Monday, September 30, 2013

Does the ESA Protect Common Law Pay in Lieu of Notice?

For background, I encourage reading Professor Doorey's recent entry on his Law of Work blog.

The core topic is a very interesting development, with a dismissed employee suing the Ministry of Labour for telling him that he was only entitled to eight weeks' notice of termination (being his entitlement under the Employment Standards Act), which led him not to pursue his rights and remedies at common law for wrongful dismissal (which would no doubt have been far more significant).

It's an interesting case, raising interesting issues, and I look forward to seeing how it is dealt with.

However, Professor Doorey also raises an interesting question in terms of the interaction between the ESA and common law.  You can read his argument yourself, but I'll try to briefly sum it up fairly here:

The ESA not only establishes statutory minimum employment standards, like minimum wage and termination pay, but it also protects contractual entitlements in excess of the minimum standard.  So the general minimum wage is $10.25 per hour...however, if you and I agree that I'll work for you for $20/hour, then I can make an employment standards claim for outstanding wages based on my full wage rate, and not merely on the basis of minimum wage.  (There's a narrow exception to this, in terms of minimum shift pay, but I'll resist the urge to digress.)

Wages are defined expansively in the ESA, including "remuneration payable by an employer to an employee under the terms of an employment contract".  Therefore, Professor Doorey argues, where the common law implied term of reasonable notice applies, shouldn't the ESA protect the wages owing through the reasonable notice period?  Shouldn't an employee be able to recover common law pay in lieu of notice through an ESA claim (up to the maximum for ESA claims)?  And most importantly, isn't an employer statutorily obligated to provide full common law pay in lieu of notice within the timeframes set out in the Employment Standards Act, rather than simply paying the statutory minimum termination pay and then withholding the rest as leverage for a full and final release?

The Alternative Viewpoint

First, let's talk about the theoretical underpinnings of wrongful dismissal law:  It's trite law that (in the absence of a contractual term to the contrary) common law implies and presumes a term that an employer can't fire an employee, absent just cause, except on provision of 'reasonable notice'.  Everyone who works in this field will also agree that provision of working notice is quite exceptional:  In the vast majority of cases, when an employer fires an employee, it is effective immediately, and the employee gets "pay in lieu of notice".

However, the case law is also fairly clear that "pay in lieu of notice" is not an implied contractual entitlement.  It's pretty well-settled law at this point that the framework is thus:

If I am an employee, and I don't have a written contract speaking to notice of termination, then I am entitled to "reasonable notice" of termination, meaning that, when my employer wants to let me go, he should tell me, "The contract will be terminated as of x months from now."  That's how one would comply with the implied contractual obligations.  Once the notice period expires, I go home, my employer pays me for the work I've done, and there are no further obligations in most circumstances.

In practice, therefore, if my employer fires me effective immediately, in most cases this would be a breach of my contractual entitlement to reasonable notice, entitling me to damages in accordance with common law principles - i.e. to put me into the same position I would be in had the contract been complied with.

That being said, while I am entitled to damages, the law regards my employment relationship as being over the moment my employer tells me it is.  This was at issue in the case of Love v. Acuity Investments, from the Court of Appeal, and while I disagree with the ultimate result in that case, I don't disagree with the Court of Appeal's analysis insofar as they found that the employment relationship ended when the employer terminated him without notice, and did not notionally continue to the end of a theoretical notice period.  When my employer fires me effective immediately, my obligation to provide services for my employer is at an end, as is my employer's obligation to pay my salary.

There is a general consensus in the jurisprudence on this point, and it's important, so I'll reiterate it:  The contractual obligation is to give notice, and when an employer fails to give notice, this is a breach of contract entitling the employee to damages, and does not result in a notional continuation of the relationship.

So "pay in lieu of notice" is a practical construct, being shorthand for damages suffered by reason of the employer's failure to comply with its contractual obligation to give notice.  When an employer is ordered to pay in a wrongful dismissal action, this is not in the nature of ordering performance of the contract, but rather in the nature of ordering compensation for losses arising by reason of a contractual breach.  It's a fine distinction in many cases, but it is nonetheless important.

This is why it isn't included in the ESA's definition of "wages":  It isn't money owing under the terms of the contract.  What the terms of the contract contemplate is an opportunity for the employee to continue to keep working and earning wages over the course of the notice period.

And this distinction has further consequences, too:  Because common law pay in lieu of notice is in the nature of damages, and not contractual monies owing, it is subject to the mitigation principle.  (Consider Bowes v. Goss Power Products, where a written contract provided for pay in lieu of notice, which had the ultimate effect of relieving Mr. Bowes of his duty to mitigate.)  As well, common law wrongful dismissal damages can be treated as a "retiring allowance", eligible for RRSP rollovers and lump-sum withholding rates, unlike statutory or contractual pay in lieu.


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.

Tuesday, September 24, 2013

Employment Contract Interpretation: A Different Approach

Wrongful dismissal actions often involve an argument as to the interpretation or enforceability of a written employment contract, most often dealing with the amount of notice or pay in lieu owing.

So I'll sign a written contract saying that the employer can terminate me on notice calculated in accordance with a certain formula, which is probably significantly less than reasonable notice (which is a major reason why the employer asked me to sign the contract in the first place), and then eventually the employer terminates me.  The employer says that it owes me notice as calculated on the basis of the contract; I say that I'm entitled to pay in lieu of reasonable notice, or I might advance a different interpretation of the contractual term.  (Or recall the Bowes case where the employee successfully argued for payment in accordance with the contractual term, after having quickly obtained replacement employment.)

However, in rare cases, you'll see employees availing themselves of different processes where it's simply a question of contractual interpretation.  Such was the case in the recent case of Vaudry v. Commerx Computer Systems Inc.:  Instead of bringing an action, the employee brought an application, a more summary process which usually puts you in front of a court much more quickly.  It's available in cases where material facts are unlikely to be in dispute; that was the case here.

The Facts

Vaudry was President of Commerx from May 5, 2009 until September 24, 2012.  It took a while to work out the details of the contract, but ultimately in March 2011 they agreed on a contract including, retroactively, commissions on the basis of 30% of the company's quarterly profit, including a pro-rated portion for the quarter in which employment ended.

The actual text of the contract isn't reproduced in the decision.  Mention is made of an email by Vaudry in February 2011 clarifying the commission structure, and indicating that he would take responsibility for quarterly losses by applying them against net profit calculations in subsequent quarters.  It does not appear that this made its way into the contract in any meaningful way.

The contract also provided for termination pay:  The employer could terminate him without cause on the basis of 12 months' pay, calculated by looking at his base pay at the time of termination and his average annual commission over the last three years of his employment.

From September 25, 2009 to December 31, 2011, his overall commissions were nearly $150,000.  In 2012, however, the company started to take losses.  In the last two quarters of the 2012 fiscal year (ending in June), there was a loss for which Vaudry's share would be over $70,000.  So when the company terminated him in September 2012, the question arose as to how to account for the loss.

Vaudry argued that the language in the contract is clear:  The commission portion of his termination pay is to be calculated by looking at his average commissions over the previous three years, with no mechanism for accounting for losses incurred prior to termination.

Commerx, by contrast, advanced a 'fairness'-based argument that Vaudry was understood to be responsible for a portion of the loss, and that they should be permitted to apply this loss against the 'earned commissions' for the purpose of calculating his termination pay.  They paid him a year's salary plus $26,524.59 in respect of commissions, which I take to be the average of his commissions earned less 'his share' of losses.  Vaudry, by contrast, argued that he was entitled to another $34,000.  I'm not clear on how, exactly, this number was calculated.  (I'm guessing that the employer did apply the earned 2013 fiscal year commissions against the prior loss...but even if one assumes that Vaudry was entitled to that commission payment and an averaging based only on the positive quarters in the last three years of his employment, my calculations would suggest that he would be entitled to just shy of $30,000.)

The Decision

The court agreed with Commerx.

Firstly, he made the interesting observation that the contract was negotiated over the course of years by sophisticated parties with the assistance of legal counsel, and therefore the usual rule of 'contra proferentum' (i.e. that ambiguity is to be resolved against the interest of the drafting party) doesn't apply.

In employment law, it's very common for ambiguity to be resolved against the interest of the employer, but the language of contra proferentum is seldom invoked, so there might be some question as to whether or not employment contract interpretation is quite aligned with the doctrine of contra proferentum.  I believe that employment law should be generally consistent with broader doctrines of contract law, and accordingly I agree with Justice Brown's refusal to apply the doctrine in this case.

However, Justice Brown also found the language of the contract to be clear - there was no ambiguity to be resolved.  This raises some questions in my mind about how the case is ultimately decided, but I'll come to that in a moment.

Justice Brown found that the contract's reference to "annual commission" meant "earned commissions" based on net profits; but for the termination of his employment, the losses in the third and fourth quarters of 2012 would have been factored into his "earned commissions".  Vaudry agreed that he always understood that a loss would be accounted for against his future income.  Justice Brown therefore took the following approach:
"So the question becomes: is the termination pay future income."
I have concerns about this.  It is not at all clear to me where the language of "future income" arises, but it looks to be something that simply came up in how the parties described it in their evidence, as opposed to arising from the contract itself.  On the decision's description of the February 2011 email, it looks to me that the parties contemplated that losses would be taken out of his future commission income - i.e. it is not the case that his base salary would be docked for 30% of company losses.

The termination pay is certainly "future income", but the question needs to be much more nuanced:  Is the commission portion of the termination pay properly considered "future commission income", and I don't think the answer to that would necessarily be the same.  The contract specified a formula for calculating the commission portion of termination pay which was altogether different from the one calculating his commissions during his employment.

Indeed, to me, the important question on these facts is whether or not 'earned commissions' can be negative.

As I said, the contract language isn't reproduced, but from its description in the decision it appears that 'earned commissions' are to be calculated and paid on a quarterly basis based on net profits in that quarter.

While the decision notes several times that he was "responsible" for the company's net profit or loss position, that appears to be a reflection of his position of responsibility, and not a reflection of any legal liability.  Without looking to the February email, I see no basis in the description of the contract for an assertion that the employer was entitled to apply previous losses against subsequent quarterly gains.

If the contract speaks only to net profits, but not net losses, and a quarterly calculation, then the result would be that quarters with a profit would yield a positive figure for earned commission, whereas the earned commission in quarters with a net loss would be zero.  There would be commercially rational reasons for creating a commission structure either way.

If the language of the contract was clear, as the judge found, then the February email becomes "parol evidence", which should not be considered in interpreting the clear provisions of a contract.  (If the plain language of the contract leads to a single interpretation, then that's the meaning of the contract.  That the parties may have understood or intended otherwise at the time of execution will not generally permit a court to interpret the contract otherwise.  Where the language of the contract can just as easily bear multiple different meanings, that's where other interpretation doctrines come into play - a court can look at external evidence as to the intentions of the parties, apply the contra proferentum rule, etc.)

So, quite frankly, I have my doubts as to whether or not the employer was really entitled to apply quarterly losses against subsequent quarterly profits at all, despite the understanding of the parties otherwise.  Even if they were, it's still not clear to me that this has the effect of yielding a negative figure for 'earned commissions' (which one would expect to result in a docking of base salary, or a debt obligation, which is clearly not the case), as distinct from simply negating commissions to be earned subsequently, which is what the February 2011 email seems to imply.

In advocacy, it's widely understood that there are two components to legal submissions:  Firstly, you need to convince a judge that it is fair and just to give your client the relief you're seeking.  Secondly, you need to convince the judge that the law permits the result you're asking for.  This is a case where the employer was very successful in the first aspect.
It tortures the language of this contract and offends commercial principles and good business practices to find that Vaudry should undertake responsibility and accountability for the financial performance of the company throughout the term of his employment and walk away from that responsibility with a windfall from leaving Commerx to bear the entire cost of losses that occurred on his watch.
This is where you come to understand why the judge ruled the way he did.  And also where the 'fairness'-based argument clearly breaks down.

Vaudry did not "walk away".  Vaudry was dismissed, and the relief he was seeking was relief only available upon dismissal.  If the contract was interpreted in accordance with Vaudry's submission, then it was simply a matter of choice for the employer to trigger its own termination obligations in circumstances where Vaudry was left with a "windfall" (if it is, in fact, a windfall, which is not at all clear to me).

Moreover, reading that paragraph, you would think that the commission structure was a partnership arrangement, or a joint ownership arrangement.  It was not.

It is, in reality, very strange to call it commercially unreasonable that an employee - even a very senior employee - should not have to share in the losses of the employer.  The business venture, and the risks associated with it, belong to the employer.  The employer will continue to try to build the business which Vaudry operated for over 3 years, and if it turns out that Vaudry built a solid foundation for immense future success, then Commerx will not be further beholden to Vaudry because of it.  Conversely, if Vaudry built the business into a house of cards, vulnerable to collapse at the slightest wind, Commerx will probably not have any remedies against Vaudry for such a thing.

Indeed, the interpretation sought by Vaudry would be the normal approach.  It's very common that bonuses - including, depending on the contract language, post-employment obligations - are calculated on the basis of company profits during a given period (often a fiscal year), without any accounting for subsequent or prior losses during a bonus calculation period.

Despite its relatively low dollar value, I wouldn't be altogether surprised to see an appeal in this case.  I would be interested to see how the Court of Appeal deals with the issue.


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.

Monday, September 23, 2013

Court of Appeal: Drunk Driving can Amount to Just Cause

Question for consideration:  An employee takes an employer's vehicle to a customer meeting without appropriate approvals, stops for lunch on the way back, where he drinks four beers, and then wrecks the car on the way home, seriously injuring himself and earning impaired driving charges.

Is this just cause for dismissal?

These are the facts of the Dziecielski v. Lighting Dimensions Inc. case.  The trial decision, released March 2012, is here.

When an employer pleads just cause, it has a high burden to prove not only the misconduct itself, but also that the misconduct was sufficiently severe to warrant summary dismissal.  It's a test that's relatively seldom successful, but that's partly because of self-selection of 'clearest cases' - an employee who has been caught and fired after embezzling large amounts of money, for example, will be understandably reluctant to pay a lawyer to seek damages for wrongful dismissal knowing that his employer can prove his criminal misconduct.  However, the just cause analysis is deeply contextual, so there are no bright line rules:  As a classic example, there was a case of a civilian employee in a police station stealing from the vending machines...and, under the circumstances, this was found not to be just cause.

This case seems, at a glance, to be a fairly clear case.

To be fair, though, let's drop the 'taking the vehicle without permission' aspect for a moment, because those facts aren't altogether developed.  It appears that, while he was generally supposed to use his own vehicle, he did have use of the truck in his employment duties.  So while he was 'supposed to' seek permission, it's not at all surprising that a long-service employee in a high-responsibility role would take permission for granted.  (And I would wager that, if the facts were fleshed out in more detail, this probably was far from the first time he had done so, building towards a 'condonation' argument.)  The bottom line is that he was using a company vehicle for legitimate company purposes.

The real problem is the impaired driving.  And it's a big one.

The trial judge captured the severity succinctly:
Increasingly, drunk driving is considered now within society at large be a very serious criminal offence which attracts significant minimum sentences.  Drunk driving is potentially lethal conduct and in this case the employee is extremely lucky to have survived and to not have injured or killed others travelling on the public highway.  To reiterate, the misconduct here is not just intoxication while working, but rather drunk driving on a public highway with the employer’s vehicle. 
How Drunk is Drunk?

I would prefer to lean away from the word 'drunk'.  The word 'drunk' tends to evoke a perception of being passed a certain threshold of intoxication, on a scale of "Sober-Buzzed-Drunk".  It's pretty subjective, so when the employee testified that he wasn't "drunk", I believe that he probably didn't feel like he was passed his own perception of the threshold (not that I think that particularly matters), and unlike the trial judge I don't think that's inconsistent with his prior guilty plea to "over 80".

I prefer the word "impaired" - though I acknowledge that it's tricky for the opposite reason:  Alcohol in any quantity has an impairing effect.  Therefore, if you take the language too literally, you'd say that anyone with a blood alcohol concentration higher than zero is impaired.

I'm also idly curious as to what "four beers" means - bottles or draft?  A 'standard drink' is a fixed volume of alcohol, defined in Canada as a drink containing 17.05 ml of alcohol - so, approximately a 341ml bottle of 5% alcohol beer, 142ml of 12% alcohol wine, or 43ml of 40% alcohol spirits.

So if you have four 341ml bottles of beer with a 5% alcohol concentration, you've had four standard drinks.  By contrast, an 18oz glass of beer contains more than 1.5 standard drinks, meaning that four of those means you've had over six drinks.  There are stronger beers, too, including beers with up to 8% alcohol.

Let's suppose that the plaintiff here weighs somewhere around 200 lbs.  We know that he took one hour for lunch, meaning that he was on the road again about an hour after he started drinking.  With four standard drinks, that would have given him a BAC of about 0.07, pushing pretty close to 'criminal charge' range, and well within the range for administrative suspensions under Ontario's Highway Traffic Act.  If we're talking about 6 drinks, his BAC would have been around 0.11, well over the legal limit for driving.  Either way, that's a pretty significant amount of alcohol, with a significant impairing effect, and almost certainly a causative factor in his losing control of the vehicle.  (There was no discussion in the case relating to weather or traffic conditions, but it sounds like it was a single-vehicle collision, and the time of year was unlikely to have snow.)

Peripherally, I note that his criminal conviction appears to be "over 80", which would indicate a BAC higher than 0.07 ("80" is equivalent to 0.08 - it's just different units of measurement), but alcohol absorption varies by individual, and especially so if he's a bit smaller.  It wouldn't be inconceivable that he would reach 0.08 with only four standard drinks.

Just Cause

Just cause is a very difficult and contextual analysis at times.  In many jobs, having a beer at lunch isn't a big concern.  In a firm I used to work with, I used to routinely go out to lunch with the firm's partners and have a pint or a glass of wine.  Nothing inherently wrong with it.  Employers with employees performing safety-sensitive tasks will often have zero tolerance policies.  The employer in this case had a policy expressing that consuming alcohol while on the job is a violation of a "Major" rule.  That being the case, it still wouldn't likely constitute just cause in certain cases (i.e. if a person in a non-safety-sensitive role consumed a single drink at lunch, it may be disciplinary, but not sufficient to justify summary dismissal).

However, an employee drinking, and particularly drinking a significant amount, before engaging in a safety-sensitive task on behalf of the employer (including driving the employer's vehicle) will be far more severe.

Incidentally, the employee did not remember seeing the policy, but he signed and acknowledged having received and read it when it was released, some 9 years prior.  The employee argued that there was no consideration for having signed the policy handbook, but that argument kind of misses the point:  Lack of consideration will invalidate a contract, but a 'zero tolerance for alcohol' policy will not ordinarily need to be part of a contract or contract amendment.  An employer has significant latitude to direct its employees in what they can and can't do, particularly while on the clock, and this would generally fall within employer discretion.  An employer doesn't need an employee to agree to do what he's told:  The fact that the employer directed the employee not to drink on the job is enough, and the employee signature is a way of acknowledging having been so directed.

Food for Thought

My view is that this is a pretty clear case for just cause.  His defence that he wasn't really drunk just doesn't hold water under the circumstances.  The trial judge's analysis was very good, and this isn't surprising:  This particular judge has a very significant expertise in workplace law.

But imagine a few slightly-different scenarios:  What if it were not the employer's vehicle?  He's coming back from a customer meeting, so technically he's on the clock, but does the employer have as meaningful an interest in his sobriety when it loses only his paid time by him getting in an accident?

What if it were only one drink?  Would it be fair then to say that he knew or ought reasonably to have known that getting back on the road after only the one drink fundamentally breached his employment obligations, because of a policy that he'd acknowledged nine years earlier?

What if there hadn't been a collision?  If he'd been stopped at a ride check and charged on that basis?  Would that change the severity of the misconduct?

The Court of Appeal

The trial judge dismissed the employee's claim, and the employee appealed, and the decision was released recently.

It's a short endorsement, rightly dismissing the appeal, but again includes the phrase that the "determination of just cause is essentially factual".

I've taken issue with this before, and I acknowledge that I may have overstated the case against that interpretation:  One might reasonably interpret the decision in McKinley v. B.C. Tel from the Supreme Court as saying basically that, albeit in a different context.

But it has certainly not been universally applied that way.  Various courts from various jurisdictions have characterized 'just cause' as being a question of 'mixed fact and law'.  See the Ontario Divisional Court's decision in Beard v. Suite Collections Canada Inc., the British Columbia Supreme Court's decision in Goodkey v. Dynamic Concrete Plumbing Inc., the Nova Scotia Court of Appeal's decision in Myra v. Nova Scotia, and the Federal Court of Appeal's decision in Thomas v. Canada.  (Some of these deal with administrative law principles, which states the resulting standard of review somewhat differently, but the question is fundamentally the same.)

And, more to the point, the characterization simply doesn't make sense.

Consider this passage from the Supreme Court's decision in Housen v. Nikolaisen, which is the leading decision on 'standard of review' and post-dates the McKinley v. B.C. Tel decision:
At the outset, it is important to distinguish questions of mixed fact and law from factual findings (whether direct findings or inferences).  Questions of mixed fact and law involve applying a legal standard to a set of facts: Canada (Director of Investigation and Research) v. Southam Inc.1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, at para. 35.  On the other hand, factual findings or inferences require making a conclusion of fact based on a set of facts.  Both mixed fact and law and fact findings often involve drawing inferences; the difference lies in whether the inference drawn is legal or factual.  Because of this similarity, the two types of questions are sometimes confounded.
Just cause is a complex question.  It entails significant factual analysis to determine whether or not the alleged misconduct occurred, and a detailed analysis of the broader context within which it occurred.  But 'just cause', strictly speaking, is a legal standard, and determining whether or not the facts as found rise to the legal threshold of just cause is a legal analysis.  Making it a question of mixed fact and law.

But don't take my word for it.  Let's take it back to the first principles:  Employment law is a niche area of contract law, and the notion of 'just cause' is built upon the notion of 'fundamental breach'.  If two parties enter into a complicated contract with a number of terms, it is not necessarily the case that a breach by one party will relieve the other party of his or her obligations under the contract:  Only when the breach is said to deprive the innocent party of substantially the whole benefit he or she was to receive under the contract is the innocent party entitled to treat the contract as at an end.  The breach had to go to the root of the contract, rendering its performance different in substance from that for which the parties contracted.  Another formulation was that it evidenced the breaching party's intention to no longer be bound by the terms of the contract.

This is the theoretical foundation of just cause, and even today many courts and tribunals use the language of 'fundamental breach' to describe just cause, though it isn't beyond question whether or not the concepts remain synonymous - in 2004, the New Brunswick Court of Appeal found that the concept of fundamental breach does not coincide with the Supreme Court's contextual approach to just cause.  (I have my doubts about this, but that's a battle for another day.  Suffice it to say that the current Supreme Court has made significant strides to streamlining employment law with contract law in general, and I appreciate this approach:  I see the employment contract as being simply a type of contract that has some distinct features.)

The jurisprudence is one-sided, at least, that fundamental breach is a question of mixed fact and law, for exactly the same reasons that I am arguing that just cause is as well.

Why Does This Matter?

The test for appellate review of questions of fact versus questions of mixed fact and law is similar:  In either case, it requires a 'palpable and overriding error' in order for an appellate court to intervene.

However, a factual finding calls for more deference than a finding of mixed fact and law.  For a strict finding of fact, the question essentially turns on whether or not the judge properly understood the evidence, and reached a conclusion capable of being supported by the evidence.  So if the trial judge finds "Joe testified x, and I found him to be very credible, so I conclude that x is true", then that finding of fact will be unassailable unless a review of the record shows that, in fact, Joe never said x.

A question of mixed fact and law, by contrast, can be attacked on the basis that the applicable legal standard was not properly applied.  There is a significant standard of deference, still, but not insurmountable.  Before the Ontario Court of Appeal began to regard just cause as a question of fact, it routinely reversed trial decisions, because it could look at the overall circumstances of the case - the facts as found by the trial judge - and determine whether or not the trial judge was clearly wrong in how it applied the legal standard of just cause.

Relevance to the Case

I've clearly indicated my belief that the result is right in this case:  This guy's conduct, on the facts, is just cause.

And likewise, the Court of Appeal seems to agree.  They decided the case on the basis of deference, but even in the short endorsement they indicate a broader agreement with the trial decision:  "We see no error, let alone a palpable and overriding error".

(Though, incidentally, I think that there's more going on underneath the facts as found.  Stopping for lunch on your way back from a customer meeting generally means that you're on your own, and drinking four beers during a one-hour lunch solo...seems really excessive.  There's also a remark in the trial judgment that the guy had a previous license suspension.  Then you take his evidence that he wasn't drunk...with a BAC of 0.07 to 0.11, anyone's going to feel at least buzzed, unless they have a really high tolerance for alcohol which is characteristic of alcohol abusers.)


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.

Friday, September 20, 2013

Independent Contractors vs Employees: What if the worker has his own company?

The Ontario Superior Court of Justice recently released a judgment in the case of Legge v. TEKSmed Services Inc..

It's a fairly basic wrongful dismissal case in a lot of ways:  Senior executive of the company, middle-aged, dismissed without notice after just over six years of service.  He was awarded 13 months' pay in lieu of notice.

But there are a few interesting questions here.

The Plaintiff was Incorporated

At trial, this wasn't really argued as an issue, but the question of whether or not he was an employee is nonetheless worth noting:  He incorporated a company through which he provided his services to TEKSmed, which would ordinarily build into an argument that he was an independent contractor, and not an employee entitled to reasonable notice.

The employer didn't really argue it, though, and in fact upon realizing that the arrangement "would not survive a payroll audit" had reverted to a traditional employment relationship prior to termination.

The trial judge rightly noted that "the employee's use of an incorporated entity did not trump the determination that he was, at all times, an employee".

The courts (and administrative tribunals, and the CRA) will not blindly accept the parties' characterization of a relationship as being an independent contractor relationship.  There are plenty of statutory protections and obligations relating to employees, which you can't contract out of, and therefore the law is more than willing to lift up the carpet on a supposed 'independent contractor' relationship and look at whether or not the terms of the relationship itself look more like those of an employment relationship.


There's nothing particularly interesting about this - the employer took the typical 'kitchen sink' approach to alleging failure to mitigate, and the court largely deferred to the employee's reasonable judgment in the circumstances, but found that his efforts weren't "as wholeheartedly energetic as one might expect", so reduced his entitlements from 13 months to 12 months.

But part of the reason that the employee's limitations on his job hunt were reasonable was because the employer was seeking to impose non-competition obligations.  The lesson for employers being this:  If you want to take advantage of the dismissed employee's mitigation obligations, you have to let the employee accept new work.  (Incidentally, there's some Alberta jurisprudence from a few years back suggesting that a dismissal without reasonable notice, amounting to a repudiation of the fundamental terms of the employment contract, relieves an employee of non-competition obligations, too.  I don't know of any Ontario case law on the point, but it wouldn't surprise me if the Ontario courts followed Alberta's lead.)

The second interesting point about mitigation is that the employer argued that the employee "failed to keep the Defendant advised of current job searches", and the employee answered that "he did not know that this was an obligation", and there was no evidence that the employer had ever requested it.

Unless there's something in his contract - which is unlikely - the better answer would have been that he was not obligated to do so.  Or at least, not by anything inherent in the obligation to mitigate.  Granted, in litigation, there's an ongoing obligation to disclose any relevant documents to the opposing party, but that's a procedural rule, not a substantive legal obligation.  The obligation extends only to certain specific disclosures, and not generally to a full-on obligation to keep the other party apprised of all progress, and the consequences of failing in those obligations are mainly procedural - typically, if you're not giving me the documents to which I'm entitled, I'll bring a motion to compel you to do so, and if you still refuse, then I'll bring a motion to dismiss your case.  If you try to lead evidence at trial that you haven't produced, then I'll object to it being admitted, and if it's admitted I may ask for other relief, such as an adjournment and/or cost consequences.

The obligation to mitigate is to seek to reduce your loss.  There is absolutely no requirement to advise the person who caused your loss of the specific steps you're taking, and under no circumstances would failing to do so constitute a failure to mitigate.  (Seriously, that would be kind of silly, as a freestanding obligation:  I'm looking for a new job in the same industry, and I have to give an advance heads-up to the employer who fired me that I might get an offer from competitor x?  Seems like a pretty commercially unreasonable thing to require.)

Pay Level

Okay, here's the tricky one:  He was compensated at $120,000 per year...until December 2011, when his salary was reduced to $70,000 per year.  The termination occurred only 2.5 months later.

So is his pay in lieu of notice to be calculated on the basis of $70,000 per year, $120,000 per year, or something in between?

The trial judge concluded that the appropriate scale is $70,000, because the employee had apparently not objected to the pay cut.

This is troubling.  For two reasons:  Firstly, a pay cut of that scale is absolutely a 'constructive dismissal' level change, and 2.5 months of silence is probably not sufficient for an employee to be said to have actually accepted the change at law, as the jurisprudence encourages employees to take a "Let's give the modified conditions a chance" approach.  (Indeed, there's an argument to be made that, in the event of such a pay cut, he'd be entitled to sit on it for almost two years and then simply sue to be topped up through a period of 'reasonable notice'.  The only case law on point, however, deals with a scenario where the employee objected within a reasonable period of time.)

Secondly, and more importantly, there are broader implications.  There are only two possible reasons that an employee would accept a 40%+ pay cut:  Either he's agreeing to a contract modification in order to get something valuable directly in exchange (reduced hours, shares or profit-sharing, etc.), or else - as was probably the case here - he accepted the change because he thought it improved his job security.  Presumably, he recognized that this pay cut was unreasonable, but didn't protest because he knew that the company's alternative was just to fire him.

The precedent value of this decision is this:  If an employer is planning to fire an employee, it may be able to significantly reduce its notice obligations by slashing the employee's pay first.  And frankly, that's just not good employee relations.

Share Redemption and Comma Usage

Legge's corporation had been given 8 shares of the company, which Legge was advised had a value of $20,000 each.  However, there was an agreement indicating that, upon the cessation of the relationship for any reason, the employer "retains the right to immediately and automatically retract the 8 shares gifted for $0.00 consideration."

The employer's interpretation - and probably the intention when drafting it - was that it wouldn't have to pay for the shares.

However, the judge read the language quite literally, and concluded that the $0.00 was a descriptor of the consideration for which the shares were originally gifted.  Which, on a close analysis of the grammar, seems right to me.  If they were to break the clauses with a comma, it would have resolved the structural ambiguity:  "retract the 8 shares gifted, for $0.00 consideration."  But that's still awkward.  Better yet would have been "retract the 8 gifted shares, for $0.00 consideration."  And if you really wanted the utmost clarity, you might insert the consideration earlier:  "retract, for $0.00 consideration, the 8 gifted shares."

Amazing, isn't it, how shifting around a few words and adding a couple commas can be the difference between owing nothing and owing $160,000, eh?  That is why lawyers get paid the big bucks.  Well, that, and the fact that our professional liability insurance is expensive because of the prospect of a missed comma.

Of course, I'm not entirely sure that it's proper for the judge to have completely disregarded the corporate veil issues:  Legge's corporation, which technically held the shares, wasn't a party to the proceedings.  Why would Legge be entitled to be paid personally in exchange for arranging the conveyance of shares he doesn't own?

Character of Employment

Just a brief comment on this front:  In cases of long-service front-line and unskilled labourers, character of employment has been remarked to be of diminishing relative importance.  However, the converse has not yet been shown to be true, in that short-service senior employees are not getting reduced notice periods.  This is such an example: a 13-month notice period for a middle-aged employee with 6 years of service, and little evidence on the availability of replacement employment, clearly relies heavily on the character of employment.

With that in mind, this debate traces back to the Cronk case in the 90s, when the Court of Appeal came down hard on Justice MacPherson for disregarding character of employment, and I like to point out some commentary by Justice Morden at the Ontario Court of Appeal:
In any event, even if MacPherson J. was correct in concluding that no valid distinction exists for the purpose of determining the proper notice period between the positions of senior and junior employees, it does not follow from this, on the materials which he considered to be relevant, that Ms. Cronk is entitled to twenty months' notice.  Once the distinction is gone, then substantially reducing the notice period for senior employees is just as logical, if not more logical, as increasing it for junior employees.  This is so particularly in the light of the fact that, in the sample of cases on which the learned judge relied in arriving at his conclusion, the average period of unemployment following dismissal was, as he noted more than once, 9.3 months.  If the availability of other employment is to swallow up the character of employment factor then it would seem that the period of reasonable notice for senior employees should be substantially reduced.

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.

Not Illegal to Ask Job Applicants about Availability

That headline may seem unremarkable, if you haven't followed these issues.  It's slightly controversial, though.  Go to this entry and scroll down to the bottom segment of the post for a bit of background.

s.23 of the Human Rights Code addresses certain recruitment issues:  You can't publish a job posting that "directly or indirectly classifies or indicates qualifications by a prohibited ground of discrimination."  Nor can you make inquiries that do so during an application process, with the exception that in a personal employment interview you're entitled to ask questions if you would be justified in discriminating (i.e. if you can't reasonably accommodate without undue hardship).

So, if you're applying for a job, I'm not generally allowed to ask whether or not you have kids.  Similarly, if I ask you how familiar you are with Spongebob Squarepants or Dora the Explorer, then, assuming that they don't have any relevance to the position, there's a strong inference that I'm trying to draw out whether or not you have kids.

Where the question becomes difficult and controversial is here:  If I ask you whether or not you'd be available to travel, up to 25% of the time, and on short that question a problem?

People with children are, by a long shot, more likely to say "No" to that question.  So if it's a question on a job application, is it an inquiry which "directly or indirectly classifies or indicates qualifications by a prohibited ground of discrimination"?

I've argued that, generally speaking, such a question is not a problem.  Imposing such a requirement, without exception, is going to be something you'll need to justify, because the rule would be discriminatory against parents...but that's okay, if you can show that the requirements of the position are such that you couldn't reasonably work around it without undue hardship.

The Widdis Case

The Human Rights Tribunal recently posted a case addressing this issue:  Widdis v. Desjardins Group.  Hat-tip to David Doorey who posted about this case recently - I encourage you to read his commentary for a different view.  He and I differ in our interpretations of the scope of s.23; he argues that s.23 has a broader scope, encompassing questions such as "What high school did you go to?" on the basis that a person's high school can include significant information about the place of origin, ethnicity, and/or religion.  And his position is consistent with that taken by the Ontario Human Rights Commission.

Widdis was decided in a way more consistent with how I would interpret the Code.  In an interview, an applicant was asked if she was available to work Saturdays.  Her evidence (which the Tribunal accepted) was that she indicated that she was not because she was a Seventh Day Adventist (i.e. she observes a Saturday Sabbath), and she was cut from the application process on that basis.

On the facts as determined by the Tribunal, she was the victim of unlawful discrimination.  She was declined because she was unavailable to work Saturdays, and she was unavailable for religious reasons.  (It's not clear, on the face of the decision, whether or not it was crucial that she advised of the religious basis for her unavailability.  I would argue that this is not required to make out discrimination.)

However, on the s.23 question as to whether or not the question itself of Saturday availability offended the Code, the Tribunal said this:  "Questions with respect to an applicant's availability to work are legitimate questions which do not seek to identify applicants either, directly or indirectly by a prohibited ground of discrimination."  [Comma usage as in original]

In other words, you're allowed to ask about availability, but if unavailability is due to a prohibited ground, you might be unlawfully discriminating if you make a hiring decision based on their response to the question.

Those who share Professor Doorey's view would presumably argue that the Tribunal erred, and specifically that the error boils down to two words:  "seek to".  The Tribunal borrowed language from the Code itself, and inserted words not present in the Code to add 'intent'.  Which almost strengthens the argument against the Tribunal's interpretation:  Look, the Tribunal couldn't reach that conclusion without adding language which simply isn't part of the Code.

Though the other changed term is "identify applicants", rather than "classifies or indicates qualifications", as it exists in the statute.  And while I don't think that fully fixes the Tribunal's framing of the language, it's an important distinction.  It's vague terminology, and it's not entirely clear how an "inquiry" can "classify or indicate" anything - one might argue that making an inquiry implies that the answer is relevant to the job, but not all questions in a job interview directly relate to the job.  Consider one of Google's notorious questions:  How would you weigh your head?  (Hint:  Google doesn't actually have any jobs, to the best of my knowledge, involving the weighing of one's own head.  As a side note, this is one of Google's stumper's that's actually stumped me:  Even Googling the answer, I can't find any methods which don't make unwarranted assumptions, such as uniform body density, etc.  Anyone have some insight?)

I made this point in relation to the controversy a few months back regarding potential employers asking for Facebook usernames and passwords for screening purposes.  Professor Doorey argued that the question itself violates s.23, because accessing somebody's Facebook account is likely to give you information regarding various prohibited grounds.  I replied that, while I find the practice appalling, I might imagine a less-appalling scenario where an employer asked for the username and password to see whether or not an employee would provide it.  In the event that an employer never actually accesses the Facebook account, then there is exactly zero probability that the inquiry will expose the employer to information relevant to prohibited grounds...well, unless the password is something like "iamachristian".  (But if that kind of remote possibility renders the question illegal, then literally any inquiry would be prohibited.)

I would think that a question which asks, point blank, about a prohibited ground is probably the meaning of "directly" classifying or indicating a requirement based on a prohibited ground.  But the challenge is 'indirectly'.  Does a question that may have an answer that identifies information based on a prohibited ground prohibited?  So, would asking about work history be prohibited because of the possibility that the answer might be "I worked in the British Consulate" or "I worked for the Catholic Archdiocese of Toronto", noting that either one yields, with a very high probability of certainty, information from which one might infer a prohibited ground of discrimination.  Would an application form asking for your address be prohibited because certain neighbourhoods have distinct cultural and religious demographics, leading to probabilistic inferences about those prohibited grounds?  I would argue in the negative, that the core issue relates to the nature of the information sought by the inquiry.

I think most of us would agree that, whatever the language means, asking "What religion are you?" would be clearly out.  It's a direct inquiry about creed, which seems to run awry of any reasonable interpretation of the language.  Similarly, asking people about whether or not they eat beef but not pork is probably an indirect inquiry about creed.  But asking a person "Are you available to work Saturday" is almost certainly a legitimate employment-related question, and the odds of a "No" answer being interpreted as "This candidate is probably either Jewish or Seventh-Day Adventist" is pretty negligible.

In light of that interpretation, I think the Tribunal's framing is still messy, requiring an intent element even for queries which "directly" identify applicants on the basis of a prohibited ground, but I think that's a minor grammatical issue.  And to be clear, I don't think that anyone would seriously argue that s.23 requires an intention to discriminate.

I was once contacted by a headhunter for a law firm looking to hire; his first three questions were age, marital status, family status.  When I later interviewed with that firm, the senior partner reiterated those same questions.  They offered me a position, which I declined.  Notwithstanding that they offered me a position, and notwithstanding that I didn't even want the position at that point, I could easily have grounded a Human Rights Application based on s.23 had I been so inclined.

Caution for Employers

The result in Widdis, while probably correct, is a cautionary tale for employers.  The employer denied having been advised of her religion, arguing that they would have accommodated her had she raised it.  The Tribunal rejected those facts, but I don't think that they're fundamental to the conclusion.  It seems to me that, if I ask a candidate "Are you available to work Saturdays?", and then I refuse to hire them because they simply replied "No", then if it turns out that, unbeknownst to me, the unavailability is religious in nature, I've probably committed prima facie discrimination, meaning that I either have to justify the refusal to hire based on a BFOR.  This often won't be so difficult for a small employer hiring to fill specific timeslots for which the existing workforce is not available, but as workplaces become larger and hiring drives are looking to fill more positions, this becomes increasingly nuanced.

Alternatively, I could try to frame the question differently, to not capture unavailability subject to a duty to accommodate, though it's awkward:  "We generally require employees in this position to work Saturdays, though we accommodate where we are required to do so by the Human Rights Code.  Would this create a scheduling conflict for you?"  It's a yes-or-no question, where somebody entitled to accommodation would answer the same way as someone who is available to work.  Yet it could easily be misunderstood.  "Are you available to work Saturdays or, if unavailable, is such unavailability related to a prohibited ground under the Human Rights Code?  Same result, but I'm pretty sure most people would simply answer "Huh?" to this.  The dual construction of the question, while grammatically and syntactically correct, is confusing.

Then, of course, there's the 'saturation' problem faced by some employers:  Consider a 24/7 call centre in a small town with a concentrated demographic of Sunday-Sabbath observers.  In the ordinary course, a call centre accommodating a Sabbath or periodic religious holiday isn't that big of a deal - you just schedule someone else in to cover the shift.  But what happens where your entire workforce wants Sundays off?  Do you grant accommodation on a first-come first-served basis?  Seniority basis?  Do you attempt to rank the bona fides of the employees' religious devotion, to accommodate those who can't work Sundays, but not those who merely don't want to miss the afternoon football game?  Or do you just say, "We can't accommodate everyone who wants Sundays off, so we won't accommodate anyone who wants Sundays off."

These are all problems that I can assist employers navigate, to help employers find practical solutions for their circumstances which minimize the potential for significant liabilities under the Human Rights Code or otherwise.


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.

Tuesday, September 17, 2013

Tracy Francis Action Update

In 2011, I referenced a law suit by Tracy Francis against Rusonik, O'Connor, Ross, Gordham & Angelini.

Earlier this year, the Law Times ran another story indicating two interesting facts:  Firstly, the firm dropped its 'just cause' defence.  Secondly, the plaintiff filed an amended claim, seeking $1.5 million in moral and punitive damages.  (Half a million in moral damages, and a million in punitive damages.)

It's pretty astronomical, and I'd be surprised if she got that whole amount, but there are probably a couple of solid reasons underlying that kind of move.

Moral damages can be really hard to get.  They used to be awarded as a matter of course as "Wallace" damages, but those were pretty much eliminated in the Honda v. Keays decision, and since then it's been hard to get any damages for breaches of the employer's duty of good faith and fair dealing:  Courts are looking for a high standard of evidence in terms of evidence of injury (i.e. it's hard to establish loss without medical evidence) and even then there are other challenges to overcome.  However, while the Wallace doctrine was far too employee-friendly, holding employers to a ridiculously high standard, there's a sense in many sectors that the current state of the law insulates employers too much against consequences for flagrant breaches of the duty of good faith and fair dealing.  The late Justice Echlin took a novel approach to this in Brito v. Canac Kitchens, awarding "ancillary damages", but this was reversed by the Court of Appeal on the basis that they were not pleaded.  My commentary on the appellate decision is here.

Enter the Jury - Boucher v. Wal-Mart

I'd wager that there's been a jury notice in this case.  The claim follows in the footsteps of Boucher v. Wal-Mart, where a jury awarded a constructively dismissed employee over 1.4 million in punitive and aggravated damages.

Unsurprisingly, Wal-Mart has appealed the Boucher award.  It appears that the appeal was heard last week, though the decision could still be several months away.  But, while the award is unprecedented in its size, it isn't exactly alone:  There was also a jury award in British Columbia in the Higginson case a few months earlier where the plaintiff won over $800,000 in punitive and aggravated damages.  Or Pate v. Galway-Cavendish, where a judge awarded $550,000 in punitive damages after the Court of Appeal told him he was wrong to refuse to consider them.

There's a probability that the appellate courts will scale back these awards.  In the Honda v. Keays case, the Ontario Court of Appeal reduced a $500,000 punitive damage award to $100,000, though the Supreme Court ultimately concluded that no punitive damages were appropriate at all in that case.  Punitive damages have a high threshold in the first place.

So, unless the Court of Appeal dodges the question by deciding that punitive damages were not appropriate at all on the facts (which seems difficult on those facts), they're likely to have to determine the appropriate range of punitive damage awards in these cases.  They might conclude that Ms. Boucher's award is high, but not to the level that calls for appellate intervention.  Or they might conclude that it is too high, and bring it down by as much as a factor of 10.  (Theoretically, they could bring it down more, but I think that's relatively unlikely.)

So what does this have to do with Tracy Francis' case?

The Poker Theory of Litigation

Litigation is often like playing poker in some ways.  Particularly at negotiation stages.

For Francis' case, the outstanding Boucher appeal probably looks like a game of Texas Hold 'Em:  After the flop, Francis raised, and the question is whether or not the parties really want to see the turn and the river.

If the Court of Appeal comes down on the side of Ms. Boucher, upholding a seven-digit award or something close to it, then Rusonik will be risking very substantial liabilities by taking it to trial.  If there's any real meat to the merits of Francis' punitive damages claim, that will put the 'sweet spot' on a settlement at a very high level.  If the Court of Appeal favours Wal-Mart, and significantly constrains punitive damages, then Francis' settlement prospects will be much lower.  Until the Court of Appeal decision comes out, a settlement might be rational somewhere in the middle.

The fact that Rusonik withdrew its just cause allegations...doesn't really look very good for them.  Unsustainable allegations of just cause are considered to be a breach of an employer's duty of good faith and fair dealing.  (There have been cases where, in a borderline case, an employer might drop a just cause argument at trial and not have it held against them - where the court can look at the facts and say, "It's understandable that they argued just cause" - but in general, the courts really frown on an employer leveraging a just cause position without an arguable basis.)

Of course, the decision to withdraw just cause allegations could be a tactical issue rather than a tacit admission:  Arguing just cause on the basis of disparaging remarks she allegedly made about a lawyer is going to (a) require evidence relating to the context and circumstances of the alleged disparaging remarks, which will probably require the employer to illustrate why Francis was disgruntled (and in a law firm setting, that often goes beyond strictly defensible exercise of management rights), (b) drag that lawyer's name through the mud, and (c) make it necessary for a great deal of evidence to be called about the workplace culture (which Francis says involved a lot of name-calling).  None of it will look good for the jury, and it's all public record, too, which means that to whatever extent the employer can avoid talking about pre-termination employee relations, they'll want to do so.


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.

Thursday, September 12, 2013

Chevalier v. Active Tire - Appeal Dismissed

I increasingly think that this case is a tragic consequence of the bizarre state of constructive dismissal law.

I've posted about it a couple of times before - first after the trial decision in August 2012, in an entry entitled "Can Your Employer Unfire You", and again after the costs decision, where the employee was ordered to pay $50,000 to the employer.

In a nutshell:  Chevalier was a manager with 33 years of service, but after a change in ownership began to have difficulty with his new employer - he was put to new duties and new expectations, and wasn't taking well to the change.  It's not an uncommon situation...until management decided to impose a "lay off".  (I presume it was purportedly a temporary layoff, without a contractual entitlement to do so.)

Chevalier quickly obtained legal advice, and commenced an action for constructive dismissal.

Upon receiving the statement of claim - and this is where the facts become more unusual - the employer offered him his job back.  He declined.

So the entire trial turned on whether or not it was reasonable for Chevalier to have declined.  He was definitely constructively dismissed, and definitely entitled to significant damages...subject to the duty to mitigate.  And if it was unreasonable for him to decline the job, that's a failure to mitigate, disentitling him to damages.

The trial judge concluded that the actions Active Tire had taken, up to the purported layoff, were basically within its rights, that Chevalier's perception that they were trying to "make his life miserable" was a distorted perception, and that had he returned to work he would not have been subject to an environment of hostility or humiliation.  Accordingly, it was unreasonable for him not to return.  His claim was dismissed, and he was ordered to pay $50,000 in costs.

The Appeal

The Court of Appeal just released a short endorsement dismissing his appeal.  Essentially, they held that the trial judge's findings of fact were supported on the record, and therefore there was no basis to interfere with the conclusion that it was unreasonable for Chevalier to decline the employer's offer.

He was ordered to pay another $7,500 in costs.

Constructive Dismissal and the Obligation to Mitigate

As I have said, I think the trial judge's decision is fairly consistent with the existing case law.  But I'm fairly critical of the existing doctrine.  To me, it seems to be fairly absurd in most cases that an employee can be constructively dismissed, and yet be expected to stay in the position nonetheless.  The standard for constructive dismissal is, in principle, similar to the standard for the obligation to mitigate:  An employee whose terms of employment are fundamentally and unilaterally changed can consider himself to be constructively dismissed; the duty to mitigate requires an employee to seek and accept similar employment.

The standard for mitigation, outside of these 'employment with the same employer' cases, has traditionally been very employee-friendly, giving the employee a fair bit of latitude in how to conduct a job search and how to assess which jobs are acceptable.  A look at the general mitigation jurisprudence would suggest that the court is looking merely for a good faith job-search, and that so long as the employee isn't sitting on the couch all day, or going on extended vacations, or doing something else that seems inherently unreasonable as an effort toward earning replacement income...that's okay.  (In fact, for a long-term employee whose skills aren't in great demand, there's sometimes a pretty good rationale for going back to school to update skills.)

In the employment-with-the-same-employer cases - mostly constructive dismissal cases, but not always - the standard seems to be much higher:  The Courts will find that a failure to continue employment with the same employer is unreasonable unless the employee can establish that the working environment would be hostile.  The analysis of the terms and conditions of employment, which would ordinarily be seen in a mitigation analysis, is largely absent.  Instead of a global analysis of the reasonableness of the employee's mitigation efforts altogether, the court narrowly focuses in on the reasonableness of a singular decision.

(By contrast, consider the following scenario:  I am dismissed from a job where I make $100,000 per year, and I am entitled to a 12-month notice period.  I am unemployed for 6 months, before I receive two job offers.  Job "A" pays $100,000, but requires longer hours, a longer commute, and more travel.  Job "B" has reasonable hours, but only pays $90,000.  As a young professional without a family, I might well opt for Job "A", but it is not at all difficult to see why many people would take the pay cut to not be separated from their families.  If I take Job "B" instead of Job "A", am I still entitled to be topped up for the extra $5,000 through the remaining 6 months of the notice period?

I would argue that the tests - wherever they ought to sit - should be consistent; that where a change to employment is sufficient to generate a constructive dismissal, that should, by virtue of the change, have the prima facie result that you are not obligated to accept the job in mitigation.  Likewise, if a change is sufficiently minor that it would be a job you would be required to take in mitigation, the change should not be adequate to generate a constructive dismissal.

But the "temporary layoff" cases are a slightly different class of constructive dismissal, because they look a lot more like actual termination cases.  (If you're put on a temporary layoff, which the employer is not entitled to do, is it necessary to actually resign in the face of it?  What would the point be?  You're not being paid; you're not required to go into work.)  This, functionally, is more similar to the Evans v. Teamsters case, where there was an actual termination followed by an offer of replacement employment.

Why is Mr. Chevalier so sympathetic?

As I said above, I think the case is a tragedy.  Even accepting all of the trial judge's findings of fact - that the employer wasn't trying to drive him out; their discipline was legitimate and sincerely intended to correct his performance; the temporary layoff was sincerely for purely economic reasons; there wouldn't have been an atmosphere of hostility had Mr. Chevalier returned; etc. - we're still left with the conclusion that Mr. Chevalier felt that this temporary layoff, which breached his contract, was simply an extension of other actions intended to drive him out.

So he would have seen their offer of re-employment as saying, "Oops, we crossed the line of clearly inappropriate conduct, so we take it back, because we want to merely skirt that line until you get so fed up that you quit."  Of course he declined.

And regardless of the sincerity of the employer's intentions, it's hard to say that the perception was unreasonable.  A temporary layoff says, at minimum, that they don't need you performing your duties, and that you're first on the chopping block.  Combined with prior discipline and other changes to his duties, the ultimate message that any reasonable person would take is this:  "You don't fit in this organization."  And the re-offer, after being served with a statement of claim, would appear as nothing more than an attempt to evade liability.

The fact is unavoidable that the only reason they recalled him to work was that they learned that they were not legally entitled to lay him off in the first place.  Translation: "We would lay you off if we could, but we can't."  It's hard not to be demeaned by that.

I would argue that the trial judge put too much emphasis on the employer's reasons for engaging in its various actions prior to the layoff:  The question, ultimately, is not whether or not they were entitled to (for example) discipline him.  The question, ultimately, is whether or not an employee's duty to mitigate requires him to take a position where he already (for example) has a disciplinary record.   Active Tire was acting within their rights, yes, but the bottom line is that the relationship was already rocky, and that is important context in evaluating the reasonableness of his decision to turn down their offer.

And the trial judge went so far to acknowledge that "it may well be that it was beyond his capacity" to follow the procedures set out by the new owners..."However, as set out in Mr. Chevalier's employment agreement, it was a term of his employment that he follow those procedures."  And that is where I would respectfully suggest the trial judge goes significantly wrong.  At the relevant time, being when the offer of re-employment was made, Mr. Chevalier did not have an employment agreement.  He was being offered an employment agreement, including terms with which the trial judge acknowledges Mr. Chevalier may not have been able to comply.  It seems absurd to suggest that Mr. Chevalier was obligated to accept a position which included requirements that he couldn't satisfy.

Not to mention the fact that they were already in litigation.  There's a debate among some employment lawyers:  Can lawyers save an employment relationship?  Or, when lawyers get involved, does that signal that the employment relationship is on death row?

The trial judge considered this to be relevant, but not determinative.  The Court of Appeal characterized this conclusion as a finding of fact, resistant to appellate review.  Respectfully, I find this troubling.  It's straightforwardly a statement of pure law, and while it's likely correct, I can't help but feel that the Court of Appeal is applying a bit too much deference in employment law cases.  (Not just in this case, either:  See my comments regarding the Bennett v. Cunningham case, too.)  Whether or not the reasonable person would have turned down Active Tire's offer is not a purely factual issue: The Supreme Court in Evans v. Teamsters expressly held that this question is one of mixed fact and law, and is subject to appellate intervention in the appropriate case (as it was in Evans), without needing to supplant the trial judge's assessment of credibility or the individual underlying facts.

Ripe for SCC Intervention

I was troubled by the Evans decision when it came out, for broader concerns about contractual relations:  Termination without notice, or constructive dismissal, is a breach of contract.  Lawyers and sophisticated businesspeople may not generally consider breaches to be morally bad, or worthy of punishment, but most people don't like it when their contracts are breached, for a couple of reasons:  (1) People like to be able to rely on another person's word.  They think that if you've promised to do something, they should be able to expect you to do it.  For most people, having to sue on a breach of contract will fall squarely into the realm of "Fool me once shame on you, fool me twice shame on me", or "Once bitten, twice shy". (2) Legal fees, for most people, are not just the cost of doing business.

But even operating within the Evans framework, the doctrine has gone way too far, with a case like Chevalier.  There is some debate over whether or not employment with the same employer is limited to the 'rare' case.  The majority chose not to characterize it in that way, instead conceptually streamlining mitigation in wrongful dismissal and constructive dismissal cases, and describing the test for mitigation in 'employment with the same employer' cases as turning on the absence of an atmosphere of hostility, embarrassment, or humiliation, including consideration of the nature and conditions of employment, and of non-tangible elements:  Work atmosphere, stigma, loss of dignity.

However, as in the trial decision in Chevalier, the courts seem not to consider the impact of the termination (or constructive dismissal) itself on the work environment, often not even mentioning stigma or dignity, and instead find failure to mitigate in the absence of evidence of an objectively hostile working environment.  Which, in my humble opinion, is a failure to take into account the multi-factored and contextual analysis endorsed by the Supreme Court, and often amounts to a reversal of the onus as well.

I don't really expect this case to make it to the Supreme Court, but I think there's a real need for the SCC to refine the doctrine, and provide guidance regarding the obligation of employees in these scenarios.  Because you can rest assured that we will see a lot more of them, as lawyers recommend that employers follow Active Tire's lead.

Here's an it food for thought

Imagine you make $100,000 per year, and your company is struggling financially, and dismisses you for economic reasons.  Assume that you are entitled to a 12-month notice period.  You search for a new job for 6 months, and then...
Scenario 1:  You receive a job offer from Company "A".  They are offering $100,000 per annum, but the position requires longer hours and more travel than you are used to, keeping you away from your spouse and small children more than you would like.  At the same time you receive a second offer from Company "B", which only pays $90,000 per annum, but entails time commitments more in line with what you are used to.  As well, Company "B" is a growing company in a promising market, with great long-term advancement potential.  Had you only received (and accepted) the offer from Company "B", you would straightforwardly have continuing entitlements against your old employer through the remainder of the notice period (i.e., to be topped up).  However, if you take Company "B"s offer and decline Company "A"s, have you failed to mitigate?
Scenario 2:  You receive the above offer from Company "A", and no other offer at the same time.  If you decline it, have you failed to mitigate?  Does the analysis differ from Scenario 1?  Should it?
Scenario 3:  You receive the above offer from Company "B", and also an offer from Company "C", offering $100,000 per annum, for a very similar job to your old employer, but it's only a 6-month contract.  By taking Company "B"s offer, have you failed to mitigate?
Scenario 4:  You receive only the 6-month contract offer from Company "C".  You decide to continue searching for something permanent.  Is this a failure to mitigate?
Scenario 5:  Your old employer, now aware that it has to compensate you through the reasonable notice period, offers you a six-month contract on the same terms and conditions as before.  At the same time, you receive the above offer from Company "B", which is a permanent position, with a growing company in a promising market.  By declining your old employer's offer and accepting the offer from Company "B", have you failed to mitigate?
Scenario 6:  Your old employer offers you a six-month contract on the same terms and conditions as before.  You decide to keep searching for a permanent job instead.  Have you failed to mitigate?

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.

Thursday, September 5, 2013

Small Claims Court: Costs of a Successful Defendant

As increasing employment litigation is going through the Small Claims Court, let's consider the costs exposure of the plaintiff.

Since the costs provisions of the Small Claims Court were changed some time ago, there's been a bit of controversy, particularly surrounding the effects of offers to settle.

The Old Rules

Prior to July 2006, there were fixed amounts of costs to be awarded:  If you went to Small Claims Court with a lawyer, and you succeeded at trial, you could get $500 to your lawyer's fees.  This was set out in Rule 19.

There's also s.29 of the Courts of Justice Act, which - with certain exceptions - restricts costs awards to 15% of the amount claimed.  So if you sued for $1000 and succeeded, you could only get $150 toward legal fees.

Then there's Rule 14, which deals with offers to settle:  Essentially, it says that, if you make an offer to settle which meets certain conditions, and you do better than your offer at trial, you can get double costs - i.e. up to $1,000 toward your legal fees.  The wording is kind of important, so more specifically, it says this:  If a plaintiff makes an offer to settle (under certain circumstances) and obtains a judgment more favourable than the offer, double costs may be applied; conversely, if a defendant makes an offer to settle, and the plaintiff obtains a judgment less favourable than the defendant's offer, the defendant can get double costs.

However, Rule 14 remained subject to s.29 of the CJA, meaning that if you successfully sued for $1000, you were still capped at $150.  If you successfully sued for $6000, and had offered to settle for $5000, then doubling your costs brings you up to the 15% cap at $900.

The New Rules

The only thing that changed materially, for the sake of this discussion, was Rule 19.  (The Court's jurisdiction has increased significantly, too, which has important repercussions.)  Basically, the fixed costs were removed, and the Court was given jurisdiction to award a "reasonable representation fee", subject to s.29 of the CJA.

However, when we're talking about legal fees at the Small Claims Court, 15% of the amount claimed is seldom if ever more than a reasonable representation fee.  So what's the point of Rule 14, if you're already likely to get 15% or close to it?

A few Deputy Judges found creative ways of applying the s.29 exceptions.  But the 2010 Barrie Trim case was really the one that, thus far, has held the day.  The plaintiff had obtained judgment at the Small Claims Court, but the defendant successfully appealed to the Divisional Court.  Justice Healey, having dismissed the plaintiff's claim, then had to determine costs of trial, and determined that Rule 14 simply was not subject to s.29, and awarded double-costs because the defendant had served an offer to settle.

The Plaintiff applied for leave to appeal both the merits of the case and the costs award; the Court of Appeal was prepared to hear the costs appeal, but refused to hear the merits.  The Plaintiff decided not to pursue the appeal if they were only talking about costs.  Until the Divisional Court or Court of Appeal says differently, therefore, Justice Healey's conclusion is binding on the Small Claims Court.  However, the particular facts raise another problem in the case law.

The Remaining Controversy - S & A Strasser Ltd. v. Richmond Hill

The Strasser case was a 1990 decision from the Court of Appeal dealing with similar language to that in Rule 14, in context of a defendant seeking elevated costs where it had served an offer to settle.  And here's the crux:  The wording of Rule 14 (and its analogous language in the Rules of Civil Procedure at the time) tells us that the defendant gets higher costs where the plaintiff obtains judgment less favourable than the defendant's offer.

Deputy Judge Winny has consistently relied upon the Strasser decision as standing for the proposition that, where the plaintiff's claim is altogether dismissed, and the plaintiff therefore cannot be said to have obtained judgment, Rule 14 has no application.  (See, for example, Lockrey v. Kay).

I have been unable to find any cases decided by other Deputy Judges dealing with the question; however, this is not surprising.  There are relatively few Deputy Judges with any significant number of reported decisions; by contrast, Deputy Judge Winny is very prolific.

Justice Healey, in Barrie Trim, did not address this question.  (Incidentally, when he decided that the 15% cap did not apply to Rule 14, he was accepting reasoning put forward by Deputy Judge Winny in other cases.)  Had he addressed the question, it could have changed the result.

But it seems pretty bizarre, doesn't it?  If I'm being sued for $25,000, and I offer the plaintiff a thousand dollars to go away and the plaintiff refuses...then if the plaintiff only wins $500, then I can get costs of $7500.  Whereas, if I win altogether, I can only get costs of $3750.

Is there a contrary position?

Part of the challenge with Small Claims Court costs is that they're seldom worth fighting over to any significant extent.  How much do you want to pay your lawyer to fight over a couple thousand dollars in legal fees?

Still, I think there may be an answer to the contention that Strasser applies at the Small Claims Court.  The Court in Strasser dealt with other considerations:  In particular, the Superior Court deals with more costs - costs of proceeding from start to finish, rather than the costs of a hearing as at the Small Claims Court - and therefore the language of the Superior Court's equivalent to Rule 14 has a more significant 'timing' element:  Where the defendant serves an offer to settle, and the plaintiff later obtains judgment less favourable than the offer to settle, the plaintiff gets costs up to the date of the offer, which would obviously be absurd if the plaintiff's claim was altogether dismissed.  That's simply not true of representation fees at the Small Claims Court.

Furthermore, there are broad discretionary powers given to the Superior Court in relation to costs, including the power to take into account offers to settle, meaning that the Court can still give consideration to the fact that the successful defendant made an offer to settle, when deciding whether or not to award costs on an elevated scale:  The rules give a successful defendant a different opportunity to seek higher costs.  And that, in fact, happened in Strasser.

The Small Claims Court, by contrast, has very limited discretion to award costs over 15%.  If Rule 14 doesn't apply where a claim is dismissed altogether, then...well, the only other way in would be to argue that other exemptions in s.29 apply.

Further Footnote in Lockrey v. Kay

Deputy Judge Winny noted in Lockrey that "It is sometimes perceived that the Small Claims Court is incapable of hearing multi-day trials on consecutive days.  That perception is inaccurate."  That particular trial was heard over 3 days.

I should look for more of that type of work in Kitchener, if that's the case.  I've been told expressly by staff at other courthouses that they simply will not schedule more than one day for a matter, up front.

In practice, if it requires multiple days, that means that, at the end of the first day, you need to reschedule the second day...but there's a catch:  Deputy Judges are part-time, with certain scheduled sitting days, meaning that you need to get the next open day with the particular judge hearing  your trial.  The last time I had to do that, it was a delay of months.  That's a problem; it means a lawyer needs to spend more time preparing for the second hearing day, re-reviewing documents, and refreshing his or her memory on what happened during the first day of trial (which incidentally also requires preparation of a much more thorough record than would be needed for a consecutive-day trial).  It also changes the presentation of the case, requiring a greater effort to remind the Deputy Judge of the important elements of the case from the previous day.

This has tactical consequences.  I've had multiple matters involving the same parties which, by all rights, should have been heard together, yet ended up proceeding separately because it was a quicker route to a resolution.


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.