada-based employees as they do for their American ones, then they're indeed likely to run into problems that way.

Likewise, I would never recommend that an employee entering into an employment relationship rely on concepts of 'inducement'.  They're often factually and legally messy, turning on things like 'off-the-record' conversations, etc.  One of my rules of thumb of contract negotiation:  If you want me to rely on a representation, put it in the contract.  (Likewise, when I ask for a change to language and get the response, "Well, I thought that was implied", then my response is always "Then you shouldn't mind making it express.")

There are ways of papering job security.  No employer will ever guarantee a job for life (well, no rational employer will), but termination clauses can be built in such a way as to compensate the employee in the event of early termination.  If I'm getting induced away from secure employment, and I'm worried that the new job might not be as secure as it looks, I'm going to ask for a substantial sum of money on termination, even in the early stages of the contract.

And it isn't just about compensation for me, either - it's about incentives for the employer.  Let's suppose you hire me on, and I negotiate a base golden parachute of 12 months' salary.  Six months down the road, for some reason you think about dismissing me.  Maybe the 'fit' isn't quite right.  Maybe there's been a downturn in the company's business.  Maybe the president's son finished school, and wants you to hire him into my role.  If you decide to fire me, then I'm okay - I get 12 months' wages for my soft landing.  But, more to the point, it's far less likely that you'll decide to fire me, knowing what it will cost you, unless it's absolutely necessary.

An employer may not be prepared to agree to the terms you want for the desired level of job security.  But if they aren't, then that's fine, when you already have secure employment.  "Fine, you aren't prepared to give me what I need?  No problem, I'll stay where I am."  The power to walk away is a very strong negotiating tool...but to properly utilize it, that sometimes means actually walking away.

As well, while there is indeed something to be said for an employee having "skin in the game", I for one would be pretty uneasy about having to pay up front for the privilege.  It isn't uncommon for a senior employee to receive compensation by way of stock and/or stock options, to accomplish exactly that goal.  But the reality is that, by the nature of the employment relationship, employees *always* have skin in the game.  When you have to put in a hefty investment of your own money, you're failing to diversify your own interests.  (The folks I know who get the employer's stock unload it as quickly as they can:  If the business *does* go south, then you might be out of a job *and* your shares will be worthless.)

Ultimately, there are two points that I cannot emphasize enough:

(1) Employers should routinely obtain legal advice on their employment contracts; and
(2) Employees should *always* get legal advice before signing an employment contract.

*****

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Tuesday, January 6, 2015

Pilling v. Lowerys Limited - Motion to Correct

Back in September, I made an entry about the costs decision in Pilling v. Lowerys.  Plaintiff's counsel, Sean Bawden, kindly provided the link to the decision on the merits.  (Incidentally, congratulations to Sean for winning a 2014 Clawbie for Best Employment Law Blog for his Labour Pains blog.)  In the comments, I expressed some surprise about the decision on mitigation...

Background - The Decision on the Merits

You see, the Deputy Judge, when summarizing the facts, indicated that the plaintiff had confirmed having received consulting income of $7,458.17 from the date he was dismissed from employment (in August 2013) to December 2013.  Presumably, the plaintiff was seeking pay in lieu of notice for roughly that period, which would have the effect that the $7,458.17 sum would be backed out of his entitlements as 'mitigation earnings'.

However, the Deputy Judge did not award four months' pay in lieu of notice, rather making a surprisingly low award of two months.  From which the Deputy Judge proceeded to deduct the entire $7,458.17 sum (i.e. the earnings over the 4 or 5 month period) as mitigation earnings.

The only way for that result to be in line with the legal entitlements of the parties would be if the entire sum was earned during the first two months after his dismissal.  This, on its face, is highly improbable.  (In fact, based on evidence led in the subsequent motion, it appears that the sum earned through the two month period was $4,378.25.)

Nonetheless, in the absence of a breakdown as to when the sums were earned, I would have understood had the Deputy Judge simply pro-rated the mitigation reduction.  It would be imprecise, but the Small Claims Court permits some 'rough justice'.

However, applying four-five months of mitigation earnings to two months of pay in lieu of notice?  That simply seemed to get it wrong.

The New Development - A Motion to Correct

The Plaintiff brought a motion to correct the decision.  Such a motion, under the Rules, can be brought under only two circumstances:  Firstly, that there was a "purely arithmetical error in the determination of the amount of damages awarded"; or secondly, that there "is relevant evidence that was not available to the party at the time of the original trial and could not reasonably have been expected to be available at that time."

The second criterion clearly wasn't met, so the plaintiff had to try to characterize the mistake as a "purely arithmetical error".

The judge rejected the argument, stating that "[c]ounsel necessarily need to anticipate the broad range of possible outcomes and introduce evidence accordingly during the course of the trial" - basically, that it was the plaintiff's (or his counsel's) fault that the evidence of two months' mitigation earnings wasn't on the record at the trial, and not the judge's mistake for calculating mitigation based on what was on the record.

Commentary

I might think that the Deputy Judge has a point about the necessity of counsel anticipating the range of outcomes and leading the appropriate evidence, but not in this case, for three reasons:

(1)  The Burden of Proof

It's well-established law that the burden to establish mitigation (or failure to make reasonable efforts to mitigate) is upon the defendant.  What exactly this proposition means has been the subject of some debate, as I discussed last June, but the proposition itself is not in question.

In other words, the failure to call evidence as to the mitigation earnings through the notice period actually granted...is the defendant's failure.  (In practice, the defendant should have asked about it on cross-examination.)

In the absence of any evidence as to what mitigation earnings were made during the two-month notice period, the principled answer would appear to be that the defendant has failed to meet its burden, and therefore there should be no deduction for mitigation earnings.

(2)  The Obviousness of the Problem

On a cursory review of the decision, the problem jumped out at me.  The Deputy Judge's result was clearly not supported on the evidence he described. Yes, the evidence on the record was incomplete, but that puts the Deputy Judge in a position of having to recognize and resolve the incompleteness, providing some rational basis for why he resolved it in a particular way:  Something to the effect of "No evidence was led as to what mitigation earnings were made specifically during the two month period following dismissal, and therefore..."  There are three logical possibilities:  Deduct the whole amount, deduct zero, or deduct somewhere in the middle.  As I've said, the third option - infer as fact that the earnings were distributed over the August-December period, and deduct an amount accordingly - would probably have been acceptable rough justice in a Small Claims Court setting.  If he wasn't prepared to make such an inference, then - again, as I've said - it seems to me that the principled response would have been the second one.

However, while I could perhaps understand selecting the first option (an error though I think it would be), the Deputy Judge seemed to be actually oblivious to the fact that there *was* an omission in the evidentiary record.

While I think the plaintiff's efforts to characterize the error as being 'arithmetical' were a stretch, this, if anywhere, is where that proposition finds a bit of support.  Simply, he applied 4-5 months of mitigation earnings against 2 months of pay in lieu of notice, and appeared not to have been aware that the equation didn't balance.

(3)  The Nature of the Small Claims Court

Yes, it is a part of any lawyer's job to anticipate the range of possible outcomes, and prepare accordingly.  However, this would not likely have happened in the Superior Court, because the evidentiary record is, by design, much more full.  The actual paper trail supporting mitigation earnings would probably have been entered into evidence, meaning that the calculation of mitigation earnings would have been simply an arithmetic extrapolation from the evidence.

It is in this way - through a rigourous review of the material evidence - that lawyers prepare for such a range of outcomes at the Superior Court.  Could we do the same at the Small Claims Court?

Well, yes, but it would kind of defeat the point of having a Small Claims Court, if the expectation of production of evidence remained at the same high level as in the Superior Court.

Caveat

While the plaintiff's 'arithmetical error' argument was not totally groundless, it was tenuous, and I have to comment that the Deputy Judge probably got one thing right:
If I have erred in principle, that is a matter for an appellate court to determine. I lack jurisdiction to sit on an appeal from my own decision.
It does indeed seem to me that it's easier to characterize the trial judge's failure to account for the timeframe of the mitigation evidence as an error in principle, and he's likely correct that this means that he can't simply reverse it.  Sadly, that means an expensive Divisional Court appeal for a low-dollar-value issue, if the plaintiff chooses to pursue it.  It's not really where the 'justice' of the case lies, in my respectful opinion.

*****

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Tuesday, December 16, 2014

Wrongful Dismissal Awards - During the Notice Period

Wrongful dismissal 101:  In general, a dismissed employee is entitled to 'notice' of dismissal, and entitled to be put into the position he or she would have occupied had actual notice been given.  In practice, this means pay in lieu of notice, among other things, but is subject to a duty to mitigate - i.e. an obligation upon the dismissed employee to take reasonable steps to obtain replacement employment, which income reduces his/her entitlement to damages.

Here's the trick:  The entitlement to damages accrues upon breach of contract - i.e. upon termination without adequate notice - whereas mitigation occurs in real time.  For longer notice periods, this sometimes has the result that a matter can be adjudicated before the full notice period has run its course:  Suppose I'm entitled to two years' pay in lieu of notice, and I get to a summary judgment motion 12 months into the notice period.  How can I be awarded two years' pay in lieu of notice, when I still have an obligation to mitigate for another 12 months, which could have a substantial impact on my entitlements?

The truth is that this phenomenon is not particularly unique to employment law:  In the field of personal injury litigation, a plaintiff will often seek damages based on a perpetual limitation on earning capacity.  My understanding - though I could stand to be corrected by a PI lawyer - is that this is often resolved by an arbitrary 'discount' to account for the possibility that the plaintiff will earn more than expected at the time of trial.

I've seen that argued in wrongful dismissal contexts.  I've never seen it succeed in Ontario, but that's at least partly because there often isn't a great deal of time left in notice periods at the time of adjudication.  If there are just a couple of months left, a discount seems relatively unnecessary.

This issue arose in the recent case of Donath v. Hughes Containers Ltd..  Ms. Donath was dismissed after 14 years of service as a payroll administrator, at age 64.  The matter was brought to trial 10 months after the dismissal, and she was awarded 12 months' pay in lieu of notice.  (She sought substantially more, and it does seem to me that 12 months is a little on the low-end, given the Bardal factors here.)

So Justice Pollok turned to the question of how to address the not-yet-elapsed portion of the notice period.

The employer argued that an award of pay in lieu of notice was premature, and that the issue of damages should be adjourned and brought back on after the end of the notice period.  After all, she's obligated to mitigate her losses, and awarding the full amount now would effectively relieve her from that obligation.

The plaintiff, by contrast, argued that it was open to the court to find as fact that she would not obtain replacement employment in the remaining two months of the notice period.

Justice Pollak rejected both arguments.  The prospects of re-employment were low, but the evidence didn't establish that re-employment was "not possible", and therefore the employee's pitch couldn't succeed on the evidence.  (Justice Pollak seemed a bit critical of the plaintiff moving so quickly to trial, knowing that she was seeking substantially more notice.)  However, the defendant's argument was regarded as being improper - the trial was complete, and it simply wasn't available to adjourn the issue to a later date.

Instead, Justice Pollak elected to do something similar to Bernier v. Nygard:  In that case, the court awarded the full amount, but impressed the award of damages with a trust - in essence, if the plaintiff earned mitigation earnings, they would be held in trust for the defendant.  In this case, Justice Pollak imposed a continuing obligation to account for mitigation earnings, by ordering judgment be paid at the end of the notice period, less any mitigation earnings.  (Actually, the wording of the endorsement kind of suggests that Justice Pollak may be imposing an ongoing duty to take reasonable steps to mitigate...which is not necessarily an unreasonable order, but has significant practical difficulties.)

Commentary

I like the result in Bernier v. Nygard.  In the right case, 'impressing the award with a trust' is the right solution, and Bernier was the right case for it.  Donath...probably not so much.  Asking the plaintiff to establish that re-employment during the reasonable notice period is 'impossible' is too high a standard - if the prospects of imminent re-employment are low, and we're down to the last two months of the notice period, then find as fact, on a balance of probabilities, that the plaintiff won't obtain replacement employment.

If we're talking about another 6-12 months, that's more difficult to do, and going down the road from Bernier - in the appropriate circumstance - can make more sense.  It's a compromise solution - effectively relieving the employee of the obligation to seek new employment, while holding the employee to the obligation to account for mitigation earnings.  Even then, it's imprecise, though, because 'mitigation earnings' aren't necessarily something you can nail down simply.

But what highlights that Justice Pollak appears to have been coming at this issue from the wrong angle is the treatment of interest:  It started to accrue only at the end of the notice period.  This is consistent with her treatment of the employer's obligations as only vesting after mitigation efforts are unsuccessful...

...and is straightforwardly incorrect on the law.  Interest can be a tricky issue.  It's often argued to start accruing at the date of breach, or sometimes halfway through the reasonable notice period.  But there's simply no basis for starting it accruing at the end of the reasonable notice period.

It's a minor issue, but it couples with her chastising the plaintiff for bringing the matter to trial so quickly, to really highlight the onus she's placing on the plaintiff to prove damages, as including proving that mitigation was or would be unsuccessful.

It dovetails in some ways with the error that I argued marred Justice Wilton-Siegel's decision in Garcia v. 1162540:  The Supreme Court jurisprudence is quite clear that wrongful dismissal damages flow from the breach of contract itself - that is, the employer's failure to continue employing (and paying) the employee through the notice period - and mitigation is a separate and subsequent analysis, with a different burden of proof.

*****

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Monday, December 15, 2014

Punching a Co-Worker Does Not Necessarily Constitute Just Cause

As I've often said, 'just cause' for dismissal - that is, firing somebody for misconduct, such that they are not entitled to any notice or pay in lieu - is a high threshold, and always depends on the facts.

There's a recent case, Phanlouvong v. Northfield Metal Products (1994) Ltd., which serves as a pretty good cautionary tale for employers:  Mr. Phanlouvong ("Keg") was dismissed following a physical altercation between himself and a co-worker, in which the judge concluded Keg was the aggressor, which culminated in Keg punching the co-worker in the face breaking his glasses...and Justice Broad concluded that just cause was nonetheless not established.

Facts

Keg was an immigrant from Laos, who worked as a labourer for Northfield for 16 years.  In the last few years, he had some personal conflict with another worker at his station, Bailey.  Keg claimed that there was some racial animus to the conflict - he alleged that Bailey had once called him a "Chink or Korean", to which Keg replied "no I am Laos".  (Isn't that right out of King of the Hill?)  Another witness alleged that Bailey had once referred to Keg as "f*ing Chinese".

In October 2010, Bailey's elbow came into contact with Keg.  There was some dispute as to whether it was intentional or accidental contact - a 'brush' or a 'jab'.  The judge accepted that it was inadvertent.  When challenged on it, Bailey refused to acknowledge the contact or apologize for it, and the matter quickly escalated with pushing, and then Keg punching Bailey in the nose.

Bailey reported to the first aid station, and per employer policy was sent to Grand River Hospital to be examined.  In the mean time, management began to investigate, but they were pretty sure from early on what the result would be:  It appears that, in all previous incidents involving physical assault, they had terminated the offending employee.  So the Plant Manager's instruction to HR was pretty clear, that if it was confirmed that Keg had, in fact, punched Bailey in the face, he would be fired.

The HR Manager interviewed the witnesses, and then Bailey when he returned from the hospital.  The judge noted in his reasons that the HR Manager determined Bailey's penalty - a one week unpaid suspension - before getting Keg's side of the story.  He then interviewed Keg, who claimed to be acting in self-defence.  Afterwards, the HR Manager presented a termination notice indicated that he had 'discussed his findings' with the management team (even though he actually hadn't met with other members of management since conducting the interviews), and "agreed to terminate your employment as a result of your actions today."

Keg sued the employer in wrongful dismissal, claiming pay in lieu of notice aggravated damages, punitive damages, and a declaration that his Code rights had been violated.  He also sued Bailey personally, alleging assault, battery, and intentional infliction of mental distress.

The Decision

As noted above, the Court rejected Keg's contention that he had been intentionally elbowed or was defending himself.  The earlier contact was unintentional, and it was Keg who picked the fight.

However, Justice Broad is concerned that the employer never really canvassed the availability of lesser penalties than termination, concluding from minute one that, if Keg had in fact assaulted Bailey, he would be fired.

The employer argued that Keg's conduct was aggravated by its breach of the Occupational Health and Safety Act, the fact that he failed to take responsibility for his actions, and the fact that his first lawyer (not his trial lawyer) had allegedly prepared false affidavits for witnesses to bolster his story.

On the first aggravating factor (OHS), the Court concluded that this not eliminate the need for a contextual analysis.  The Court accepted that the second factor was relevant, but not necessarily determinative in this case.  And the third factor is rather unusual, and the judge wasn't persuaded that such an issue was appropriate for consideration as after-acquired just cause.

On the flip side, Keg had a long period of unblemished employment, with no prior discipline at all in his 16 years of service.

"In utilizing a contextual approach, and in applying the principle of proportionality, I find that Northfield has not discharged the onus on it to prove, on a balance of probabilities, there were no other reasonable alternatives to termination of Mr. Phanlouvong's employment without notice, and accordingly I find that Mr. Phanlouvong was wrongfully dismissed."

Keg was awarded pay in lieu of 15 months' notice, less mitigation earnings.  However, the other allegations and claims were not made out.

Commentary

It's always fun to sensationalize a story by pointing to the worst facts, in isolation, and say "Look, this guy punched his co-worker in the nose, and still couldn't be fired without a package."  But Justice Broad is absolutely right about at least one thing:  Breach of the workplace violence provisions of the OHSA, while probably an important factor, is not determinative, and still calls for a full contextual analysis.

What's most interesting about this decision is the overall sense that the judge is coming at it from a procedural point of view - it's less about whether or not there was an alternative to dismissal under the circumstances, and more about whether or not the employer had adequately considered the possibility.

Despite the increasing case law suggesting an employer's duty to investigate, it strikes me that it would probably still be an incorrect statement of the law to call it a procedural question:  Regardless of whether or not the employer properly investigated, and properly considered all their options, the question for the court is always going to be, simply (or perhaps not so simply), whether or not the employee's actions, in the circumstances, amounted to just cause for dismissal.

However, I don't think Justice Broad got this wrong, nonetheless:  It's an issue of onus, and the subtext of the decision seems to be that, having failed to seriously consider its other options, the employer can't satisfy its onus that termination was the appropriate response.

This is the trend throughout the 'duty to investigate' cases:  The extent of the obligation to investigate aside, the failure to investigate will create a practical bar to satisfying an employer's onus to prove just cause.  Remember Ludchen v. Stelcrete?  "Having failed to thoroughly investigate this matter at the time, Stelcrete now has great difficulty assembling the evidence to prove the alleged misconduct on which it acted more than five years ago."

Lessons to Take Away

The courts are sending a clear message to employers:  When you're faced with allegations of misconduct, and even of very severe misconduct, conduct a proper investigation with an open mind.  Obtain appropriate expert assistance to do so, if necessary.  Because if you have to go to court on a just cause issue - a very expensive proposition, especially if you lose - having covered off your bases at the start is going to be pretty much essential.

Quite frankly, if the employer had been able to come to court saying "We seriously considered whether or not we could continue the employment relationship in light of Mr. Phanlouvong's misconduct, and determined that, given the nature of the incident and the injuries sustained by Mr. Bailey, returning him to the workplace in any capacity would not have been consistent with our obligations under the Occupational Health and Safety Act", then this could have ended very differently.

As for what employees should take away from this case, that's less significant:  This case certainly does not stand for a proposition that first offenders get "one free punch", or anything of the like.  It's a contextual analysis.

However, this case highlights the importance of getting good legal advice after a 'for cause' termination, even if you did what you're accused of doing.  Because just cause is a two-part question:  Firstly, are you guilty of the conduct alleged to constitute just cause?  Secondly, is the misconduct sufficiently serious, in all the circumstances, to warrant summary dismissal?  And, obviously, that second question is never quite as open-and-shut as many employers would like it to be.

*****

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Friday, December 12, 2014

Superior Court Rules that Kumon Franchisee was Entitled to Reasonable Notice

Kumon is a well-established franchise offering after-school math and reading programs.  To my understanding, it has a very successful system for leading its students to excel in advanced content.  And the franchises are all over the place, including two within Newmarket.

But there's a very interesting new case, making new law, dealing with the termination of a Kumon franchise.  The facts are quite unique, as the franchisee (Ms. France) had been operating since before Kumon started using written franchise agreements, and refused to sign the various franchise agreements put to her by the franchisor.  So we're left with the scenario of an oral contract governing a franchise agreement, which is quite exceptional in this day and age.

One of the primary issues for Kumon is that France was resisting shifts to their business model - they've been trying to present a more professional image to the world, including establishing permanent and visible presence in appropriate commercial space, as distinct from - to use France's business as an example - just renting a church basement two nights per week.

With France refusing to sign written franchise agreements, Kumon eventually decided to end the relationship, and provided her with 12 months of notice.  Ms. France sued, taking the position that the contract was 'perpetual' and could not be terminated by the franchisor.  Kumon argued that there was an implied term permitting termination on reasonable notice, and that 12 months was reasonable.

The Decisions

The Court accepted Kumon's argument that a franchise agreement could be terminated on reasonable notice, but found that 12 months wasn't enough, and sought subsequent submissions on the reasonable notice period, rendering a decision on that issue yesterday.

There are some interesting parallels drawn between the franchise relationship and employment relationships, both in finding that Kumon was entitled to terminate the relationship on reasonable notice, and in the assessment of the reasonable notice period, including that franchise agreements are like employment agreements because they "include an element of mutual trust and an element of unequal bargaining power."

And in a context like a Kumon franchise, where many such businesses are run by single operators with minimal employees, it does indeed bear a significant resemblance to an employment relationship, or at least to a dependent contractor relationship.  On the other hand, if you look at a franchisee running, for example, a half dozen Swiss Chalet restaurants, it might be a little bit harder to see the resemblance.

Justice Goldstein assessed the reasonable notice period at 18 months, awarding Ms. France an additional six months' worth of income - quite a modest amount, really.

The judge made new law here, creating a 'test' for the reasonable notice period for terminating franchise agreements, including a non-exhaustive list of factors as follows:

  1. The length of the relationship;
  2. Whether or not there is a history of bad faith or oppressive conduct by the franchisor;
  3. Whether or not the franchisee has a history of poor performance;
  4. Whether the terminating party acted in good faith throughout the relationship; and
  5. Whether there have been violations of the Arthur Wishart Act.

When applying the factors (Ms. France was a 20-year franchisee, with a good history of performing her obligations, and Kumon had met its obligations of good faith to her), Justice Goldstein went on to apply a 'discount' recognizing that "Ms. France was not an employee, but an independent contractor".

Commentary

Suffice it to say that the test Justice Goldstein has laid out is very different from the employment law test for assessing reasonable notice periods, and in fact is directly inconsistent with that test in certain ways.  Which wouldn't necessarily be a problem, but for two things:  Firstly, he got to the point of applying such a test simply because of the similarities to an employment relationship, and secondly, the application of a 'discount' because she was an independent contractor and not an employee would suggest that the test is somehow supposed to be similar to that in place for employees.  It's also very probably wrong to call her an independent contractor.

In employment law, we look at the Bardal factors, including length of service, age of the employee, character of employment, and availability of replacement employment.  Fundamentally, the test largely addresses the challenges of obtaining new employment.  Performance is arguably irrelevant, so long as poor performance doesn't rise to the level of just cause.  Likewise, employer bad faith no longer factors into the assessment of the notice period in most cases.

Independent contractors are presumptively not entitled to notice.  However, there's an intermediate category of 'dependent contractors', who are treated similarly to employees.  There's little doubt that, if we're going to fit Ms. France into this framework at all, it's as a dependent contractor.

In a circumstance like France's, it's not so difficult to apply the Bardal factors.  As an individual franchisee, her age and ability to obtain similar work are not so difficult to assess.  Again, if we were looking at an owner of several restaurants, that changes things significantly.  But I might suggest that larger and more sophisticated businesses built on the franchise model would require more notice - that the implied term of reasonable notice is designed to give the non-terminating party an opportunity to land on its feet when the agreement is terminated.  So instead of the "availability of replacement employment", you might look at the availability of alternate business arrangements, and the difficulty associated with such a transition.  If you're running a fast food restaurant, and your franchise agreement is terminated, can you turn it into another type of fast food restaurant?  How hard would it take to enter into a new franchise agreement?  How long to physically transition the business and business model to suit the new franchisor?  Is there a non-competition agreement in place?  What long-term liabilities can the franchisee be expected to have?

The way I see it, the analysis has to be premised on the business entity underlying the franchisee continuing to exist and carry on business in some other fashion, and the reasonable notice period should bear the ultimate goal of allowing the franchisee to plan that transition.

Instead, Justice Goldstein seems to want the notice period to balance a series of rewards and punishments for good and bad behaviour in the course of the contract.  I'm not sure I see a principled basis for that.

The reality, though, is that the practical implications of this decision will be limited.  Most franchise agreements these days include detailed written provisions regarding how and when the agreement can be terminated (including fixed term provisions, notice provisions, or both).  This case will be an important precedent only for those few cases where the termination of the contract isn't spelled out in writing.

*****

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

Monday, October 27, 2014

Consent or Not? An Analytical Viewpoint of the Ghomeshi Scandal

Perhaps it's something you can watch with friends
or something that inevitably lends
itself to shapely curves and bends
of exploited women and their friends.
-Moxy Fruvous, Video Bargainville, 1993

Nearly a year ago, I posted an analytical commentary on an article about a 'bad date' with a thinly-anonymized Jian Ghomeshi, which alleged that Ghomeshi (er "Keith"), out with a would-be entertainment writer who thought he was gay, behaved in a creepy way, making unwelcome advances, etc.  My assessment of the article was that there were clear credibility 'red flags' - artistic license, hyperbole, admitted dishonesty, with the whole thing coloured by a 'social climbing' narrative.  The high watermark of misconduct described in the article was that he allegedly grabbed her behind - of which, if true, I would disapprove, but I was not comfortable assuming its truth based on the article on the whole.

Now, there's a new - and much more serious - controversy involving Jian Ghomeshi.  For the uninitiated, he has for many years had a popular radio show on CBC, and on Sunday it was announced that he was no longer with CBC.  As these things tend to, the information on exactly why was sparse at first.  But, in an unusual twist, Ghomeshi released a detailed statement explaining his version of events.  Read the whole statement here.

Ghomeshi's Side

Here are the highlights:  According to Ghomeshi, he was fired from the CBC, in relation to a sex scandal.  He confesses that his sexual tastes are irregular, including roleplay and BDSM, but claims categorically that everything he has done with his sexual partners was consensual.  However, a jilted ex-girlfriend and a freelance writer allegedly sought out others to corroborate allegations of sexual assault - the takeaway is that he expected a number of allegations from a number of women to be made in the near future, and his claim is that the allegations are untrue, and the result of collusion.

(Collusion is a big deal.  We tend to look for patterns.  One accusation is easy to disbelieve, but two or three similar accusations from different people becomes a pattern of conduct, and if they're similar enough they become inherently credible.  Collusion involves having multiple people coordinate to get their stories straight before making the allegations in the first place, and if true completely undermines the corroborating impact of similar stories.)

Ghomeshi states that he showed the CBC materials that illustrate the consensual nature of the acts in question.  (This raised an obvious question as to what kind of proof he relied upon.)  He claims that the CBC admits that they're satisfied that there was consent, but that they're firing him nonetheless because the sexual behaviour was unbecoming of a prominent CBC host.

He acknowledges that his sexual tastes may not be palatable to some - I'll be the first to admit that I find them to be disturbing and distasteful - but argues that "no one, and certainly no employer, should have dominion over what people do consensually in their private life."

The Star Article

It wasn't long before we got another side of the story.  The Toronto Star had started investigating the allegations several months ago, but elected not to print the article.  In the Star Editor's words:
The reason the Star did not publish a story at that time was because there was no proof the women's allegations of non-consensual sex were true or false.  They were so explosive that to print them would have been irresponsible, and would have fallen far short of the Star's standards of accuracy and fairness.
In view of Mr. Ghomeshi's extraordinary statement on Facebook on Sunday evening, and his high profile in Canada, we now believe that it is in the public interest to detail those allegations, which appear to have led directly to his sudden firing from the CBC.
So they printed the article late last night.  Again, you should read it yourself if you haven't already.

Put briefly, the Star interviewed three women who anonymously allege that Mr. Ghomeshi engaged in violent non-consensual sex with them over the past two years.  They deny that there were any 'safe words' employed, and claim that Ghomeshi was initially charming, but then started "suggesting or hinting at violent sex acts."

"When they failed to respond or expressed displeasure, they recalled Ghomeshi dismissed his remarks as 'just fantasies'", and promised not to do anything they weren't comfortable with.

However, he then became sexually aggressive and forceful without consent.  There's some detail about the level of violence - it's pretty disturbing, and I'm not going to repeat it here, but it's not entirely incompatible with what Ghomeshi described in his own statement.

But we come to the real crux of the issue:  Why didn't they go to the police?  Why is this a matter of purely anonymous allegations?

The Star article explains a number of reasons for their reluctance to come forward:  Firstly, they all cited the reaction to the Ciccone article - that Ciccone received very significant internet criticism for her piece.

As well, they cited "worries that their consent or acceptance of fantasy role-play discussions in text or other messages with Ghomeshi would be used against them as evidence of consent to actual violence."

There was a further allegation - a claim by a former employee of CBC that Ghomeshi had made a vulgar sexual remark to her, and that she complained to CBC, but that their response was unsatisfactory and she subsequently quit.  (Ghomeshi claims that there were never any formal complaints made against him.)

General Observations on Credibility

It's very important to understand that these are unproven allegations, made anonymously.  It is inherently unsafe to convict Ghomeshi - whether in a court of law or in a court of public opinion - based on such allegations.  It is really quite impossible for us to know who is lying or telling the truth based on the existing materials, and particularly when we're talking about such egregious criminal misconduct, the presumption of innocence prevails in my mind.

As well, while it's not uncommon for victims of sexual assault to be unwilling to come forward, their explanations of why they didn't come forward (except anonymously to the press) raise more questions than they answer.  Firstly, while the article states that they all cited the response to the Ciccone article as a reason to not come forward, the Star's timeline on these events strongly suggests that at least some of these assaults occurred well prior to the publication of the Ciccone article.  (As well, I might observe that the Ciccone article was a very different creature, being an article by an admitted social climber disparaging a celebrity on some pretty questionable bases.  The conduct in question is different here, as would be the ostensible motivations for coming forward.)

Secondly, concerns about "text or other messages" that expressed consent should raise real questions in readers' minds:  If their responses to Ghomeshi's suggestions of sexual violence were met with silence or displeasure, as the Star story suggests, what was it that they did consent to, such that it might be interpreted as supporting a consent to actual violence?  There's a real disconnect there.  The Star's story completely omits any mention of such consent until raising it, towards the end of the article, in defence of their anonymity.

And that's really important here.  With Ghomeshi admitting to the kinds of sex acts alleged, the core question to be answered is about the scope of consent.

But the remark about those "text and other messages" does seem to answer a question that had been bugging me about Ghomeshi's own account, as to the nature of the materials he used to prove his own innocence.  Naturally, they wouldn't be a full answer to the question, as to whether or not the acts performed in the bedroom exceeded the scope of consent, but it does fill out the narrative a bit.

Finally, while it's not unusual for victims of sexual assault to be reluctant to come forward, and that's understandable, I'm less willing than some to give them a pass on the avenue they did decide to take.  You're not willing to talk to the police about it, but you're willing to talk to the press about it on condition of anonymity?  Nineteen times out of twenty, I'd sooner trust the police than the press to protect the identity of a victim, and in fact there are mechanisms to protect the identities of victims of sexual assault (typically, over the objections of the media).  Why talk to Kevin Donovan, to another freelance reporter, to others you're hoping will corroborate your story, etc., but still not want to tell your story to a judge with the power to order your identity protected?

And why go to the press?  What do you hope to accomplish through anonymous allegations?  That the country will know who Jian Ghomeshi really is?  That would raise the important question of how much stock we, as a society, are willing to put into anonymous allegations, and the simple reality is that there are very good reasons for the presumption of innocence, the right to face one's accuser, etc.  The bottom line:  We should never be prepared to assume that someone is guilty of a serious criminal offence simply on the basis of anonymous allegations.

Why Did the CBC Actually Fire Ghomeshi?

Here, I'm getting into 'best guess' territory.  Ghomeshi claims that the CBC was satisfied that there was consent.  I don't necessarily believe that's what anyone actually said (that's the sort of thing that can be easily misstated), but even if it was said, that doesn't mean it's entirely true.  I suspect that we're into a situation where they're acting on the assumption that Ghomeshi's version of events is true.

On Twitter, I've seen people post statements arguing that it's hard to believe that the CBC would terminate him if they believed there was consent, such as the following:
I mean, come on.  You honestly believe the CBC fired Jian because someone's trying to out him for being kinky in bed?
Yes, it seems pretty absurd.  But as a labour/employment lawyer, it's even harder to believe they would fire him over allegations of sexual assault unless they were satisfied not only that the allegations were true, but provably true.  When an employer alleges just cause for termination, the onus is upon the employer to prove those allegations on a balance of probabilities, and with the accusers unwilling to come forward, it would seem pretty much impossible for the employer to meet its onus.

So whether or not the CBC believes the allegations of non-consent is pretty much irrelevant.  Either way, they're going to be worried about the political firestorm that would follow such allegations, and either way, they're unable to jump on the bandwagon and fire him over the allegations.

Ordinarily, with allegations of this nature, an employer like CBC would be expected to place the employee on an administrative leave and make no comment until the matter is resolved - basically, a "The matter is before the courts" response.  But the trouble is that the matter isn't before the courts, and will not obviously have any judicial resolution, and so the CBC needed to find some other way to head off the oncoming scandal.

So they'd try to find something else - an allegation that the conduct he has admitted is somehow incompatible with continuation of his employment relationship.  So yes, I do believe Ghomeshi when he says that the CBC is taking the position that his termination was warranted because of his consensual bedroom conduct.

And from a legal perspective, I suspect it's an uphill battle for the CBC to satisfy an arbitrator that this amounts to just cause.  There are circumstances where an employer can fire an employee for misconduct outside of the workplace, but it's a high threshold, looking to factors such as the following:

  • Whether the misconduct harms the the company's reputation or product;
  • Whether the misconduct renders the employee unable to perform his duties;
  • Whether the behaviour leads to the refusal, reluctance, or inability of other employees to work with him;
  • Whether the behaviour is a serious breach of the Criminal Code; and
  • Whether the behaviour places difficulty in the way of the company properly carrying out its function of efficiently managing its works and directing its workforce.
There's no question that Ghomeshi was tied to the CBC's brand.  But the rest of the factors are harder to get to here, absent serious criminal behaviour.  While it's true that BDSM can fall into a legal grey area, ultimately, I suspect that Ghomeshi is right, that it's going to be very difficult for an employer to discipline based on what happens behind closed doors between two consenting adults, even where one of their major celebrities is involved.

(Ghomeshi does go further, calling sexual preference a human right.  While sexual orientation is certainly a human right, sadomasochism is probably not.  It certainly doesn't stand as a prohibited ground under the Human Rights Code, and probably not as an analogous ground under s.15 of the Charter.)

Choice of Process

There's another interesting quirk here:  Ghomeshi's lawyers have indicated that they will both grieve the dismissal under the collective agreement and file a $50 million law suit.

This is bizarre.  Typically, where a grievance process under a collective agreement is available, you can't sue your employer in court.  The courts just don't have jurisdiction over matters under a collective agreement.  And lots of people have tried to circumvent that by casting a claim as falling outside the scope of the collective agreement, but the courts have taken a very expansive interpretation of the collective agreement, and such efforts generally fail.

However, it's unlikely that Ghomeshi's lawyers would be making a civil claim without at least an arguable basis for jurisdiction, and thus (unlike others such as Howard Levitt, who assert that the suit is just a baseless publicity stunt) I have to assume that there's something there - perhaps some contractual relationship outside of his employment under the collective agreement, maybe something to do with the fact that he co-created the Q program?

It will be interesting to see how that issue plays out.

*****

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.