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September 19, 2012

CASE IN POINT: BREACH OF CONTRACT

Home or visitors? When a contract is breached in another province or country, there are a variety of factors determining who has jurisdiction BACKGROUND

The right place to sue WHEN an employer operates in multiple provinces or countries, it can be subject to varying laws of different jurisdictions. Things can also get tricky if its operations in different locations overlap and employees in one jurisdiction are overseen by an office in another jurisdiction. If an employment contract is breached or one party decides to launch a legal action, there are factors to take into account before the courts of a particular region assume jurisdiction, and also precautions employers can take with their employment contracts to give them a better indication of where legal proceedings will take place.

| BY NIKOLAY CHSHERBININ | THE ASSUMPTION of jurisdiction by courts over tort cases in which plaintiffs sue in one province, but at least some of the events that gave rise to the claims occurred outside the province, is often highly discretionary and unstable. In Van Breda v. Village Resorts Ltd., the Supreme Court of Canada crafted a new test, which requires a plaintiff to identify “presumptive connecting factors” that might link a legal situation to a court’s jurisdiction. If no presumptive connecting factor applies in the circumstance of a case, or if the presumption of jurisdiction resulting from such a factor is properly rebutted, the court will lack jurisdiction on the basis of the common law real and substantial connection test. While vacationing in Cuba, Morgan Van Breda suffered catastrophic injury, which rendered her a paraplegic. Upon her return to Canada, Van Berda sued the resort and its associates in the Ontario Superior Court of Justice. Some of the defendants, including those who were served outside Ontario, moved to dismiss the action for want of jurisdiction. At each level,

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the Canadian courts found there was a connection between Ontario and the resort, because prior to their departure Van Breda’s husband, a professional squash player, entered into a contract with the resort through an Ottawa-based travel agent, requiring him to provide two hours of tennis lessons a day in exchange for bed, board and other services. The benefit of this contract was extended to Van Breda, who was injured in the context of her husband’s performance of his contractual obligations. The existence of a contract made in Ontario was the presumptive connecting factor, which entitled the Ontario courts to assume the jurisdiction. The Supreme Court of Canada acknowledged that a sufficient connection existed between Cuba and the subject matter of the litigation to support an action in Cuba. However, the court concluded that Cuba would present serious challenges to litigation due to problems with witnesses, concerns about the application of local procedures and expenses linked to litigation in Cuba. The court determined that the burden on Van Breda would be far heavier if she were required to bring her action in Cuba.

Connecting factors important in determining jurisdiction Van Breda draws a clear line between the assumption of jurisdiction and forum non conveniens, which concerns the court’s discretion to decline to exercise its jurisdiction. Forum non conveniens comes into play only after the court’s jurisdiction over a claim is established. It is not relevant to the jurisdiction analysis itself. Presumptive connecting factors entitling a court to assume jurisdiction over a dispute, exist if: •The defendant’s location or resident is in the province •The defendant carries on business in the province. •A contract connected with the dispute was made in the province •The tort is committed in the province. The Supreme Court of Canada made it clear that this “list of presumptive connecting factors is not closed.” It acknowledged that, over time, courts may identify new factors that also presumptively entitle a court to assume jurisdiction and the burden of rebutting the presumption of jurisdiction rests on the party challenging the assumption of jurisdiction. For example, where the presumptive factor is a contract made in the province, the presumption can be rebutted by showing that the contract had little or nothing to do with the subject matter of the litigation. In the context of employment law, the working of jurisdiction is aptly demonstrated by the Ontario Divisional Court’s decision in Elguindy v. Core Laboratories Canada Ltd, which involved the claim for damages based on the tort of inducing breach of contract. The employee asserted that

Published by Canadian HR Reporter, a Thomson Reuters business 2012

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CANADIAN EMPLOYMENT LAW TODAY

CASE IN POINT: BREACH OF CONTRACT

Location of damage sustained is a connecting factor ...continued from page 4 sometime after he was hired in Ontario, there was a telephone communication between his new employer and his former employer in Alberta, which resulted in his dismissal. The central issue was whether the tort of inducing breach of contract was committed in the province of Ontario. The court held that the geographical source of the inducement was of no consequence. Having referred to cases which held that the representation cannot be said to have been made until received, the court concluded that if the representation is received in a particular province, the tort of inducing breach is deemed to be committed in that province. The Ontario Rules of Civil Procedure and the Supreme Court of Canada — since the 1994 decision of Tolofson v. Jensen — have stipulated that claims related to a tort committed in Ontario entitles the province’s courts to assume jurisdiction over a dispute. In addition, the use of damage sustained, which in the context of the tort of inducing breach of contract is an actual breach of contract, serves as a connecting factor which would squarely place a claim within the jurisdiction of the Ontario courts. However, in Van Breda, the top court cautioned that the unreserved use of damage as a connecting factor may raise difficult issues and therefore presumptive effect cannot be accorded to this factor. For torts like defamation and inducing breach of contract, sustaining damage often completes the commission of the tort and often tends to locate the tort in the jurisdiction where the damage is sustained. In other cases the situation is less clear, because an injury may happen in one place, but the pain resulting from it might be felt in another country.

Important clause in employment contracts for interjurisdictional employers Given that the list of presumptive

connecting factors is not closed, in order for inter-jurisdictional and international employers to potentially avoid courts of a specific jurisdiction, they should include the forum selection clause in their employment contracts.

In order for interjurisdictional employers to potentially avoid courts of a specific jurisdiction, they should include a forum selection clause in their employment contracts A recent case in point is Mackie Research Capital Corp. v. Mackie, where a corporate merger was followed by dissatisfaction that caused employees to resign and take positions with a competitor. The action concerned the rights of the company and the obligations of some of the employees under the merger agreement made in Ontario and breached in Alberta. Under the merger agreement, it was agreed that the Ontario courts should have jurisdiction, even though the employees lived in Alberta. Justice Low had no difficulty in holding that Ontario had jurisdiction over the matter and despite the fact that the majority of defendants reside in Alberta, the conduct alleged to have been engaged in by the defendants took place in Alberta and that a significant number of witnesses reside in Alberta, he refused to exercise his discretion to override the forum selection clause. The Ontario Superior Court of Justice observed that: “the balance may favour Alberta as the more convenient forum does not per se constitute strong cause.” It explained that the agreement was not the product of uneven bargaining position. Both parties “were sophisticated business people, represented by solicitors, concluding a sophisticated series of transactions.” In circumstances of unequal bargaining power, employers should be mindful of the public policy concerns

when imposing the forum selection clause on their employees without notice and fresh consideration, as exemplified in Hayes v. Peer 1 Network Service Solutions Inc., where the Ontario Divisional Court set the master’s decision with regards to jurisdiction aside, in circumstances where a dismissed employee’s employment contract contained a clause in which the law of the state of Washington was chosen to govern the agreement. CELT

For more information see: ■Van

Breda v. Village Resorts Ltd., 2012 CarswellOnt 4268 (S.C.C.). ■Elguindy v. Core Laboratories Canada Ltd.,1987 CarswellOnt 497 (Ont. Div. Ct.). ■Tolofson v. Jensen, 1994 CarswellBC 2578 (S.C.C.). ■Mackie Research Capital Corp. v. Mackie, 2012 CarswellOnt 8457 (Ont. S.C.J.). ■Hayes v. Peer 1 Network Inc., 2007 CarswellOnt 4093 (Ont. Div. Ct.).

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment barrister in Toronto. He can be reached at (416) 907-2587, nc@nclaw.ca or by visiting www.nclaw.ca.

MORE CASES IN POINT To view more Cases in Point and other Canadian Employment Law Today articles, go to www. employmentlawtoday.com and click on “Advanced Search,” where you can search for articles by keywords or department.

Published by Canadian HR Reporter, a Thomson Reuters business 2012

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This article appeared in the September 17, 2012 issue of Law Times, column “Labour Pains”

Court Offers Guidance on Injunctions for Breaching Non-solicitation Covenants Generally speaking, there are two types of injunctions: mandatory and prohibitory. Like the two-headed god Janus, these injunctions are looking in different directions. The former is looking to the past for a remedy in the sense that it requires a defendant to undo some wrong done. The latter is looking to the future in that it seeks to restrain, either permanently or temporarily, the defendant from committing a specified act. In its recent decision, Edward Jones v. Voldeng, the British Columbia Court of Appeal considered the test for granting an interlocutory injunction in the context of the violation of a non-solicitation covenant contained in the employment contract of an investment adviser. The court discussed the effects of violating a non-solicitation and noncompetition covenant and offered helpful observations with regards to the irreparable harm and balance of convenience components of the three-prong test. The test also requires an applicant to establish that there is a serious question to be tried. In this case, an investment adviser, Randy Voldeng, resigned from Edwards Jones to join its competitor, RBC Dominion Securities Inc. Voldeng’s employment contract prohibited him from soliciting, directly or indirectly, sales to or from any of Edward Jones’ customers for six months following his departure. Prior to his resignation, Voldeng emailed a number of his clients informing of his departure and advising that he would call them “personally in the next few days to answer any questions and address any concerns you may have.” One month after he joined RBC, accounts valued at approximately $20.2 million had transferred to RBC. In response, Edwards Jones brought and obtained an interlocutory injunction that prohibited Voldeng from initiating any contact with any former client for six months. On appeal, the court held the prohibition was too broad and overruled it. Voldeng successfully appealed on a number of grounds, chief among them that the chambers judge erred in finding that the apprehended financial injury to Edwards Jones constituted irreparable harm. Referring to the Supreme Court of Canada decision Wale v. British Columbia (Attorney General), the court observed that neither of the terms irreparable harm or balance of convenience has a precise meaning. They are more properly seen as guides that take colour and definition in the circumstances of each case. Recognizing that these elements of the test require consideration, the court rigorously considered them with a particular focus on irreparable harm, which is an essential factor in determining the appropriateness of an interlocutory injunction. Relying on its earlier decision, Onkea Interactive Ltd. v. Smith, the court observed that irreparable harm comes in two types: harm that cannot be quantified in monetary terms, such as permanent market loss or irrevocable damage to business reputation, and harm that cannot be compensated, such as the inability to collect damages.


On injunction, the chambers judge accepted that the case before him fell within the first category and erroneously concluded that B.C. law differs from Ontario in that in the western province, “damages may not be an adequate remedy for a breach of a nonsolicitation covenant on the basis that it would be extremely difficult for the plaintiffs to separate damages for loss of business caused by the breach from those resulting from normal, fair competition.” On appeal, Voldeng successfully contended that the harm flowing from the violation of non-solicitation covenants differs from breaches of non-competition covenants. The appeal court agreed. “The damages that flow from a breach of a non-solicitation covenant in the employment contract of an investment advisor generally are calculable because the industry is regulated heavily,” the court stated. “The value of the portfolio of a departing client is known, as is the return to the brokerage firm of managing that portfolio.” Having determined that Edwards Jones was able to calculate its exact financial loss, the court concluded that Voldeng’s solicitation did not constitute irreparable harm. In doing so, the court cautioned that while most improper solicitations may result in calculable damages, “it must not be assumed that all will”. In contrasting the effect of violating a non-competition covenant, the court observed that it usually would not be possible to tell whether business is lost to the employee’s new employer as a result of legitimate or illegitimate competition. Therefore, such damages, not being calculable, generally constitute irreparable harm. Turning to the balance of convenience prong of the test, the court concluded that it favoured Voldeng when it noted that “in the context of a non-solicitation covenant, the interests of an individual investment adviser and his or her clients often tips the balance of convenience in favour of the investment adviser.” In fact, the court was of the view that an interlocutory injunction may cause irreparable harm to Voldeng because, “if his conduct were found to be proper, it would not be possible to determine which of his client would have shifted to RBC if he had been able to inform them of his new contact particulars.” Having acknowledged that the interests of third parties should be taken into consideration when assessing the balance of convenience, the court stated: “Arguably, any contact with former clients is solicitation, but this court has made it clear that in certain relationships, some such conduct is not only proper, but is desirable.” This conclusion folds perfectly into the general proposition that nobody “owns” clients. Instead, they should be free to receive information from all competitive sources and have the ability to decide if they will follow an investment adviser. I must sound a note of caution about Voldeng, however. It should not be taken as establishing a special “investment advisor” category of relationship to which the general principles governing the grant of an interlocutory injunction would not apply. While the interests of the clients of investment advisers are a legitimate factor to take into account, it is but one question in the overall context of the injunction analysis. It should not be considered as unique to that relationship because there are many other situations in which similar interests may be relevant.

Nikolay Chsherbinin is an employment lawyer in Toronto. He can be reached at 416-907-2587.


This article appeared in the June 4, 2012 issue of Law Times, column Labour Pains

GASTOPS OFFERS LESSONS FOR EMPLOYEES AND EMPLOYERS The law expects much of employees. Not only does it require them to serve their employer honestly and faithfully, it places an implied obligation upon them to act in the best interests of their employer, at all times, even if they’re not fiduciaries. The court may classify departing employees, who are in a position to affect substantive interests of their employer, as fiduciaries and find them liable for as much as $20 million in damages, as exemplified by the legal saga of GasTOPS Ltd. v. Forsyth. GasTOPS broadened the law of fiduciary duty to provide former employers with protection against disloyal “key employees” who are neither executives nor senior management. The truncated version of facts of the case, which spanned 10 years of litigation, was tried over 295 days, amassed 70,000 pages of exhibits, cost $4.2 million, and produced a 668-page judgment, are as follows: since 1979, GasTOPS has been an industry leader in the area of the condition-based maintenance of jet engines. It occupied a highly specialized niche with few clients that each generated significant revenues. In October 1996, four of its key employees resigned on two weeks’ notice to set up in competition. Shortly thereafter, they orchestrated the exodus of a number of other GasTOPS employees who joined their new company, MxI Technologies Ltd. Despite their written assurances to the contrary, the defendants pursued virtually every existing and potential GasTOPS’ customer. Using the “very special” confidential technical information they obtained while at GasTOPS, they offered customers a seamless transition to MxI and the next iteration of GasTOPS’ products. The harm to GasTOPS was immediate and significant. At trial, the judge found the four personal defendants to be fiduciaries. He dismissed the two defendants’ claim that they were merely technical employees when he noted that “even highly skilled technical employees may be found to be fiduciary employees if they are crucial to the direction and guidance of the company.” In consideration that these two defendants were responsible for developing a significant commercial component of GasTOPS’ business, privy to its sales strategies and contractual relations between the company and its existing and potential customers, and performing their responsibilities with little supervision, the judge was of the opinion they were “key employees” and, as such, owed fiduciary duties to their employer. In addition, the judge found the defendants had breached their employment contracts and fiduciary duties by giving two weeks’ notice of resignation, knowing the other employees would follow, with devastating effects on GasTOPS. The situation left the company unable to fulfil its existing contracts or continue to pursue the business opportunities it had been cultivating. In the judge’s opinion, the defendants were under


an obligation to provide GasTOPS with “at least” 10 months’ notice. After a very lengthy trial, the judge ordered MxI to disgorge the profits it earned over its first 10 years — about $12 million — and found the four personal defendants severally and jointly liable in the same amount. Finally, he ordered prejudgment interest of about $3 million and full indemnity costs of more than $4 million. Perhaps not surprisingly, the defendants appealed. On appeal, the defendants challenged the 10-year disgorgement period. The Court of Appeal upheld the trial judge’s use of the 10-year accounting period as “entirely reasonable” because it “reflected the highly specialized nature of GasTOPS’ business, the time required to develop and evolve its suite of products, and the useful life of the confidential information taken from it.” In coming to its conclusion, it was “of importance” to the court that MxI engaged in “much more” than unfair competition within the small and highly specialized market. In addition, the court viewed the very commercial success the defendants enjoyed, which stemmed from the misuse of confidential information they appropriated, as supportive of the 10-year accounting period. Nevertheless, the court made it clear that the choice of an accounting period in cases of breach of confidence “depends very much on its particular facts.” In dealing with the personal defendants’ failure to provide reasonable notice of resignation, the court found it unnecessary to consider the length of reasonable notice that should have sufficed because the trial judge didn’t assess separately and quantify the damage award. Instead, it stated: “Suffice it to say that we should not be taken to agree with the 10-12 months suggested by the trial judge or the factors he considered in reaching that period.” The court’s passivity on this important issue may be viewed from two perspectives. First, it could be seen as reinforcing the notion of fairness by requiring “key employees” to reflect on the impact their hasty departure would have on their employer. This is consistent with the current law, which requires employees to give reasonable notice of termination of the employment relationship and restricts post-employment misuse of confidential information. Alternatively, the court’s passivity could be seen as disapproving the imposition of a lengthy period of common law notice of resignation on departing employees. This is consistent with the Supreme Court of Canada decision in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., a case with similar facts to GasTOPS, in which virtually all of the investment advisers left their employer without notice. In RBC, the top court upheld the trial judge’s finding that 2-1/2 weeks’ notice of resignation should have sufficed, which the judge calculated by taking into account “the effect on RBC of the simultaneous departure of virtually the entire staff of the branch” and the culture of the industry. Contrasting the 2-1/2 weeks’ notice with the remarkably unusual 10 months recommended in GasTOPS, it becomes clear that the small size and highly specialized nature of the industry was key to the court’s preference over the common law industry standard. In light of GasTOPS, employers and employees should beware of the following practical considerations: — Although there is no single litmus test for assessing a fiduciary relationship, the job function and the responsibilities are more determinant of the issue than the title an employee holds.


— Employees terminating their employment may be liable for the failure to give reasonable notice and for breach of specific residual duties. In the absence of a contractual provision regarding notice, prudent employees should act reasonably and offer their employer an option to discuss the possibility of extending their effective date of resignation. Such a proactive approach to resignation may shield departing employees from liability and provide a defence to their employer’s claim that notice of termination of employment was insufficient. — Post-employment use of confidential information misappropriated from the previous employer as a springboard to commercial success can be a costly gamble for both former employees and their new employers.

Nikolay Chsherbinin is an employment lawyer in Toronto. He can be reached at 416-907-2587, nc@nclaw.ca or nclaw.ca.


CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS

FEBRUARY 22, 2012

Illegality of employment frustrates contract Legislative changes made security guard’s licence invalid so employer dismissed him | BY NIKOLAY CHSHERBININ | FRUSTRATION of an employment contract occurs whenever the law recognizes that, without the fault of either party, a contractual obligation cannot be fulfilled. Physical disability, commercial impossibility, or changes in legislation are frustrating events, which may excuse a nonperformance of contracJUST tual duties without liability. In considering the latter eventuality, the Ontario Divisional Court in Cowie v. Great Blue Heron Charity Casino resolved that an employment contract could be immediately frustrated if the frustration was induced by supervening changes in legislation that made an employee’s continued employment illegal. Cowie drew a bright line between frustrations caused by illness or disability and illegality, where the former entitles and the latter disentitles employees to severance. In 2000, Great Blue Heron Charity Casino in Port Perry, Ont., hired George Cowie as a security guard. Cowie’s employment contract required him to be licensed by the Ontario Gaming Control Commission. On June 9, 2005, Cowie was promoted to the position of Security Training Officer and on April 4, 2007, his position was re-classified to Team Leader. In August 2007, the Private Security and Investigative Services Act, 2005 (PSISA) came into effect, adding additional licensing requirements for security guards. Section 10(5) of the PSISA

requires guards to have a “clean criminal record.” On Aug. 13, 2008, Cowie was informed that he was ineligible to hold a PSISA licence due a break and enter conviction in March 1983, for which he had yet to be pardoned. Since employing Cowie without a licence constituted an offence under the PSISA, the casino informed Cowie on August 21, 2008, that their employment contract had been CAUSE frustrated. No wrongdoing on Cowie’s part was alleged nor any pay in lieu of notice was given. Predictably, Cowie sued for wrongful dismissal. He won at trial, but lost on appeal.

In This Issue ASK AN EXPERT: When to launch an investigation • Reclassifying unionized work

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CASES AND TRENDS: Employer’s rush to judgment leads to judgment against it

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CASE IN POINT: Fired employee drank too much, came to work too little

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YOU MAKE THE CALL: Firefighter burns up vacation days before retiring

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Worker tried to cover up legal troubles

On appeal, the court reversed the trial judge’s decision, stating that the trial judge wrongfully treated the situa-

AN ONTARIO government worker who lied twice about criminal charges against him does not deserve to be reinstated, an arbitrator has ruled. The worker was employed with the Canada Revenue Agency (CRA) until January 2005, and was later charged with fraud, breach of trust and personation. While the police investigation was underway, the worker applied for an enforcement service representative position at the Family Responsibility Office (FRO) of the Ontario government. Normally, a successful hire for the job would be subject to a criminal records check, but the worker was only offered a six-month contract and did not undergo the check. He began work in March 2006. In June, the worker signed a consent form for a criminal records check. The charges against him were discovered, as well as the fact his case was pending. The worker explained he had

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Suspension is a solution: Trial court The trial court found that Cowie’s contract had not been frustrated and awarded him damages equal to eight months’ salary in lieu of notice. In the trial judge’s view, the absence of a PSISA licence was not a permanent, but rather a temporary, disruption of the employment contract. She found that there was a reasonable alternative to termination — suspension of at least six months to one year — which would have allowed Cowie to obtain a pardon. In fact, Cowie obtained the pardon 3.5 months after his dismissal.

Illegality frustrates contract: Appeal court


February 22, 2012

Employers concerned with present requirements, not future ...continued from page 1 tion as akin to those involving illness or disability, rather than a situation where continued employment cannot be done legally. The court criticized the trial judge for placing too much emphasis on the notion that the disruption of the contract must be permanent in the sense of never being possible to resume in the future. In the appeal court’s view, the “real question” is whether the performance of the contract becomes a “thing radically different from that which was undertaken by the contract.” It found that to continue to bind an employer to an employment contract, when an employee by law is prohibited from performing any services under it, is imposing something radically different from what the parties originally agreed to. The legal principle that emerged from Cowie is that supervening illegality immediately frustrates an employment contract and disentitles an employee to severance. In assessing whether a contract was frustrated, employers are only required to scrutinize circumstances that disrupted the contract, without regard to what could transpire after the contract ends. In the factual context of Cowie, the

appeal court observed: “the focus is not on when, if ever, the provisions of those services will once again be legal.”

Employers beware Cowie can be credited with clarifying the law of frustration. However, it also created uncertainty for employers. As a result, employers should beware of the following practical considerations: •Despite its justification that a “lengthy and open-ended period of time” during which an employee will be prohibited from performing any services under the contract can lead to the frustration of the contract, the appeal court did not provide any guidance for employers as to how they should conduct themselves if the illegality is transient in nature. Given this uncertainty, employers that prematurely invoke the bold doctrine of frustration do so at their peril. •Employers should: update their policies and contracts to reflect the change in legislation; advise their employees of the effect of the changes, and; clearly communicate their expectations in terms of compliance with statutory requirements. Failure to do so may facilitate an argument that an employee is entitled to compensation on dismissal.

•Employers should be mindful that employees’ entitlement to notice or termination pay is only extinguished in situations where the contract is frustrated due to illegality. Section 9(2)(b) of the Ontario Regulation 288/01 makes it clear that severance is payable to employees whose contract was frustrated due to the “impossibility or … illness or injury suffered by the employee.” •Employers will always bear the onus of establishing frustration of a contract. By integrating the supervening illegality concept into the employment law, the appeal court in Cowie relied on a dated commercial case from Alberta, Petrogas Processing Ltd. v. Westcoast Transmission Co. In my view, the supervening illegality brought about by a change in legislation should not have been accepted as a ground for frustration in the context of employment. Its acceptance contributes to employeremployee power imbalance and superficially ignores the reality that it was reasonably foreseeable at the time parties — especially those operating within a licence-required industry — entered into a contract that changes in legislation may occur. After all, any statute is a “living tree capable of growth and expansion within its natural limits.” CELT

ASK AN EXPERT ...continued from page 2

that the wording associated with work within a collective agreement is drafted in such a way to deal with any future changes in the work. CELT

Ontario Labour Board said: “It is accurate to state that a party to a collective agreement cannot lawfully bargain the unit configuration to impasse.” Jobs within a bargaining unit can be reclassified, which may be a done in future collective bargaining, or the employer may be able to rely upon its management rights under the collective agreement to implement the reclassification. Some collective agreements contain specific provisions dealing with reclassification. Because collective agreements play a role in defining positions on work performed, it is very important to ensure

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For more information see: ■C.U.P.E., Local 1602 v. Haliburton, Kawartha, Pine Ridge District Health Unit, 1997 CarswellOnt 5504 (Ont. Lab. Rel. Bd.). ■Kingston Typographical Union, Local 30204 v. Kingston Whig-Standard, 2008 CarswellOnt 6613 (Ont. Lab. Rel. Bd.). ■Robichaud v. Brennan, 1987 CarswellNat 907 (S.C.C.).

Brian Johnston is a partner with Stewart McKelvey in Halifax. He can be reached at (902) 420-3374 or bjohnston@smss.com.

For more information see: ■Cowie

v. Great Blue Heron Charity Casino, 2011 CarswellOnt 13771 (Ont. Div. Ct.). ■Petrogas Processing Ltd. v. Westcoast Transmission Co., 1988 CarswellAlta 75 (Alta. Q.B.).

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment barrister in Toronto. He can be reached at (416) 907-2587, nc@nclaw.ca or by visiting www.nclaw.ca.

Published by Canadian HR Reporter, a Thomson Reuters business 2012


This article appeared in the February 13, 2012 issue of Law Times, column “Labour Pains”

Layoffs can Trigger Common Law Payoffs Wrongful dismissals come in many forms, including temporary layoffs. In E ls e g o o d v . C a m b rid g e S p rin g S e rv ic e (2 0 0 1 ) L td ., the Ontario Court of Appeal examined a novel legal issue of whether common law wrongful dismissal damages are available to employees whose dismissal was triggered by the operation of the Employment Standards Act due to the prolonged layoff. The court resolved that dismissed employees’ entitlements are not confined to remedies under the act and that common law concepts of reasonable notice would apply. Layoffs are spells of employees’ temporary unemployment. At common law, employers have no right to lay employees off. Nor does the act give employers such a right; instead, it regulates the periods and effects of layoffs when the right exists. Absent an express or implied term in a contract of employment to the contrary, a unilateral layoff is a constructive dismissal that entitles employees to damages. The Elsegood decision concerned a 48-year-old technician, Brian Elsegood, whose seven-year employment was terminated by a series of temporary layoffs that exceeded the statutory maximum of 35 weeks within a 52-week period. On April 4, 2009, Elsegood was laid off for the first time. Having recalled him on June 9, 2009, the company laid him off again on July 28, 2009. After the cumulative length of his temporary layoffs reached the statutory maximum, Elsegood brought a claim for common law wrongful dismissal damages in the Small Claims Court rather than claiming termination pay under the act. The employer argued that common law damages were not available to Elsegood because his employment status at common law survived a statutory termination by the act. The essence of the employer’s argument was that common law and the act are independent regimes. It maintained that the common law defines an employee’s actual employment status and the act operates only to entitle the employee to damages under it. On this premise, the employer unsuccessfully argued that common law damages for wrongful dismissal are available only for what would constitute a dismissal at common law and are not available for a deemed termination under the act. As a consequence, Elsegood received six months’ pay in lieu of reasonable notice together with legal costs. In rejecting the employer’s argument that the act and common law operate as two independent regimes, the court noted that “statutes enacted by the legislature displace the common law.” This proposition seems to fly in the face of the act, which in s. 8 states that “no civil remedy of an employee against his or her employer is affected by this act.” The court ultimately resolved that an employee’s status does not survive a statutory


termination because the act operates to terminate employment in law, which includes common law, and not just under the statute. The court also rejected the employer’s theory that an employee could be on a prolonged indefinite layoff but terminated for the purposes of the act as untenable because it offers no date specifying when a layoff would become a termination and thereby render the employer responsible for termination pay in lieu of notice. Referring to the terms of s. 56 of the act, which provides that the employee is terminated when a layoff reaches 35 weeks within a 52-week period, the court concluded that the legislature’s action leaves no room for the continued operation of the common law on that question. Even if one accepts that common law continues to operate independently of the act, in the court’s view the common law would always allow an employee laid off for more than 35 weeks to claim constructive dismissal. This is consistent with s. 67(3) of the act, which entitles an employee to elect whether to receive termination pay or retain the right to recall. In light of the Supreme Court of Canada’s reasoning in M a c h tin g e r v . H O J In d u s trie s L td ., a term in an employment contract that provides for a layoff exceeding 35 weeks without giving the employee the election available under s. 67(3) would be null and void because it would fail to comply with the minimum standard set out in the act. At the same time, unclear language in the act continues to mislead employers that it confers on them the power to temporarily lay employees off. The controversy stems from the language in s. 54 of the act that appears to recognize, within the very definition of the termination, the legal right to lay off: “No employer shall terminate the employment of an employee . . . unless the employer has given the employee written notice of termination.” A complicated mechanism set out in s. 56 of the act compounds the controversy through statutory qualifiers to control the metamorphosis from a layoff to a dismissal. However, a number of decisions have confirmed that reliance on the temporary layoff provisions of the act is only relevant where the right to lay off exists in the employment relationship. Given that a layoff is a contractual device, corporate counsel and human resources managers should be aware that the courts would recognize employers’ right to lay employees off when doing so forms an integral part of their employment contracts or they somehow acquiesced to it. Contractually unauthorized or authorized but prolonged layoffs are wrongful dismissals because the continued attendance of employees at the place of work for pay is an essential term of their employment contracts. It is irrelevant that an employer mistakenly or unintentionally repudiated the contract of employment as a fundamental breach occurs as a matter of fact. In light of the Elsegood decision, employers and employees should beware of the following practical considerations:


An employment contract is terminated under both the act and common law whenever a layoff triggers a dismissal under the statute.

Prolonged layoffs can lead to significant common law damages.

Employers should vigilantly monitor the duration of layoffs in order to avoid wrongful dismissal claims.

§

Employers that use the word layoff as a synonym for termination, having no intention whatsoever of recalling employees when business conditions improve, expose themselves to substantial common law damages.

§

Prudent employers should reference the possibility of layoffs in company personnel manuals, a move that could save them money at times when their financial needs are greatest.

Overall, however, there appears to be a need to reform the act in order to clarify the language dealing with employers’ statutory right to lay employees off.

Nikolay Chsherbinin is an employment lawyer in Toronto. He can be reached at 416-907-2587, nc@nclaw.ca or nclaw.ca.


This article appeared in the December 12, 2011 issue of Law Times, column Labour Pains

Court should take more active role over religious disputes As with their secular counterparts, disputes aren’t uncommon in religious organizations and may take different forms. There may be factional disagreements between members or even wrongful dismissal claims, as exemplified by the Ontario Court of Appeal decision in H a rt v . R o m a n C a th o lic E p is c o p a l C o rp . o f th e D io c e s e o f K in g s to n in C a n a d a . Central to these disputes is the court’s jurisdiction to adjudicate them. Hart concerned what may be classified as a religious dispute. It raises an intriguing question of what happens when the courts encounter employment disputes answerable by canon law. In the court’s view, wrongful dismissal claims arising from an ecclesiastical relationship are not justiciable in civil courts because they are subject to an internal review process established by a religious organization. Hart reaffirms that judicial supervision of the functioning of a self-governing organization is legally narrow. In Hart, an ordained Roman Catholic priest, Rev. Brian Hart, was appointed for a sixyear renewable term as pastor. In this role, he was subject to canon law, a normative system that governs the church and its members. From 2006 to 2008, the archdiocese placed Hart on administrative leave, suspended his facilities to exercise sacramental ministry, and ultimately removed him from his ecclesiastical office. Prior to his removal, it issued Hart three decrees, each of which he could, but did not appeal, under canon law. Instead, Hart brought an action for damages for constructive dismissal in the Superior Court. In response, the archdiocese moved to stay Hart’s action on the grounds that the court lacked jurisdiction over his claim. The motion judge found that the archdiocese’s internal processes, which are designed to address employment-related disputes, do not offend the principles of natural justice and stayed Hart’s action. Hart appealed but failed to persuade the court that it had jurisdiction to adjudicate his claim. In refusing to exercise its jurisdiction, the court explained that the Roman Catholic Church is a self-governing organization. Its canon law provides for the internal review process and offers a broad range of remedies, including the substitution of a different


decree, monetary compensation, and even a trial. Because Hart had neither exhausted the internal review process nor alleged that it breaches the requirements of natural justice, the court lacked jurisdiction to adjudicate his claim. Contrast Hart with D a v id v . C o n g re g a tio n B ’N a i Is ra e l. On a similar jurisdiction motion, the court in that case found it had jurisdiction to adjudicate Rabbi Joseph Ben David’s wrongful dismissal case despite the congregation’s internal review mechanisms and, importantly, the rabbinical court of New York’s competing jurisdictional claim. At trial, the court granted 30 months’ notice to a 59-year old rabbi terminated after 26 years. In Hart, the court explained that the general rule that the Superior Court has jurisdiction to adjudicate wrongful dismissal claims has several exceptions. One is where the essential character of an employer-employee dispute arises from the interpretation, application, administration or violation of a collective agreement. Another exception is where the rules of a self-governing organization, especially a religious one, provide an internal dispute resolution process. The former disputes must be resolved by arbitration, while the latter go through the organization’s internal procedures. Consequently, a court will interfere in the internal affairs of a self-governing organization in two situations: where the organization’s internal processes are unfair or do not meet the requirements of natural justice or where the aggrieved party has exhausted them. Significantly, the reviewing court will not consider the merits of the internal decision but will determine only whether the decision was carried out in accordance with the organization’s rules and the requirements of natural justice. The more difficult question is whether a litigant is bound to follow an internal review process instead of suing in the civil court where the relationship with a self-governing organization was multifaceted and involved property and civil rights. The answer to this question appears to turn on the nature of the litigant’s dispute with the organization. The court explained that the nature of the dispute is determined not by its legal classification but by the facts giving rise to it. In Hart, the plaintiff argued that some aspects of his dispute concerned matters of property, namely his loss of lodging. The court brushed his argument aside, stating that “at its essence this dispute is ecclesiastical.” Regrettably, the court neither delineated the contours of an ecclesiastical dispute within religious organizations nor offered factors capable of turning an internal church matter into an ecclesiastical one. Therefore, this pronouncement creates uncertainty because it is unclear which disputes are ecclesiastical and not subject to judicial oversight and which are not. This is of significance in part because in Iv a n tc h e n k o v . T h e S is te rs o f S a in t


K o s m a s A ito lo s G re e k O rth o d o x M o n a s te ry, the motion judge, having refused to grant summary judgment against a nun who sought damages for constructive dismissal, acknowledged that “the concepts underpinning the relationship between civil law, on the one hand, and religious organizations and their internal laws, on the other hand, have not been fully worked out.� It does not help to insist that the courts should avoid deciding secular legal questions in cases involving religious organizations. The prevailing argument that adjudications involving people who voluntarily chose to be a member of a self-governing organization should be governed by its internal review process creates its own difficulties. Firstly, it may well be that lawyers or even non-lawyers who drafted documents purporting to govern a particular dispute did not do so in ways that reflect the ecclesiastical or secular realities of the organization. Secondly, there may be no documentation at all. Thirdly, the organization may not have a tribunal in place governing the subject matter. Lastly, there may be a need, like in Ivantchenko, to determine who are the proper employers. In my view, the courts should take a more active role in adjudicating employment law disputes in cases involving religious organizations as long as they do not intrude into the determination of the doctrinal issues.

Nikolay Y. Chsherbinin is an employment litigator in Toronto. He can be reached at 416-907-2587, nc@nclaw.ca or nclaw.ca.

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SEPTEMBER 26, 2011

Published by Thomson Reuters Canada Ltd.

Wrongful dismissal weakens restrictive covenants

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n an era of high employee mobility, employers frequently attempt to safeguard business interests by contractually preventing employees from competing, soliciting or using confidential information once they leave. Typically, this is achieved through restrictive covenants, such as non-competition or non-solicitation clauses. But, historically, judges have been hostile towards the enforcement of restrictive covenants, correlating them with invalid restraints of trade. The judicial trend towards a discriminatory enforcement of restrictive covenants — rooted in sensitivity to employer-employee inequality — continued with a decision by the divided Alberta Court of Appeal in Globex Foreign Exchange Corp. v. Kelcher. This decision had strong dissent and raises important employment law issues, including the effect of wrongful dismissal on the enforceability of restrictive covenants, mitigation to consideration.

Sign or resign In 2003, David Kelcher, Luciano Oliverio and Mark Mac- Lean joined Globex, a foreign currency exchange company. Their jobs were governed by employment agreements that included non-competition and non-solicitation clauses. While MacLean signed his agreement when he began employment, Oliverio and Kelcher signed several agreements after working there for some time. In 2005, Globex attempted to impose more rigorous requirements on the employees. Mac- Lean refused the new terms and was dismissed. Kelcher and Oliverio resigned, but Oliverio had signed the new agreement 10 days earlier. All three joined a Globex competitor and Globex sued, alleging damages from loss of clients. The trial judge concluded, since MacLean had been wrongfully dismissed, the clauses were not enforceable against him. He also found Oliverio’s and Kelcher’s agreements were unenforceable because there was no fresh consideration

n LEGAL VIEW NIKOLAY CHSHERBININ

given for them and no implied agreement their employment would be continued if they did sign. The non-competition clauses were also unenforceable because they were wider than necessary to protect Globex business, said the judge. The majority of the Alberta Court of Appeal scrutinized the non-solicitation clause’s language, which prohibited the employees from “solicit(ing) customers in any manner whatsoever, in any business or activity for any client of Globex with which he/she had dealings.” Relying on the Ontario Court of Appeal decision in HL Staebler Company Limited v. Allan, the court explained that while Globex had an interest in protecting customers in its foreign exchange business, it did not have any legitimate interest in preventing ex-employees from contacting customers for other business. The term “dealings” was also ambiguous both in meaning and practical application, found the court. Given that MacLean agreed to the restrictive covenants when he accepted employment, his legal situation was different. Relying on the House of Lords’ decision in General Billposting Co. Ltd. v. Atkinson, the court found once an employer repudiates an employment contract by dismissing an

employee without cause or notice, it cannot enforce a restrictive covenant. To find otherwise rewards employers for mistreating employees. The dissenting judge disagreed, stating a breach of Mac- Lean’s employment contract by failure to give him reasonable notice — or pay in lieu — relieved him from any future obligation to provide his services and entitled him to damages, but it did not entitle him to ignore the other covenants. The resolution of these polarized views will likely be a cornerstone of Globex’s appeal, if any, to the Supreme Court of Canada. Continued employment alone does not provide consideration for a new covenant extracted from an employee during the term of employment because the employer is already required to continue the employment until there are grounds for dismissal or reasonable notice of termination is given, concluded the court. The dissenting judge stated consideration is a threshold issue to the enforcement of contracts, which “should not be applied in a mechanical or artificial way and not be used to undermine the legitimate commercial expectations of the parties.” He equated “commercial” with “employment” expectations, where the latter are unique due to the power imbalance between an employee and an employer demanding non-competition covenants.

Mitigation The court viewed a duty to mitigate as an additional reason why wrongful dismissal ought to relieve an employee from compliance with covenants that restrict future employability. If a wrongfully terminated employee is prevented from doing similar work because of a restrictive covenant, the ability to mitigate will be severely constrained, said the court. Contrast that view with the position of the Ontario Court of Appeal in Link v. Ven-

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ture Steel Inc. where it upheld the existence of a non-competition obligation would not completely relieve a dismissed employee from his legal duty to mitigate. “The existence of obligations contained in a restrictive covenant ought to only be a factor in considering the reasonableness of the dismissed employee’s efforts,” said the trial judge in Link.

Tips for employers Globex presents a good analysis of factors the courts consider in determining when restrictive covenants are likely to be deemed unenforceable. Employers should always ensure a restrictive covenant: • is timely and properly introduced into the

employment relationship • precisely addresses a legitimate business interest

The term ‘dealings’ was also ambiguous both in meaning and practical application. • has a termination date • limits geographical scope • defines the types of business activities that are prohibited • identifies with certainty clients that cannot be contacted.

If the employer overreaches a covenant’s scope, inevitably, its goal will be frustrated. For more information see: • Globex Foreign Exchange Corp. v. Kelcher, 2011 CarswellAlta 1356 (Alta. C.A.). • H.L. Staebler Company Limited v. Allan, 2008 CarswellOnt 4650 (Ont. C.A.). • General Billposting Co. Ltd. v. Atkinson, [1909] AC 118 (H.L.). • Link v. Venture Steel Inc., 2010 CarswellOnt 1049 (Ont. C.A.). Nikolay Y. Chsherbinin is an employment lawyer in Toronto. He can be reached at (416) 224-1050, nc@nclaw.ca or by visiting www.nclaw.ca.

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DECEMBER 14, 2009

Published by Thomson Reuters Canada Ltd.

Are your employment contracts enforceable? When it comes to notice on termination, looking ahead crucial to enforcement ost written employment contracts include a provision that limits the compensation to which an employee is entitled in the event of termination. If an employment contract provides for a period of notice that, at the time of dismissal, would be less than the employment standards minimum, is the termination provision void from the outset or does it become void when the statutory requirement first exceeds the contractual term? Courts have ruled a contractual term with a specified notice period that may be consistent with minimum employment standards at the time of the employee’s dismissal, but could “potentially” violate those standards, is void from the beginning and a reasonable notice period is to be calculated using common law principles.

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Notice provisions failing to account for the future are unenforceable The vulnerability of a clause designed to limit an employee’s right to notice was exposed by the British Columbia Court of Appeal in the 1998 decision Shore v. Ladner Downs. In this case, the employment contract stipulated the employee could be terminated with 30 days’ notice. The employee was terminated after eight months of service at a time when B.C.’s Employment Standards Act (ESA) provided for two weeks’ notice of dismissal for one year of service and one additional week for each year of service up to a maximum of eight weeks. Although at the time of termination the employee’s contractual entitlement was more generous than that mandated by the ESA, it was void from the beginning, found the court. The rationale was simple: Had the employee worked long enough, the termination provision would have resulted in him receiving less than the employment standards minimum on dismissal. Curiously, the employee would have had to work five years before the statutory requirement actually exceeded the contractual term.

■ LEGAL VIEW NIKOLAY CHSHERBININ Relying on a policy consideration outlined in Machtinger v. HOJ Industries Ltd. by the Supreme Court of Canada, the court said: “It is neither reasonable nor practical to leave the individual employee in the position of having to keep an eye on the relationship between the statutory minimum and the contractual term.” Shore illustrates that a termination provision with a specified notice period is generally void from the beginning unless the notice period is long enough to meet any potential statutory notice period requirements. Importantly, the termination provision will be void even if at the time of termination the statutory minimum has yet to exceed an employee’s contractual entitlement. Notice provisions are void for ‘potentially’ violating ESA: Court An example of a more recent case in which an employer’s attempt at limiting a notice period was thwarted is the Ontario case of Slepenkova v. Ivanov. In this case, the employee worked for 33 months under a series of ostensibly separate, fixed-term contracts, stipulating two weeks’ written notice for termination. In dismissing the employer’s argument the employee was a fixedterm employee and not entitled to the protection of Ontario’s ESA, 2000, the Ontario Superior Court of Justice said had the employee not been dismissed, her contract would

have expired after about 38 months of employment. As such, the contractual notice provision would have violated section 57 of the ESA, which provides for two weeks’ notice for an employee with less than three years’ employment. The employer argued the termination provision conformed to the ESA because, at the time of termination, the employee had yet to pass the three-year mark in her employment. However, the termination provision was void and unenforceable because it “potentially” violated employment standards, found the court. In addition, the court regarded the termination provision as an attempt to contract out of the employment standards minimum contrary to the ESA. Slepenkova demonstrates if a termination provision could ever result in notice that is less than the statutory minimum, it will be void and unenforceable. The Shore and Slepenkova decisions show courts will void a termination provision whenever there is a possibility, however remote, an employment contract provides an employee with less notice than she would be entitled to under an applicable employment standards legislation. Employers should ensure notice provisions in employment contracts satisfy, at least, the minimum statutory standards for notice and severance pay at any point in an employment relationship. If such provisions do not meet these criteria, courts will strike the contracts down. Tips for employers Employers that want to limit employees’ notice entitlement to the minimum prescribed by applicable employment standards legislation must draft termination provisions in clear and exact terms. An example of a relatively clear notice provision that is unlikely to be struck down is: “The employer may terminate the employee’s employment for any reason whatsoever, by satisfying the notice and severance pay requirements contained in the applicable employment stan-

dards legislation. No other notice or severance whatsoever, either at common law or other statutes, shall be payable.” Language that encompasses severance pay as well as notice is advisable because if an employer qualifies or in the future might qualify as a severance employer, a termination provision that only addresses notice entitlement will be voided for stripping an employee of her statutory right to severance pay. Furthermore, this example demonstrates termination provisions must refer to applicable employment standards “legislation” as opposed to applicable “law.” The latter concept creates uncertainty as to whether reference is being made only to statutory law or also to common law. It also facilitates an argument the employee signed the contract without understanding it could have the effect of limiting her right to notice. There is a tendency in Canada, which should be resisted, to hire employees on the basis of an informal hiring letter. Where the offer letter method is used, employers might want to consider drafting an employee manual that spells out notice and severance pay entitlements upon termination. It is advisable to make employment conditional upon employees accepting the terms contained in the manual. Employees should be required to sign a memorandum confirming they have read the manual and understood the effect the termination provision will have on their entitlements upon termination. For more information see: •Shore v. Ladner Downs, 1998 CarswellBC 973 (B.C. C.A.). •Slepenkova v. Ivanov, 2007 CarswellOnt 5643 (Ont. S.C.J.). •Machtinger v. HOJ Industries Ltd., 1992 CarswellOnt 892 (S.C.C.). Nikolay Chsherbinin is an employment lawyer at Grosman, Grosman and Gale in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

© Copyright Thomson Reuters Canada Ltd., December 14, 2009, Toronto, Ontario, (800) 387-5164. Web site: www.hrreporter.com


C A N A D I A N

Employment Law Today Published by Canadian HR Reporter, a Thomson Reuters business ■ www.employmentlawtoday.com CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS

Unskilled worker gets 22 months’ notice Other factors can play a role in determining notice regardless of type of job: Court | BY NIKOLAY CHSHERBININ |

that it no longer required his services. Days before his expected termination DETERMINATION of an appropriate notice date, Crown Metal informed him his period is a crux of virtually every wrong- employment would be extended by sevful dismissal lawsuit. However, there is eral weeks. Over the next five months, no formula for what will constitute Crown Metal repeatedly extended Di proper notice in circumstances sur- Tomaso’s employment for a “temporary rounding termination. In the pursuit of period” just before each termination determining a proper notice period, date. In total, Di Tomaso received five separate written notices judges are guided by the of termination, containing so-called Bardal factors: the character of the REASONABLE NOTICE a total of four termination dates. On Feb. 26, 2010, employment, the employee’s length of service, the Crown Metal closed the facility, resulting employee’s age and the availability of in a de facto termination of Di Tomaso’s comparable employment in the market. employment. Displeased with his severance packIn Love v. Acuity Investment Management Inc., the Ontario Court of Appeal age, which consisted of just his statutory acknowledged trial judges’ tendency to entitlements, Di Tomaso sued Crown give a disproportionate weight to the Metal for wrongful dismissal, seeking “length of service” factor in their assess- common law damages equivalent to 24 ment of a proper notice period. Four months’ pay. Crown Metal argued that months later, the court was presented its Sept. 9, 2009, notice of termination with an opportunity, in Di Tomaso v. was valid and Di Tomaso’s subsequent Crown Metal Packaging Canada LP, to “temporary employment” constituted an consider the “character of the employ- authorized period of “working notice” ment” factor, in the context of terminat- under Ontario’s Termination and Severing a non-managerial employee’s ance of Employment regulation. This employment, which came about through should reduce Di Tomaso’s reasonable a string of five working notices of termi- notice entitlement to 12 months, having nation. Like in Love, the court reinvigo- specific regard to the character of his rated the importance of attributing equal employment as unskilled and low level weight to all of the Bardal factors when worker, said the employer. determining notice. It further clarified Regulation’s impact on working notice the law of reasonable notice for unskilled, clerical and low level employees. Crown Metal relied on section 6 of the Antonio Di Tomaso, 62, was a 33-year regulation, that each of its extensions of non-managerial employee of Crown the notice of termination was less than 13 Metal Packaging Canada. On Sept. 9, 2009, Crown Metal informed Di Tomaso Continued on page 6

SEPTEMBER 7, 2011

In This Issue ASK AN EXPERT: Malfunctioning climate control • Workplace emergency procedures

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CASES AND TRENDS: Forklift driving reinstated after dismissal for accident

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CASE IN POINT: Employer wins right to proactive alcohol testing

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YOU MAKE THE CALL: Tug-of-war between union, employer over info

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Employee fired for refusing more hours after mat leave AN ONTARIO worker who refused to start working Saturdays when she came back from parental leave was forced to quit, the Ontario Labour Relations Board has ruled. Sasha de Moel was an administrative assistant to the owner of Niagara Granite & Marble, a seller and installer of marble and granite countertops based in St. Catherines, Ont. Hired in August 2008, she worked full days from Monday to Friday. Seven months after she started working for Niagara Granite — on March 14, 2009 — de Moel went on maternity leave with an expected return date one year later. While she was on leave, business improved on the weekends, leading Niagara Granite to increase its hours on Saturdays. On Jan. 7, 2010, de Moel called the company to arrange for her return to

Continued on page 7


September 7, 2011

Character of employment shouldn’t eclipse other factors: Court ...continued from page 1 weeks in length and, as such, the original notice remained valid, thus providing him with working notice. The court rejected Crown Metal’s argument, stating that the regulation contemplates a “single period of temporary work that is not to exceed 13 weeks.” The court further observed that to assume the regulation allows employers to give notice of termination, but then extend employment for multiple, serialized periods of less than 13 weeks would be inconsistent with the Employment Standards Act, 2000’s status as remedial, benefit-conferring legislation designed to protect the interests of employees. Additionally, the court stressed the importance of giving employees a “clear and unambiguous” notice of termination with a final termination date. The cumulative effect of the multiple extensions created uncertainty for Di Tomaso as to when he would no longer have his job.

No 12-month cap on notice In support of its proposition that Di Tomaso’s common law notice should be 12 months, Crown Metal unsuccessfully invoked the court’s 1995 decision in Cronk v. Canadian General Insurance Co., arguing it established a hard limit of 12 months on the notice to unskilled workers. This now-discredited proposition is rooted in the theory that low-level, unskilled employees have an easier time finding comparable employment. The

court disagreed, relying on its 1999 decision in Minott v. O’Shanter Development Company, which rejected the notion that 12 months is the cap for every clerical and unskilled employee. Having acknowledged its limited discretion to interfere with the motion judge’s determination of the appropriate notice, the court upheld the award of 22 months notice, adding that any interference with the original award of damages would amount to “unwarranted tinkering.” With regard to Crown Metal’s argument that Di Tomaso’s non-managerial, technical position should minimize the notice period, the court unequivocally rejected this approach. As in Love, the court observed the character of the terminated employee’s employment must not be eclipsed by other Bardal factors. The importance of this approach was stressed by the Supreme Court of Canada in Keays v. Honda Canada Inc., where the court cautioned: “no one Bardal factor should be given disproportionate weight.” The Di Tomaso decision has several important implications for employers, judges and legal advisors alike: •No longer will the “length of service” factor dominate the process of determining proper notice of termination. •The “character of employment” factor will no longer be accorded lower priority, when determining proper notice, particularly for unskilled, clerical or low-level employees. •Employers need to monitor the total

Employer didn’t consider damage serious ...continued from page 3 a dangerous situation. Cavan may have thought the same thing, said the board. “I cannot conclude that it would have been reasonable for (Cavan) to suspect that the damage he caused created a situation of imminent or obvious harm,” said the board. “It did not pass the line of constituting such reckless disregard for the safety of himself and his co-workers to constitute just cause for summary dis-

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missal.” The board also noted Cavan eventually reported the incident after the supervisor’s meeting. Given his remorse, his vow to not repeat his misconduct and his clean record, the board found a 10-week suspension, equal to the time of his dismissal to the date of its decision, was appropriate discipline. See Sysco Food Services of Toronto v. Teamsters, Local 491, 2011 CarswellOnt 6954 (Ont. Arb. Bd.). CELT

number of weeks that have passed if employment is extended beyond the original termination date. Should the employee’s last day of work fall outside 13 weeks following the original notice of termination, a new notice of termination must be provided. •All notices of termination must be clear and unequivocal and must specify, preferably in writing, the employee’s final day of work. Without such clarity, judges may find the employee is entitled to her entire common law notice from the date of dismissal, despite any prior working notice. •The law of reasonable notice for unskilled employees has been clarified. In both Love and Di Tomaso, the court rejuvenated the 51-year old Bardal factors. It sent a clear message that employers dismissing employees without cause should properly recognize and afford equal weight to all the Bardal factors when determining proper notice of termination. This, however, may cause employers uncertainty when calculating pay in lieu of notice, necessitating legal advice before proceeding. CELT

For more information see: ■Love v. Acuity Investment Management Inc., 2011 CarswellOnt 1060 (Ont. C.A.). ■Di Tomaso v. Crown Metal Packaging Canada LP, 2011 CarswellOnt 5356 (Ont. C.A.). ■Cronk v. Canadian General Insurance Co., 1995 CarswellOnt 1200 (Ont. C.A.). ■Minott v. O’Shanter development Company, 1999 CarswellOnt 1 (Ont. C.A.). ■Keays v. Honda Canada Inc., 2008 CarswellOnt 3743 (S.C.C.).

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment lawyer for Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

Published by Canadian HR Reporter, a Thomson Reuters business 2011


THE NATIONAL JOURNAL OF HUMAN RESOURCE MANAGEMENT

www.hrreporter.com

OCTOBER 19, 2009

Published by Thomson Reuters Canada Ltd.

Contracts let employees off mitigation hook Contractually set severance payments can remove dismissed worker’s duty to mitigate damages by looking for another job s a general rule, dismissed employees have a duty to take reasonable steps to reduce or mitigate their loss by looking for another job. If an employment contract provides for a severance payment upon termination, the question is whether the employee is still obligated to mitigate her loss. Recently, the Ontario Court of Appeal touched on this issue in two cases: Soye v. Corinthian Colleges Inc. and Wronko v. Western Inventory Services. It ultimately concluded that, when an employment contract expressly provides for a severance payout either immediately or very shortly after termination, it relieves an employee of the duty to mitigate her loss by looking for alternate employment. In Wronko, Darrel Wronko was employed at Western Inventory as vice-president of national accounts and marketing. His employment contract included a severance provision for the payment of two years’ salary if he was terminated. The total amount of potential damages for his notice period of two years was $286,000. However, the court reduced his damages to $67,795 because he earned $218,205 in the two-year period following his termination. A peculiar feature in Wronko is that, following the release of the judgment, Wronko requested and was given an opportunity to make written submissions with respect to damages. He argued his damages award should not have been subject to the duty to mitigate. In his postjudgment submissions, Wronko pointed to a clause in his employment contract that was not previously drawn to the court’s attention. It required Western Inventory to pay his severance payment of $286,000 by no later than Oct. 31, 2004. As a result, the court issued an addendum reversing its judgment to award damages equal to two years’ salary. “By requiring (the employer) to make a lump sum payment shortly after termination, this term of the contract amounted to a waiver by (the employer) of any obligation on the part of (the employee) to mitigate,” said the court. A related issue also came before

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■ LEGAL VIEW NIKOLAY CHSHERBININ

the courts in Western Canada. In Mills v. Alberta the Alberta Court of Appeal established that, in cases where an employment contract contemplates a specific payment of salary in lieu of notice upon termination, an employee is contractually entitled to the salary component without obligation to mitigate losses. The British Columbia Court of Appeal reasoned likewise in Philp v. Expo 86 Corp. However, in Neilson v. Vancouver Hockey Club Ltd., the same court suggested that, even where there is no duty to mitigate, moneys earned may be deducted from a damages award. While it may appear Neilson implicitly overruled Philp, the latter case is still being cited as authority for the proposition articulated in Mills and Philp. The common thread running through the discussed jurisdictions is the duty to mitigate does not arise whenever an employment contract obligates an employer to make a lump sum payment of severance immediately, or very shortly, after termination. Mitigation doesn’t affect contractual pay: Court In Soye, Corinthian Colleges acquired CDI Career Development Institute in August 2003. Corinthian made attempts to enter into new agreements with a number of CDI senior executives, including Desmond Soye. The parties failed to reach an agreement and on Sept. 11, 2003, Soye’s employment was termi-

nated without cause. His employment contract provided for the payment of 12 months’ salary upon termination. The court awarded Soye $418,732 in damages for wrongful dismissal, which included $5,123 in mitigation expenses Soye incurred while looking for another job. The Ontario Court of Appeal overturned the award for mitigation expenses, stating: “The agreement provided for payment in lieu of notice regardless of whether (Soye) mitigated.” However, the decision is silent on how the court arrived at its conclusion. Arguably, a contractual guarantee of a cash payout upon termination is a “contractual right” to salary and not “damages.” As such, Soye was not subject to the duty to mitigate his loss. When is there no duty to mitigate? While Soye and Wronko certainly clarified the law of mitigation in Ontario, it is regrettable the court did not seize the opportunity to reconcile the approaches used by trial courts in deciding whether or not an employee is subject to the duty to mitigate. As such, employers are cautioned not to misinterpret the overall impact of the rulings on the general duty of mitigate. The duty to mitigate is presumed in every case, subject to the contracting parties’ contrary intention expressed in an employment contract. At present, courts will likely find an employee is not subject to mitigation in the following circumstances: •Where an employment contract provides for a lump sum payment immediately, or very shortly, after termination (per Soye; Wronko; Wells v. Conestoga Meat Packers Limited). •Where a severance provision was intended to provide an employee with a minimum entitlement in the event of termination of employment (Eady v. TrekLogic Technologies Inc.). •Where a termination provision contains an express obligation to continue to make the payment under an employment contract (Paquin v. Gainers Inc.). •Where an employer’s policy provides an employee is relieved of the duty to mitigate at the event of termination (Jardine v. Gloucester (City)). •Where a termination provision provides a choice between advance notice or a lump sum but no advance

notice was provided (Orr v. Magna Entertainment Corp.). •Where a severance provision contains an express waiver of the duty to mitigate (Neilson v. Vancouver Hockey Club Ltd.). Soye and Wronko serve as useful reminders the disposition of any mitigation-related dispute would turn on a court’s scrutiny of the language of the severance provision. The main focus of inquiry will be the parties’ intention in relation to the timing and the manner of payment of severance in the event of termination. For employees, it will be prudent to ensure severance provisions in their contracts make it absolutely clear a contractual guarantee of a severance payout upon termination is not subject to mitigation. For employers, these decisions underscore the importance of clear, direct and precise language in an employment contract, especially when drafting termination and mitigation provisions. Properly drafted, severance clauses may substantially reduce employers’ liability for damages because any amount earned in mitigation will be credited against their damages. For more information see: •Soye v. Corinthian Colleges Inc., 2009 CarswellOnt 1848. •Wronko v. Western Inventory Services, 2008 CarswellOnt 3610 (Ont. C.A.). •Mills v. Alberta, 1986 CarswellAlta 149 (Alta. C.A.). •Philp v. Expo 86 Corp., 1987 CarswellBC 335 (B.C. C.A.). •Wells v. Conestoga Meat Packers Limited, 2007 CarswellOnt 7197 (Ont. S.C.J.). •Eady v. TrekLogic Technologies Inc. (April 30, 2008), Doc. 04-CV280897 (Ont. S.C.J.). •Paquin v. Gainers Inc., 1991 CarswellAlta 88 (Alta. C.A). •Jardine v. Gloucester (City), 1999 CarswellOnt 437 (Ont. Gen. Div.). •Orr v. Magna Entertainment Corp., 2008 CarswellOnt 2398 (Ont. S.C.J.). •Neilson v. Vancouver Hockey Club Ltd., 1988 CarswellBC 143 (B.C. C.A.). Nikolay Chsherbinin is an employment lawyer at Grosman, Grosman and Gale in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

© Copyright Thomson Reuters Canada Ltd., October 19, 2009, Toronto, Ontario, (800) 387-5164. Web site: www.hrreporter.com


This article originally appeared in the Ontario Bar Association, Employment Newsletter in Volume 13, No.1, January 2011 issue.

KEEPING ECONOMIC TORTS SEPARATE AND APART By Nikolay Y. Chsherbinin The tort of inducing breach of contract is a perplexing yet fascinating legal phenomenon. It arose from the action for enticement of a servant contained in the Statute of Labourers of 1349. Fundamentally, the inducement tort is about persuading a contractor to defect. Perhaps, the most colourful example of this tort comes from the Book of Genesis, where the Devil, disguised in the shape of a serpent, induced Eve to deliberately breach her promise to God not to eat a fruit. This metaphor introduces an interesting legal quandary: did the Devil intend to use Eve as a means to harm God, or did the Devil intend to use Eve to procure a breach of her contract with God as an end in itself? By virtue of his contract with Eve, God acquired a right in law and an expectation in fact, that Eve would comply with her contractual promise not to eat the fruit. The contract made certain factual and previously licit conduct (eating the fruit) wrongful. God suffered damage, because Eve ate the fruit and this was due to the deliberate acts of the Devil. But what is God’s complaint in law? Is it that the Devil committed an actionable wrong by deliberately procuring Eve to breach her contractual promise to God, or that the Devil induced Eve to harm God? One might argue this is a distinction without a difference. The former, however, is the instance of the inducement tort, while the latter of the tort of causing loss by unlawful means, where the Devil’s lies are unlawful means. Though both torts have strict requirements of intention, what the defendant intends is different in these two torts. Where the inducement tort is alleged, the defendant must intend to and actually procure a breach of a complainant’s contract, while in the tort of causing loss by unlawful means the defendant need to intend to cause harm. More specifically, these torts demand: Tort of Inducing Breach

Tort of Causing Loss by Unlawful Means

1. The knowledge of contract

The defendant’s wrongful interference with the actions of a third party in which the plaintiff has an economic interest

2. Intention to procure the breach of contract

Intention to cause loss to the plaintiff

3. Actual breach of contract

Use by the defendant of unlawful means

4. Damage

Loss in any form, for example, frustration of


economic expectations

Canadian courts’ confusion with regard to the scope and elements of the inducement tort continues to flourish. For example:

2008 In O’Dwyer1, the Ontario Court of Appeal found the trial judge erred in imposing liability under the inducement tort, when there was no valid contract: "…one of the essential elements necessary to make out this tort is that the plaintiff has a valid and enforceable contract with a third party…as found by the trial judge, the Rideau-Carlton Raceway had not yet hired the respondent. The raceway was simply contemplating rehiring the respondent for the coming season. Thus, there was no valid and enforceable contract in existence that could result in the application of this tort." In Drouillard2, the same court reversed the trial judge’s decision which mistakenly awarded damages under the tort of intentional interference with economic relations as opposed to the inducement tort. In assessing damages, the trial judge relied on the defendant’s "wrongful act of procuring [the employment contract’s] breach"3, which is one of the requisite elements underlying liability in the inducement tort. In addition, the refusal of the Ontario Court of Appeal to decide "whether in order to succeed the plaintiff must show an unequivocal breach of the contract or whether something short of this will suffice"4, further exacerbated the atmosphere of judicial confusion in Canada about the legitimate scope of the inducement tort. The answer to this question was supplied by the House of Lords in OBG5, where it was determined that the breach of a contract "is of the essence".6 This statement of the law has since been adopted in Canada. 2009 In SAR Petroleum Inc.7, the New Brunswick Court of Queen’s Bench found that the motion judge mistakenly identified "an intention to cause loss"8 as one of the essential elements of the inducement tort. It is worth emphasizing that a desire to harm is not an essential ingredient of the inducement tort, but the tort of causing loss by unlawful means.9 In Tireco Inc.10, the motion judge held that: "[i]f a defendant engages in contractual relations with a third party that, to its knowledge, are incompatible with the third party's obligations to the plaintiff, the elements of the intent and inducement are established."11

                                                                                                              1

O'Dwyer v. Ontario (Racing Commission), 2008 ONCA 446, paras. 54-55 (ONCA) Drouillard v. Cogeco Cable Inc., 2007 ONCA 322 (ONCA) 3 Ibid. para.32. 4 Ibid. para. 34. 5 OBG v. Allan, [2008] 1 A.C.1 (H.L.). 6 Ibid. para. 8 7 SAR Petroleum Inc. v. Peace Hills Trust Co., 2009 CarswellNB 307 (N.B. Q. B.). 8 Ibid. para. 41. 9 OBG, supra note 5 para. 193. 10 Tireco Inc. v. YHI (Canada) Inc., 2009 CarswellOnt 6404 (Ont. S.C.J.) leave to appeal refused Tireco Inc. v. YHI (Canada) Inc. (2009), [2009] O.J. No. 4245 (Ont. Div. Ct.). 11 Supra note 55 para. 20. 2


In support of this proposition, the motion judge mistakenly cited the OBG decision, which caused the New Brunswick Court Appeal in SAR Petroleum Inc.12 to comment: "[w]ith great respect [OBG] does not support [the motion judge’s] proposition."13 In addition, the motion judge misstated the elements of the inducement tort concluding that one of: "[t]he elements necessary to found a claim based on inducing breach of contract [is]…the suffering of damages by the plaintiff"14. In support, the motion judge cited the Ontario Court of Appeal decision Correia15, which does not stand for such a proposition. Instead, the Correia decision, which adopted the elements of the inducement tort as articulated in OBG, requires that: "...(4) the plaintiff suffered damage as a result of the breach".16 "Damage" and "damages" differ of course: the former is a form of an injury or loss, while the latter is a sum of money paid in compensation for it. 2010 In Alleslev-Krofchak17, the Ontario Court of Appeal found that the trial judge erred in finding that "frustrating [of]…contract could satisfy the requirement of the inducement tort." The trial judge’s conclusion reflects earlier uncertainty surrounding this element. Against this background, one can’t help but ask: what a state our law has gotten into, if you have to go to the Court of Appeal to sort out elements of the inducement tort and the nub of liability for assessment of damages that flow from this tort? The Drouillard, SAR Petroleum Inc., O’Dwyer, Tireco Inc. and Alleslev-Krofchak decisions demonstrate that: 

intentional interference, being the foundation for most economic torts, does not translate into identical elements, scopes or rationales; and

the trial courts need to get a grip on the scope of the inducement tort, since it is particularly apt to misapplication due to its similar and yet fundamentally distinct from the torts of causing loss by unlawful means and intentional interference with contractual relations structure.

I note, parenthetically, that the tort of intentional inference with contractual relations – referred to in Canada by various nomenclature e.g. the tort of intentional interference with prospective economic advantage, the tort of intentional interference with a trade or business, the tort of intentional interference with economic relation or the tort of unlawful interference with contractual performance – has been eradicated18 from the list of actionable economic torts in England, but it is still alive and well in Canada. The Nub of Liability The nub of liability underlying the inducement tort needs to be reassessed. The inducement tort should be viewed as penalizing the inducer’s conduct, rather than compensating the complainant for the breached contractual rights. This is so, because the very classification "tort" suggests that the inducement tort ought to be concerned

                                                                                                              12

SAR Petroleum Inc. v. Peace Hills Trust Co., 2010 CarswellNB 165 (N.B.C.A.). Ibid, para. 64. 14 Tireco, supra note 10 para. 16. 15 Correia v. Canac Kitchens, [2008] O.J. No. 2497 (ONCA). Infra note 212. 16 Ibid. para. 99. 17 Alleslev-Krofchak v. Valcom Limited, 2010 ONCA 557, para. 92 (ONCA). 18 OBG, supra note 5 para. 86. 13


with the inducer’s harmful conduct. In other words, but for the inducer’s wrongdoing there could be no viable claim in the inducement tort. Arguably, if properly analyzed, Canadian jurisprudence seems to support the above proposition. For example, in RBC Dominion Securities Inc.19, Merrill Lynch’s regional manager induced virtually all of RBC’s investment advisors to join his firm. Likewise, in Drouillard, Cogeco’s manager instructed its co-contractor Mastec not to hire Drouillard, resulting in termination of his employment on the day it was to begin. The nub of liability in these cases is not that a complainant’s contractual right is being interfered with, but rather that a stranger to a contract intentionally procured the co-contractor to breach its valid employment contract with the complainant. The "conduct-centred theory of liability" clarifies the real nub for liability in the inducement tort. It adopts a fault test for breach – akin to a form of strict liability – as its default rule. By concentrating on the complainant’s contractual rights, the courts ignore the Inducer’s wrongdoing. Fixation on rights, redirects attention from the fact that a civil injury, or legal wrong, in itself, forms the basis for liability. The proposed theory will also facilitate the judicial consistency, because liability in the context of the tort of causing loss by unlawful means does not center on the complainant’s contract rights, but rather on the presence of “unlawful means" used by the defendant to harm the complainant. Conclusion This article demonstrates that the courts need to learn to clearly distinguish between the rationales of the economic torts. Unless this is achieved, decisions citing misunderstood dicta will continue to flourish. While conceptual simplicity is not necessary for coherent development of economic tort liability in Canada, conceptual consistency is.

   

© Nikolay Y. Chsherbinin, B.Comm., LL.B., LL.M is an employment lawyer in Toronto. He can be reached at 416-224-1050 or nc@nclaw.ca

                                                                                                              19

RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., [2008] S.C.J. No. 56 (S.C.C.).


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JUNE 6, 2011

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Rolling the dice on disability Ending LTD benefits during notice period risky for employers mployment is a game and wrongful dismissal is a gamble. Employers sometimes roll the dice by opportunistically offering just the statutory minimum to dismissed employees instead of what workers might be entitled to under the common law. Sometimes it works — employees fold their rights and walk away. But, in other cases, workers up the ante and litigate. The pot: Recovery of significant damages, which may include the value of long-term disability (LTD) insurance benefits for the entire period of reasonable notice and beyond. A case in point is Brito v. Canac Kitchens, in which the Ontario Superior Court of Justice dealt with the vexing question of whether employers are required to continue employees’ LTD insurance coverage during a period of reasonable notice. The court found they are. This has significant ramifications for both employers and employees, albeit from different legal perspectives. It entitles dismissed employees, who become disabled during the notice period, to sue their former employers for the value of the LTD benefits they would have received had they worked during the notice period. It also refines a mechanism of converting employers into insurers liable for LTD coverage, thereby exposing them to substantive damages for terminating LTD coverage during the reasonable notice period.

E

Dismissed employee received minimum severance pay, LTD coverage On July 15, 2003, after nearly 24 years of service, Luis Romero Olguin, 55 — who was one of the seven plaintiffs in Brito v. Canac Kitchens — was dismissed without cause due to organizational restructuring at Canac Kitchens. Upon Olguin’s dismissal, the employer chose to go the “bare mini-

■ LEGAL VIEW NIKOLAY CHSHERBININ mum” route. It provided Olguin with only the statutory minimums in pay and eight weeks’ LTD coverage, and “then gambled that he would get another job and stay well,” said Justice Randall Echlin. About 16 months into what would be his common law notice, disaster struck, causing Canac Kitchens to lose its gamble — Olguin became totally disabled. On Nov. 5, 2004, Olguin had a tracheostomy tube inserted in his throat, underwent surgery for laryngeal cancer and received chemoradiation treatment until June 1, 2005. Although Olguin secured alternate employment at a much lower rate of remuneration on Aug. 1, 2003, he received no disability benefits. As a result, Olguin sued his old employer for wrongful dismissal. Canac lost its gamble, said Echlin, who awarded Olguin 22 months’ notice period at law together with “all benefit coverages for the entirety” of the notice period. In arriving at his decision, Echlin chastised Canac for consciously choosing not to make alternative arrangements to provide a loyal, long-service employee with replacement disability coverage during the notice period. When confronted with its potential, significant exposure, Canac raised the predictable argument Olguin failed to mitigate his potential dam-

ages by purchasing a replacement disability policy. But the court stated the onus is on the employer to establish the employee’s failure to mitigate. Subsequently, Canac argued that, pursuant to the language of the LTD policy, Olguin was a “notional employee” who was disentitled to receive the disability coverage because he failed to satisfy the “actively at work” requirement contained in the policy. Echlin dismissed this argument as circular logic. “If (Olguin) was to be deemed a ‘notional employee,’ then how can it be asserted that he was ‘not actively at work?’” he said. As a consequence, Canac conceded Olguin was eligible for 17 weeks of short-term disability (STD) coverage. Predictably, the language of LTD policies may soon be revised to address Echlin’s view. The court was then required to determine, following the expiration of his STD coverage, whether Olguin was entitled to receive damages for loss of LTD coverage. In this regard, Canac argued the insurance policy contractually prohibited recovery of LTD damages. Relying on the Supreme Court of Canada’s 1997 decision in Sylvester v. British Columbia — which stands for the proposition the value of LTD benefits is deductible from damages if they are paid solely by an employer — Echlin determined Olguin was entitled to the value of LTD benefits because he contributed to the costs of his disability coverage. As a result, Canac was liable for $71,000 for 22 months’ salary, $9,079 for STD entitlement and $194,214 for loss of LTD benefits up to Olguin’s 65th birthday. In addition, the court slapped Canac with $15,000 in punitive damages for its “cavalier, harsh, malicious, reckless, outrageous and high-handed treatment” of Olguin.

Lessons for employers Brito is a classic case of an employer being penny-wise but pound foolish. An award of $289,292 in damages sends a loud and clear message of the court’s disapproval of employers’ opportunistic gambling with dismissed employees’ benefits. There are several lessons from this case: •The language of a policy confining a dismissed employee’s entitlement to LTD to her statutory notice might no longer serve as a shield for employers but it will likely be exploited as a sword by employees. As such, review of the language of the LTD policy prior to dismissal of an employee is a must. •If LTD coverage is unavailable following the completion of a statutory notice, an employer should draw this to the dismissed employee’s attention and request the employee, in writing, purchase a replacement disability policy, if she so wishes. Such a considered approach may assist an employer in discharging the onus a dismissed employee failed to mitigate. •Employers that resort to hardball tactics — commonly manifested by a desire to litigate when confronted with potential, significant exposure in order to exhaust an employee financially — play such a game at their own economic peril. •In a case where a younger employee becomes totally disabled during her reasonable notice period and has no LTD coverage, the financial impact on the employer’s business may be devastating as the employer could be found liable to pay the value of LTD benefits, potentially indefinitely. For more information see: •Brito v. Canac Kitchens, 2011 CarswellOnt 934 (Ont. S.C.J.). •Sylvester v. British Columbia, 1997 CarswellBC 1025 (S.C.C.). Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

© Copyright Thomson Reuters Canada Ltd., June 6, 2011, Toronto, Ontario, (800) 387-5164. Web site: www.hrreporter.com


DEFENCE OF JUSTIFICATION IN ECONOMIC RIVALRY By Nikolay Y. Chsherbinin The area of economic torts is not comprehensible without a great deal of time and effort. The judiciary and practitioners across Canada consistently find themselves wading through elements and rationales of the two seemingly similar, yet fundamentally distinct, torts of inducing breach of contract and interference with contractual relations, confusing them in the process. Illustrative of such confusion is the Manitoba Court of Appeal decision in Johnson v. BFI Canada, 2010 MBCA 101, which involved rivals in the waste management business, where a long-time customer of one was enticed away by another. The rarely pleaded defence of justification, which allows a party to avoid liability for inducing breach of contract, was the nub of the appeal. In this case, the plaintiff, Johnson, had been an executive with the defendant, BFI. He left, and after his non-competition obligation ended, established Johnson Waste Management ("JWM"), which immediately began to compete with BFI for customers. Top Line ("TL") was BFI’s client for more than twenty years. Their business relationship was governed by BFI’s standard form of agreement, which had a rollover provision that automatically renewed the agreement, unless TL gave notice of termination at its conclusion. The agreement in question was for a three-year term and was signed on April 6, 2000. On October 17, 2000, JWM called TL in order to solicit its business, after TL’s agreement with BFI ended. TL entered into an agreement with JWM, which required it to "deliver any notice required to terminate that other agreement in accordance with its terms". Having received TL’s termination notice, BFI immediately sent its sales manager on a mission to retain its long-time client. The result was that BFI and TL renewed their contractual relationship until 2005. As a consequence, JWM sued, alleging that BFI induced a breach of contract between JWM and TL, causing it damage. BFI defended, arguing that even if it had induced a breach, it was justified in doing so, because TL’s termination notice was invalid and therefore did not terminate the existing valid agreement with BFI.


The Court of Appeal found the fact that BFI had an existing agreement with TL to be a "critical factor" justifying BFI’s interference. In the court’s view, BFI was not motivated by a desire to harm JWM, but rather by protecting its own contractual rights, which were equal or superior to the rights of the JWM. Thus, the court confirmed that the defence of justification will serve to protect "equal or superior rights" of a complainant. The rights may be contractual or derived from property. Moreover, when the defence of justification is considered, the defendant’s motives become relevant and will be scrutinized. But what if the defendant’s contract, though innocently entered into, is subsequent to the plaintiff’s prior contract? Would that innocence provide a defence, should the defendant exercise his contractual rights to the detriment of the plaintiff? In Drouillard v. Cogeco Cable Inc., 2007 ONCA 322, the Ontario Court of Appeal observed that: "the absence of malice or bad faith is insufficient to establish the defence". Of course, it might be possible for the innocent defendant to insist on the superiority of his contractual rights by arguing that he merely prevented the performance of the plaintiff’s contract rather than induced its breach. To fully appreciate the defence of justification, it is important to understand its realm. In Johnson, the trial judge mischaracterized the cause of action, since he described and dealt with the tort of intentional interference with contractual relations ("Interference Tort"), rather than the tort of inducing breach of contract ("Inducement Tort"). The scope, rationale and elements of these torts differ, as does the availability of the defence. The Inducement Tort is narrow in scope and addresses the issue of persuading a contractor to defect, while the Interference Tort is broader and designed to enforce basic standards of civilized behavior in economic rivalry. More specifically, these torts demand:

Inducement Tort 1. The knowledge of contract

Interference Tort

2. Intention to procure the breach of contract

Interference with the plaintiff’s business or livelihood by unlawful means an intention to injure the plaintiff

3. Actual breach of contract 4. Damage 5. A Lack of justification

-Economic loss caused to the plaintiff --

Despite Justice Aitken’s dictum in Alleslev-Krofchak v. Valcom Ltd., 2009 CanLII 30446 (ON S.C.J): "the law is unclear as to the extent to which justification is available as a defence to the tort of intentional interference with economic relations…" the defence of justification is only available


under the Inducement Tort. Given that interference with the plaintiff’s business or livelihood by "unlawful means" is an essential element of the Interference Tort, the defence of justification is, arguably, unavailable to the defendant, because actions unlawful in themselves could not be justified. Significantly, since the Interference Tort does not require a pre-existing contract, the defence of justification is unavailable, simply because there could be no contract breach that can be justified. To expand the realm of the defence into the Interference Tort would allow opportunistic complainants to impel courts into treating expectations as rights, which do not concur. Rights are legal and relate to liability (e.g. breach of contract), while expectations are factual and relate to damage (e.g. frustration of economic expectations). In Drouillard, the court made it clear that the defence "…has a narrow scope". Therefore, if the defence is left broad, the law on it will be rendered unstable. Exactly what is involved in the defence of justification is not clear, as is the range of conduct that will constitute lawful justification. In Drouillard, the Ontario Court of Appeal acknowledged that: "…there is little useful modern Canadian authority for this principle…." Mostly, in dicta, the courts outline what will not constitute justification. On analysis, case law reveals that the defence covers three areas: (1)

protecting private rights. The defence will be available, where there is a collision of contracts, as in Johnson. Specifically, where the contract between B and C, the breach of which has been induced by A, is inconsistent with a preceding contractual relationship between A and B, or if A might have achieved the same end, of bringing about the termination of the contract between B and C by the exercise of legal rights otherwise available to A;

(2)

protecting private interests. The defence will be available where the breach of contract is induced by moral obligation. An example of this occurs when a doctor or lawyer gives medical or legal advice. Though the mere advice does not give rise to the Inducement Tort, there may be situations where that advice is deemed to be persuasion.

(3)

protecting the public interests. A public body may induce a breach of contract and justify its bona fide actions. In Posluns v. Toronto (1966), 53 DLR (2d) 193, the Toronto Stock Exchange had withdrawn approval for the plaintiff’s continued employment, which had been subject to the Exchange’s control. They were justified in any consequent breach they


induced. Obviously, any defence of public interest has to be weighty enough to persuade the court that it is a social interest of greater public import than is the interest involved in protecting the plaintiff’s interest. While it is clear that the defence of justification has a narrow scope, its precise limits remain obscure. The defendant may be justified in invading the plaintiff’s contractual right, if the interference is premised on a prior existing legal right, or in furtherance of the greater public’s, and not his/her own, interest. In order to determine this, requires an evaluation and balancing of the social import of conflicting interests of the respective parties, the public interest per se, the defendant’s motive, object and reason for inducing a breach of contract. Undoubtedly, the interests in life, health, reputation and the public interest are more fully protected from invasions than is the interest in contractual rights. Perhaps, in the fullness of time, the appropriate fact situation will allow for an enhancement of the guidelines describing this conceptually interesting defence. © Nikolay Y. Chsherbinin, B.Comm., LL.B., LL.M is an employment lawyer in Toronto. He can be reached at 416-224-1050 or nc@nclaw.ca


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Wrongful dismissal damages for employee fired after fire upheld Appeal court’s decision reminds employers a prolonged absence is not necessarily a resignation | BY NIKOLAY CHSHERBININ | A RESIGNATION is matter of substance, not form. To constitute a valid resignation, there must be unequivocal evidence supported by conduct consistent with an employee’s intention to voluntary resign her employment. The employee’s conduct before and after the supposed resignation is relevant in making the determination. A recent British Columbia Court of Appeal decision, Beggs v. Westport Foods Ltd., serves as a useful reminder that employers who jump to the conclusion that an employee has resigned, without inquiring into reasons for the employee’s prolonged absence, do so at their economic peril. Jantsje Beggs, 52, was a 10-year employee of the Fairway Market in Port Alberni, B.C., which was owned by Westport Foods. On Feb. 18, 2009, a fire destroyed her house. The following day she called her employer and advised that she did not know when she would be able to return to work. On March 16, 2009, having not heard from Beggs for almost a month, her manager instructed the payroll department to prepare a Record of Employer (ROE). On April 3, 2009, unbeknownst to her employer, Beggs was diagnosed with anxiety and depression arising from the circumstance around the fire. In order to receive disability employment insurance, Beggs obtained a medical note stating that she was unfit to work and would be re-assessed at the end of May 2009. Consequently, she called her employer to ask for the ROE based on sick leave. She was advised the ROE had been prepared for her already and was ready to be picked up. At this point, both parties were operating on a misunderstanding about the other’s intention concerning their

employment relationship. After reviewing the ROE, Beggs learned that she apparently had quit. Beggs interpreted the ROE, which she received together with her final paycheque, as a dismissal and retained legal counsel. A dialogue ensued between Begg’s lawyer and Westport’s counsel, which resulted in an offer to return her to work. The language of the letter that purported to offer the job was guarded and ambivalent, leaving Beggs uncertain on what her situation would be. She rejected the offer and sued for a wrongful dismissal. Westport demurred, arguing Beggs had resigned and failed to mitigate her damages by not returning to work. The trial judge sided with Beggs and awarded her 11 months’ pay in lieu of notice and $20,000 in moral damages for mental distress. On appeal, the pay in lieu of notice was upheld, while the mental distress damages were overturned. In upholding the trial judge’s finding that Beggs did not resign, the Court of Appeal re-stated the test for resignation: “(A) finding of resignation requires the application of both a subjective and objective test: whether the employee intended to resign and whether the employee’s words and acts, objectively viewed, support a finding that she resigned.” This test stresses the importance for employers to learn to distinguish between the employee’s words and acts. Verbally saying “I quit,” writing “I hereby resign” or the physical act of absenteeism are not, in and of themselves, the employee’s decisions to end the employment relationship. They are mere evidence of the employee’s intention to do so. The critical factors for assessing the voluntariness of the employee’s resignation are the

employee’s state of mind and any ambiguities in relation to the conduct which is alleged to constitute resignation and, to a certain degree, the employee’s timely retraction, or attempted retraction, of her resignation. The Beggs decision serves to underscore the onus which employers bear, in almost all circumstances, of proving the employee resigned. In many cases, this involves reaching out to the employee using any means of communication and seeking out any mitigating circumstances, ensuring she has understood all of the circumstances surrounding the resignation and not rushing, as the case demonstrates, to file the ROE indicating that the employee had quit. Employers who opportunistically or carelessly snap up, or infer, the employee’s resignation, do so at their own risk. In cases where the absence is in any way caused by the employee’s personal crisis or health issues, employers are advised to reinstate the employee to her previous position. Such a good-faith approach would serve to repair the employment relationship and avoid costly litigation. See Beggs v. Westport Foods Ltd., 2011 CarswellBC 283 (B.C. C.A.). CELT

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment lawyer for Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

© Copyright Thomson Reuters Canada Ltd., March 23, 2011, Toronto, Ontario, (800) 387-5164. Web site: www.employmentlawtoday.com


This article originally appeared in the January 17, 2011 issue of Law Times

 

PARSING THE LAW OF FIDUCIARY DUTIES by Nikolay Y. Chsherbinin The law of fiduciary duty evolved from the jurisdiction of the Court of Chancery over trusts and confidences. A fiduciary is often described as someone bound to act in the best interests of a beneficiary. Equity, which is a body of substantive law supplementary to the common law, requires fiduciaries to be faithful to the trust or confidence reposed in them. To do so, the fiduciary role must be performed with fidelity. Thus, fiduciary law may generally be described as the law of fidelity or loyalty. However, it does not deal with every instance of trust or confidence but only those in which the fiduciary is in a position to affect the legal or vital practical interests of the beneficiary. Corporate directors are classic examples of fiduciaries. A claim that someone has breached a fiduciary duty involves allegations that the fiduciary has contravened reasonable expectations of loyalty and faithfulness. Remedies for such a breach lie in equity, not the common law. Given the propensity of tort duties and fiduciary duties to overlap, the next significant development in fiduciary law will likely be the manner in which the courts characterize the interrelationship between the two areas. This begs the question as to whether a stranger can be liable for inducing breach of a fiduciary duty. Such phraseology is not proper because it intuitively propositions a concurrency between the common law and equity, which does not exist. As the fiduciary duty, being equitable, was unknown to the common law, it is impossible that inducing breach of a fiduciary duty could be a common law tort akin to, for example, the tort of inducing breach of contract. The Ontario Court of Appeal decision in ADGA Systems International Ltd. v. Valcom Ltd. supports this proposition. Although tort and fiduciary law may result in similar duties, they each deal with obligations imposed for different reasons. Tort law deals with the impact of conduct between people pursuing their own individual interests without any necessary relationship between them. Fiduciary law, meanwhile, operates to sanction conduct amounting to a breach of a trust or confidence not generally found in an armslength relationship. Therefore, in the equitable parlance, the proper label for such cause of action is knowing assistance in a breach of a fiduciary duty. The liability for the equitable doctrine of knowing assistance is fault-based. The case in point is the Supreme Court of Canada decision Air Canada v. M & L Travel Ltd., in which two directors caused their corporate travel agency, a trustee of ticket revenues for Air Canada, to wrongfully deposit its trust monies in a general operating account. The deposits were made in breach of trust and were lost when the company’s creditor, a bank, seized funds from the account to pay a line of credit guaranteed by the directors. The central issue was whether the directors were personally responsible to Air Canada for their directing the company to breach its trust. The top court accepted that a stranger could be liable by assisting in a breach of trust while knowing of a dishonest or


fraudulent design of the fiduciary. The knowledge requirement for this type of liability is actual knowledge. Notably, recklessness or wilful blindness will also suffice. Air Canada is a binding authority for the proposition that fiduciaries may be liable for knowingly allowing their corporations to dishonestly participate in breaches of trust. To succeed in the claim for knowing assistance in a breach of a fiduciary duty, the four essential elements must be present: fiduciary relationship; fiduciary fraudulently or dishonestly breaching an equitable duty; the stranger having actual knowledge of the misconduct; and the stranger assisting in the fraudulent or dishonest design. The Air Canada approach provides a stark contrast to the approach expressed in Said v. Butt, which stands for the proposition that corporate fiduciaries could escape the common law liability for the deliberate breach of a contract between their corporations and a stranger if acting bona fide within the scope of their authority. While many believe the rule in that case offers fiduciaries an exemption from tortious liability, it may be argued that it instead provides them with an equitable defence rooted in their fiduciary obligation to act in good faith with a view to the best interests of the corporation. Given that governments have enshrined this equitable obligation in s. 122(1)(a) and 134(1)(a) of the Canada Business Corporation Act and Ontario Business Corporation Act, a corporate fiduciary’s equitable duty to a corporation is more important that the common law duty to a stranger. Notably, when equity and common law appear to produce inconsistent results, the equitable result prevails. It’s clear, then, that fiduciary obligations are equitable obligations, which are not compatible with common law concepts. As such, there is no tort of inducing or knowingly assisting in a breach of fiduciary duty. While corporate fiduciaries may be liable for breaches of their fiduciary duties, remedies for breach arise from equity, not the common law Nikolay Y. Chsherbinin is an employment lawyer in Toronto. He can be reached at 416224-1050 or nc@nclaw.ca


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FEBRUARY 23, 2011

Going out of business

regulation. The court agreed with this proposition and dismissed the appeal.

Recent cases in Ontario and B.C. contrast what may be owed to employees when they’re sent packing

Kitchener Frame confirms that the loss of the opportunity to earn service credits does not automatically entitle employees to severance pay. It suggests that in determining whether severance pay is payable, employers should follow these steps: •Consider the effect of a business closure on the value of pension benefits, which must take into account the value of the bridging and other supplementary benefits for eligible employees. •Compare the pension benefits employees received upon termination to the pension benefits employees would have earned if the business had not discontinued. Importantly, employers must use converted values in order to compare the value of one pension benefit to another, because it is “standard accounting and actuarial practice.” •Determine whether the total pension benefits employees received compensated them for the loss of service credits they could have earned in the normal course if the business had not closed. •Pay severance pay, if it is determined that the pension benefits received are less than what employees would have earned in the normal course if the business had not discontinued. Despite being a pro-employer decision, Kitchener Frame cautions employers that just because employees may be entitled to receive pension benefits prior to their normal retirement age without any penalty for early retirement, this might not be enough to exempt them from statutory liability to pay severance.

DISMISSED employees with a certain amount of service are usually entitled to statutory severance pay. For example Ontario employees with at least five years of service are entitled to one week of wages for every year of service up to 26 weeks, if their employers’ payroll is at least $2.5 million or 50 or more employees were dismissed within a sixmonth period due to a business closure. Severance pay compensates for loss of employees’ service credit and jobrelated benefits. But sometimes other factors can reduce this compensation. In Ontario, in the first significant decision involving a severance pay exemption — CAW-Canada, Local 1451 v. Kitchener Frame Ltd. — the Ontario Divisional Court grappled with the question of whether employers are exempted from paying severance pay to employees who retire with actuarially unreduced pension due to a business closure. In dismissing the employees’ appeal, the court found they were not entitled to severance pay if already receiving unreduced pension benefits. This employer-friendly decision can be contrasted with that reached by the British Columbia Court of Appeal in Ted Leroy Trucking v. Century Services Inc., where it considered employees’ claims for benefits recoverable from a bankrupt employer as part of wages. Ontario: Severance pay vs. pension benefits Until it went out of business in 2009, Kitchener Frame was a manufacturer of automobile parts with a generous pension plan permitting younger workers to retire early with income security. The plan specifically contemplated early retirement eligibility upon plant closure. While many employees were eligible to receive a supplementary pension payment — bridging them to the age of 65 — equal to the amount they would have received under the Old Age Security program, some were also entitled to a special early retirement allowance. Upon closing its plant, Kitchener Frame was subject to the severance pay requirements under the Employment Standards Act, 2000 (ESA). The central issue in this case was whether Kitchener Frame’s employees were eligible for severance pay, notwithstanding the value of the pension benefits upon termination. Kitchener Frame took the position that all employees who received pensions fell under a regulatory exemption and no severance pay was due. The employees contended that on a proper valuation of the pension benefits the exemption did not apply and they were entitled to severance pay. The essential difference between the two positions is that Kitchener Frame argued the comparison

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com. under the exemption provision is based upon the commuted value of the pension, which must include the bridging and supplementary benefits value. The employees argued only the basic pension benefit should be included in the value calculation. In short, this case turned entirely on the interpretation of the term “actuarially unreduced pension benefit” in Ontario’s Termination and Severance of Employment Regulation. “Actuarially unreduced pension benefit” is defined in neither the ESA nor the Ontario Pension Benefits Act. In its simplest form, it means a pension benefit paid without any penalty for early retirement. To qualify for the severance pay exemption, this pension must reflect “any service credits which the employee… would have earned in the normal course of events.” The court upheld the arbitrator’s position that this provision was designed to protect benefits employees would have earned in the normal course of events for the purpose of the pension plan. Therefore, the method of determining whether employees received the actuarially unreduced pension benefit must take into account “both the basic pension entitlements and other components and benefits” to which employees are eligible upon termination. “To do otherwise would be to ignore the facts and specifics of the pension plan and to ignore the real effect of the termination on the affected employees,” said the court. Everyone who is terminated has their opportunity to earn service credits cut short. If anyone whose service credits are cut short is entitled to severance pay, then the words in the exception would never apply. Were it intended to be so the words “reflects service credits which the employee…would have been expected to have earned in the normal course of events for purposes of the pension plan” would not have been added to the

Guidance for employers

British Columbia: What are wages under WERRA? The British Columbia Court of Appeal decision Ted Leroy Trucking Ltd., Re, is an example of a recent proemployee decision involving employees’ claims for benefits from a bankrupt employer. This appeal concerned whether the protection provided to wages under the province’s Wages Earner Protection Program Act (WERRA) and Bankruptcy and Insolvency Act (BIAS) extends to contractual payments employers made to third parties on employees’ behalf. The WERRA establishes a scheme whereby eligible employees can recover up to $3,000 or an amount equal to four times the maximum weekly insurable earning under the Employment Insurance Act. The BIAS provides a limited priority to wages, salaries, commissions or compensation owed by a bankrupt for services rendered in the six months before the bankruptcy. In Ted Leroy Trucking, employees argued the WERRA entitlement and BIAS priority extend to compensation of payments their bankrupt employer made on their behalf to third-parties, such as union dues, contributions to a health or welfare trust, health insurance premiums and payment to human-

ity and education funds. Century Services, the secured creditor of the bankrupt employer with the highest-ranking priority, contended that the protection extends only to funds payable directly to employees and not to money paid on their behalf to third-parties. The court disagreed and ruled the protection did extend to third-party payments. Similar in its approach to Kitchener Frame, this case turned on the interpretation of the term “wages.” The WERRA broadly defines wages as “salaries, commissions, compensation for services rendered, vacation pay, severance pay, termination pay and any other amounts prescribed by regulation.” Wages: Employees vs. third-parties Relying on the words “compensation for services rendered” in the WERRA definition, the court held this “must mean all compensation earned by the employee.” Asserting that Parliament did not mean to include amounts not paid directly to an employee as wages, Century Services directed the court to the words “owing to the individual” in the WERRA and the description of prescribed wages as amounts paid directly to an employee, such as gratuities, bonuses and shift premiums. The court found it was not clear WERRA allowed for payments to anyone other than an employee. The court concluded that under the WERRA and BIAS, the payments and the priority are for “the benefit of the employee,” not a third-party. Given that the legislation provides for a limited priority to compensation owed to employees, the court resolved that compensation might be in respect of a payment “directly or indirectly” remitted to a third-party. In dismissing Century Services’ argument this effectively gives third-party benefit providers a priority over secured creditors, the court concluded the legislation does not provide this priority. The deciding factor in the court’s analysis was the recognition that contractual payments made by employers to third parties are for the benefit of employees. Against this background, the court saw no principled basis for differentiating between benefits paid for jointly by employers and employees or solely by employers, because those payments form part of employers’ compensation obligation and employees’ compensation entitlement. Though Ted Leroy Trucking sends a loud message that just because a particular benefit is not referenced in the definition of wages in the WERRA, it will neither be excluded from employees’ compensation package nor will it serve to disentitle employees from recovering its value as part of wages owed by a CELT bankrupt employer. For more information see: ■CAW-Canada, Local 1451 v. Kitchener Frame Ltd., 2010 CarswellOnt 5199 (Ont. Div. Ct.). ■Ted Leroy Trucking Ltd., Re, 2010 CarswellBC 1109 (B.C. C.A.).

© Copyright Thomson Reuters Canada Ltd., February 23, 2011, Toronto, Ontario, (800) 387-5164. Web site: www.employmentlawtoday.com


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Damage control Ontario courts address moral damages and deductibility of earnings during notice period given the state of Simmons’ health and his length of service. The judge also THE DEDUCTIBILITY of disability benefits found the firm’s conduct after the termiand gross sales that dismissed employ- nation to be “mean-spirited,” particuees earn during the notice period is a larly Webb’s refusal to return a recurring source of uncertainty for dictionary that held sentimental value to employers, as is the awarding of moral Simmons. This treatment, along with Webb’s damages arising out of wrongful dismissal. The distinction between the unfair denial to provide Simmons with forms of benefits and their deductibility, materials he had repeatedly requested and the role of moral damages, was to assist his mitigation efforts, led the recently revisited by the Ontario Court trial judge to award Simmons 24 months’ pay in lieu of notice, totalling $98,928 and of Appeal in Simmons v. Webb. John Simmons was a founder of the $20,000 in moral damages. While the award of moral damages Simmons Group, a real estate appraisal firm. In 1991, Walter Webb joined the was not appealed, the trial judge’s firm and by 1996, Webb and a recruit approach in assessing them is of interest, because it highlights acquired controlling the difficulty courts are interest, rendering SimWRONGFUL having in developing conmons a non-voting shareDISMISSAL sistent jurisprudence holder. In 1997, personal problems — including arthritis that related to the method of assessing damrestricted his mobility and led to hip ages for conduct in the context of termireplacement surgery — began to inter- nation of employment. fere with Simmons’ professional life. Determining moral damages The relationship between Simmons and Webb deteriorated when a dispute In Keays v. Honda Canada Inc., the arose over a client account. Tensions Supreme Court of Canada pronounced escalated, culminating in the termina- that moral damages are to be awarded if tion of Simmons’ employment on Nov. 29, an employee “can prove that the manner 2004. Webb delivered a letter of termina- of dismissal caused mental distress” tion to the 64-year-old Simmons, which manifested in the “actual damages.” directed him to immediately remove In light of the Supreme Court’s asserhimself and any personal items from the tion, the method of assessing moral premises. Simmons alleged he experi- damages in Simmons is troubling for enced depression because of the firing, several reasons: but offered no medical evidence. •There was no analysis that links the sum of $20,000 to any non-pecuniary loss Moral damages added to pay caused by the manner of termination. in lieu of notice •There was “no medical eviThe trial judge found the manner of dismissal was insensitive, particularly Continued on page 6

| BY NIKOLAY CHSHERBININ |

ISSUE NO. 572 • JANUARY 12, 2011

In This Issue ASK AN EXPERT Tracking employees’ ages • Medical benefits during notice period

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CASES AND TRENDS: Constructive dismissal upheld but punitive damages denied

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CASE IN POINT: When the employer is the victim

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YOU MAKE THE CALL Recruiter shipped out after missing benchmarks

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Advances can’t be deducted from paycheque: Board A MANITOBA employer was not entitled to deduct money from advances from an employee’s final paycheque, the Canada Arbitration Board has ruled. John Demelo worked for Winnipeg Motor Express, a Winnipegbase shipping service. As part of his employment contract, Demelo had a guaranteed bonus of at least 15 per cent, and up to 30 per cent, based on profitability and sales targets. During his time with the company, Demelo often borrowed money and then repaid it. Other employees also received advances and each month the company reconciled the accounts. If an employee still had an advance outstanding when her employment ended, the company would take it out of her remaining

Continued on page 7


January 12, 2011

Employee-paid disability benefits not deductible from damages ...continued from page 1 dence…called to substantiate” Simmons’ depression after the termination or the “impact that it had on his daily life.” •There was, however, evidence Simmons immediately “took active steps to start up a new business.” Given that Keays mandates an employee to prove the manner of dismissal caused him mental distress, the employee must prove: •Not only an employer’s reprehensible conduct in the manner of termination, but also any psychological injury is related to the manner in which the employee was treated at termination. •The manner of dismissal and associated mental distress caused “actual damages.” “Damage” and “damages” differ, of course: The former is a form of an injury (such as mental distress), while the latter is a sum of money paid in compensation for that injury. Because Simmons did not seek any medical attention or professional assistance, moral damages arguably should not have been awarded due to lack of proof of mental distress, as required by Keays. The Ontario Court of Appeal’s decision in Brien v. Niagara Motors Ltd. affirms this line of reasoning, while Slepenkova v. Ivanov disputes it. At their core, moral damages are compensatory, designed not to penalize an employer for its conduct, but to compensate an employee for breached contractual rights. The employer’s conduct is not the nub of liability for moral damages, but rather a means giving rise to the employee’s compensation should she be able to prove the manner of dismissal, and not dismissal itself, caused her mental distress. Keays’ pronouncement that “the normal distress and hurt feelings resulting from dismissal are not compensable” raises a vexing question: How does one, as a practical matter, prove mental distress was caused by the manner of and not dismissal itself? Until such time that judicial consistency regarding the form of evidence required to prove mental distress for moral damages is achieved, employers are justified

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in demanding employees provide evidence, medical or physical, corroborating their psychological injury and “actual damages” suffered.

Strict limits on deductions to damages The Ontario Court of Appeal had to deal with two issues, both of which related to the quantification of wrongful dismissal damages awarded at trial. First, the employer argued disability benefit payments Simmons received during the 24-month notice period should have been deducted. The court disagreed, stating that according to the termination letter, disability insurance benefits were halted immediately. Relying on the available “circumstantial evidence,” the court found Simmons received the disability insurance benefits from a private insurance provider, which he obtained and paid for. In support of its position, the court cited the Supreme Court of Canada decision Sylvester v. British Columbia. Sylvester determined that disability benefits paid to disabled employees during the reasonable notice period are deductible from damages, provided they are paid solely by employers. Notably, disability benefits should not be considered contracts which are distinct from an employment contract, but rather integral components of it. In Simmons, the court was unable to conclude the parties did not intend for Simmons to receive both disability benefits and damages for wrongful dismissal. This reminds employers that in order to successfully deduct disability benefit payments from wrongful dismissal damages, two conditions must be met: Disability benefits must be paid for solely by employers and an employment contract must make it clear the parties intended for disability benefits to be deducted from severance. Secondly, the company argued the gross sales generated by Simmons in his new business should similarly have been deducted from damages for wrongful dismissal. In many instances, starting a business is a perfectly acceptable form of mitigating damages. Given Simmons’ precarious state of health, starting a

business appeared to be the only realistic option for him. In PCL Construction Management Inc. v. Holmes, the Alberta Court of Appeal found profits made by a corporation set up by the dismissed employee which are earned during the notice period may be properly deducted. In Simmons, the employer acknowledged, but did not challenge, the legitimacy of a series of expenses listed in the relevant financial statement for Simmons’ business, which substantially reduced the gross sales he realized during the notice period. Similarly, it neither attacked the net income figures set out in those statements nor argued the distinction between gross sales and net income. Simmons serves as a useful reminder that failure by an employer to lead evidence to show that an employee’s business generated income within the notice period may result in a disallowance of a claim for deductibility of that income from damages for wrongful dismissal. CELT

For more information see: ■Simmons

v. Webb, 2010 CarswellOnt 6689 (Ont. C.A.). ■Keays v. Honda Canada Inc., 2008 CarswellOnt 3743 (S.C.C.). ■Brien v. Niagara Motors Ltd., 2009 CarswellOnt 7820 (Ont. C.A.). ■Slepenkova v. Ivanov, 2009 CarswellOnt 3749 (Ont. C.A.). ■Sylvester v. British Columbia, 1997 CarswellBC 1025 (S.C.C.). ■PCL Construction Management Inc. v. Holmes, 1994 CarswellAlta 281 (Alta. C.A.).

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

Published by Canadian HR Reporter, a Thomson Reuters business 2011


October 18, 2010

CANADIAN HR REPORTER

EMPLOYMENT LAW 5

Maternity leave no excuse to delay notice B.C. Court of Appeal overturns lower court’s decision that constructive dismissal lawsuit repudiated employment contract n Lewis v. Terrace Tourism Society, the British Columbia Court of Appeal was faced with two intriguing issues: Whether an employee on maternity leave was entitled to receive reasonable notice of termination of her employment if the employer ceased operations prior to her return and whether the employee’s lawsuit against the employer, filed during the course of employment, amounted to just cause for dismissal. In a two-to-one decision, the court determined that during unpaid leave, the employee’s legal right to reasonable notice does not change. In reversing a lower court’s finding that her lawsuit was just cause for dismissal, the B.C. Court of Appeals raises an interesting question about the legal effect of a lawsuit on the employment relationship.

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Employer closes shop Jennifer Lewis was an executive director at the Terrace Tourism Society in Terrace, B.C. While Lewis was on maternity leave, the society found itself in dire financial straits. It decided to wind up its operations and terminate her position. As part of that process, it dismissed her temporary replacement, removed Lewis’ signing authority and closed her workplace. Having received no notice of termination of her employment or payment in lieu, Lewis brought a small claims action against the society seeking damages for constructive dismissal. As a result of that action, the society dismissed Lewis for just

■ LEGAL VIEW NIKOLAY CHSHERBININ

cause. In response, Lewis sued the society, seeking damages for wrongful dismissal or, in the alternative, constructive dismissal. That action was dismissed and Lewis appealed. The dissenting judge in the B.C. Court of Appeal decision, Justice David Frankel, argued during leave, the employment relationship is essentially a shell since the employee is not required to perform any services nor is she entitled to pay. Because the nature of the changes to the society’s operations had no immediate effect on her employment status, there was no reason why the society should be expected to “keep an empty chair in an empty office” until her return from leave when it could formally give Lewis notice, he said. The society did not breach its obligations to Lewis prior to her small claims action because it intended to pay her severance, found Frankel. However, the society never gave her notice or paid severance. Writing for the majority, Justice Risa Levine disagreed with Frankel’s conclusion, stating Lewis’ employment had ended when the society decided

to cease operations and terminate her position. The society effectively dismissed Lewis when it dismissed her replacement, closed her workplace and, ultimately, terminated her position without notice, concluded Levine. The society’s delay in informing Lewis her employment had ended, apparently because she was on maternity leave, amounted to the repudiation of her employment contract, which falls under the rubric of constructive dismissal. Despite Lewis’ absence on leave, her legal right to reasonable notice of termination was not suspended or altered, found Levine. The justice relied on a section of B.C.’s Employment Standards Act that expressly protects an employee on leave from being dismissed with notice that coincides with the period of leave. Accordingly, the society’s “intention to offer severance sometime in the future did not keep the contract alive,” said Levine.

No repudiation, no just cause In reversing the lower court’s decision that Lewis repudiated her contract of employment by initiating her small claims action, the Court of Appeal found, where all the elements of the employment relationship had ended with the society’s cessation of business, it would constitute a “trap for

the unwary.” This would mean an employee cannot sue for damages and assert her rights without risking a finding that she had, by doing so, repudiated whatever vestige of the employment contract might remain. Lewis was entitled to sue for wrongful dismissal and her commencement of the lawsuit did not give the society just cause for dismissal, said the court.

Suing employer while still employed Commencing an action against an employer can effectively end the employment relationship. For example, in Zaraweh v. Hermon, Bunbury & Oke, the lawsuit was conduct “incompatible with the employee’s continued employment,” found the B.C. Court of Appeal. In Zaraweh, the employee sued for wrongful dismissal during the period of working notice. Lewis is distinguishable from Zaraweh because the society gave Lewis no notice whatsoever. In this context, the society’s repudiation of Lewis’ employment contract renders the issue of continuation of her employment moot, thereby allowing Lewis to sue without risking dismissal for just cause. These cases illustrate the need to decide each case on its own unique facts. Interestingly, an employer’s commencement of a lawsuit

against an employee does not seem to signal the end of the employment relationship. One of the very few cases to deal with this scenario was the Saskatchewan Court of Queen’s Bench decision McLean v. Conter Investment Ltd. Like Lewis, this case came before the court on appeal from a small claims judgment in favour of the employer for damages, in this case arising from the employee’s negligent operation of a truck. The court upheld the employer’s contractual claim against the employee and there was no suggestion the employer had breached the employment contract by suing the employee. Either party to an employment contract has an option to sue for damages and continue the employment. In practice, this legal option is unworkable and very rarely used. Indeed, it is difficult to maintain a relationship of mutual understanding and respect when one party is suing the other.

Lessons for employers Lewis is of interest to employers and employees alike. It makes the following clarifications: •The law applies evenly to employees who are dismissed while on leave. •Employees’ legal right to

See Page 6 / TIMELY


6 NEWS

Timely notice

Women move from poverty to livelihood Continued from Page 2

Continued from Page 5 reasonable notice of termination or severance is not suspended or varied while on leave. •Employers are obligated to provide employees on leave with a timely notice of dismissal or severance. •Employers cannot use leaves as an excuse for a delay in providing employees on leave with notice or severance. •A delay in providing notice or severance, whether deliberate or not, may give rise to a claim for constructive dismissal. •Employers cannot invoke the delay in providing an employee’s notice or severance as a defence against the constructive dismissal claim. The case is going to the Supreme Court of Canada, which will determine damages. For more information see: •Lewis v. Terrace Tourism Society, 2010 CarswellBC 1783 (B.C. C.A.). •Zaraweh v. Hermon, Bunbury & Oke, 2001 CarswellBC 2195 (B.C. C.A.). •McLean v. Conter Investments Ltd. 1998 CarswellSask 695 (Sask. Q.B.). Nikolay Chsherbinin is an employment lawyer at Grosman, Grosman and Gale in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

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October 18, 2010

CANADIAN HR REPORTER

eral government and delivered through the Industry Training Authority of B.C. “All of our trades foundations programs give them the skills they need to be employable right away. We worked really closely with industry so our training is up to par and it’s what employers are expecting so they’re really ready to hit the ground running once they’ve finished their foundations training,” said Darling. That could mean a job or an apprenticeship as they work towards attaining their Red Seal certification. The college also refers women to the British Columbia Construction Association for help finding jobs in the industry. Of the four women referred to the association’s Kelowna branch, none have been matched with an employer yet, said Glenn Olien, regional manager for the association’s Skilled Trades Employment Program. But he expects that to change soon. “The economy is a little slower in British Columbia within the construction industry,” he said. “It’s difficult for everybody right now to get some entry-level trades positions. But it should be picking up as soon as the economy picks up again.” There should be a lot of opportunities for women in the construction trades in the next few years. About 20 per cent to 25 per cent of the construction workforce — about 200,000 workers — will be retiring over

the next 10 years, according to forecasts from the Construction Sector Council in Ottawa. “We need to start thinking about refreshing that workforce,” said Rosemary Sparks, senior director of planning and development at the Construction Sector Council. With women making up just four per cent of construction tradespeople, according to the 2006 census, women represent an untapped source of labour for the industry, said Sparks.

Respectful workplaces, family-friendly policies help attract women But the industry needs to do more to promote trades and encourage women to consider construction trades as a career, said Sparks. The work environment

lems it experienced in 2008 and 2009, said Olien. “There was such a skill shortage that some projects were put on hold and not completed,” he said. Besides the fact there will be a lot of jobs available to people with the right training, construction trades jobs also pay well and there’s lots of room for advancement, said Sparks. “The sky’s the limit,” she said. In Prince Edward Island, a hairdresser (a female-dominated trade) earns about $25,000 a year while an electrician (a male-dominated trade) earns about $50,000 a year, said Sarah Roach Lewis, project manager of Trade HERizons. “Traditionally, male-dominated workplaces, they pay more than traditionally female-

With advances in technology and increased focus on health and safety, trades jobs don’t require as much brute strength as they used to. needs to be welcoming and respectful and there need to be mentoring opportunities as about 80 per cent of training takes place on the job, she said. Also, employers need to consider family-friendly policies because construction hours are often at odds with the availability of child care, she said. If the B.C. industry, in particular, doesn’t do what it can to get more people interested in trades, it will see the same prob-

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dominated workplaces,” said Roach Lewis. Trade HERizons is a 14-week career exploration pilot program, delivered by Charlottetown’s Holland College and Women’s Network, for women interested in careers in trades or technology. The program, which started in February, also offers a college preparation component after the 14 weeks of career exploration. The 12 women who took part in the program received handson experience with trades such as automotive, carpentry, plumbing and ventilation, as well as technology careers such as engineering, bioscience and aircraft maintenance. Like Okanagan College’s Gateway program, Trade HER-

izons is designed for women with low income and who may have been out of the workforce for awhile, said Roach Lewis. “We view this as an opportunity for women to move from poverty to a livelihood,” she said. Trade HERizons also works with participants to help them apply for college programs in their area of interest. Six women from the February intake started a college program in September, while a couple of others had to defer their entry due to personal reasons and some, such as one woman interested in bioscience, had to take some upgrading courses before entering full-time studies in their chosen field.

Women bring unique skills Some employers have told Darling they would prefer to hire a woman for particular jobs. For example, a heavy equipment operator told her a truck driven by a woman requires about 30 per cent less maintenance because women tend to drive more carefully than men. “That boils down to probably millions of dollars (saved),” said Darling. Also, the owner of a plumbing company said vulnerable clients, such as the elderly or women living on their own, are more amenable to having a female plumber come into their homes, she said. And in some instances, a woman’s smaller hands can be an advantage for plumbing jobs in tight spaces, said Roach Lewis. “Having a smaller stature and smaller hands can actually work in your favour,” she said. And with advances in technology and increased focus on health and safety, trades jobs don’t require as much brute strength as they used to, she said.


This article originally appeared in the January 29, 2010 issue of the Lawyers Weekly (by LexisNexis) 10 | January 29, 2010

THE LAWYERS WEEKLY

Business Law

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Why liability for inducing breach of contract needs reassessing Dismissed employees frequently attempt to bolster their wrongful dismissal claims by pleading economic torts. One of these increasingly pleaded economic torts is the tort of inducing breach of contract (the “inducement tort”), which imposes liability on an employer who intentionally procures a breach of its rival’s employee’s valid employment contract. The nub of liability underlying the inducement tort must be re-assessed: treating liability as turning on the breach of a complainant’s contractual rights, rather than on an inducer’s wrongdoing, leads to unnecessary and unfortunate blurring between “interference” and “inducement” cases. Arguably, the very classification “tort” suggests that the inducement tort ought to be concerned with the inducer’s harmful conduct. However, many operate under the popular but mistaken belief that the inducement tort gave us a tort focused on a complainant’s contractual rights. For example, in RBC Dominion Securities Inc. v.

NIKOLAY CHSHERBININ Merrill Lynch Canada Inc., [2008] S.C.J. No. 56, Merrill Lynch’s regional manager induced virtually all of RBC’s investment advisors to join his firm. Likewise, in Drouillard v. Cogeco Cable Inc., [2007] O.J. No. 1664, Cogeco’s manager instructed its co-contractor Mastec not to hire Drouillard, resulting in termination of his employment on the day it was to begin. The nub of liability, in these leading inducement cases, is not that a complainant’s contractual right is being interfered with, but rather that a stranger to a contract intentionally procured the co-contractor to breach its valid employment contract with the complainant. At the very core of inducement lies a rival’s conduct aimed at procuring a desired action on a part of an inducee. The inducement tort should be viewed as

penalizing the inducer’s conduct, rather than compensating the complainant for the breached contractual rights. This conductcentred theory of liability is reinforced by the fact that dismissed employees seeking to increase their damages typically plead reliance on the inducing employer’s pre-contractual inducements (i.e. conduct), rather than that their contractual relations with the initial employers were interfered with. RBC’s rival, Merrill Lynch, was found liable for $250,000 for having induced breaches of RBC’s employees’ contracts. RBC appears to validate the conductcentred theory of liability, as the courts are beginning to recognize and attempting to remedy the commercial loss deliberately caused to the initial corporate employer through its corporate rival’s instrumentality, a subset of the remedy that Canadian employment law has yet to fully develop. Obviously, it is not automatically improper to poach rivals’ employees, but legitimate competition does not justify interference with existing valid con-

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tracts. Simply causing an interference with the employee’s contractual relation with his employer is insufficient to trigger liability under the inducement tort. There must be procurement and the actual breach of the employee’s contract. More specifically, the inducement tort demands: (1) the knowledge of contract; (2) intention to procure the breach of contract; (3) actual breach of contract; and (4) damages. The inducement tort, however, is peculiarly apt to be confused with the tort of causing loss by unlawful means. Unlike the inducement tort, the tort of causing loss by unlawful means doesn’t require the existence of a contract or its breach. Designed only to enforce basic standards of civilized behaviour in economic rivalry, it is concerned with the defendant’s own wrongful interference causing economic loss by “unlawful means.” No intermediate party — as in the inducement tort — is necessary. The tort of causing loss by unlawful means requires: (1) the defendant’s wrongful interference with the actions of a third party in which the plaintiff has an economic interest; (2) intention to cause loss to the plaintiff; (3) use by the defendant of

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unlawful means; and (4) damage in any form, for example, frustration of economic expectations. Both torts have strict requirements of intention, but what the defendant intends is different in these two torts. In the tort of causing loss by unlawful means the defendant intends to cause loss, while in the inducement tort, to procure a breach of contract. Given the distinction between rationales of these torts, the courts should carefully distinguish between “inducement” of the breach and mere “interference” with contract cases. The conduct-centred theory of liability clarifies the real nub for liability in the inducement tort. In concentrating on the complainant’s contractual rights, the courts ignore the inducer’s wrongdoing. But for the inducer’s wrongdoing, there could be no viable claim in the inducement tort. In the absence of employers’ deliberate procurement causing breach of their rivals’ employees’ valid contracts, the liability should be discussed within the context of the tort of causing loss by unlawful means. „

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The federal government wants the Supreme Court of Canada’s opinion on whether Parliament has the constitutional authority to enact a national securities regulatory regime, but so far no date has been set for the hearing of the matter. Justice Minister Rob Nicholson announced last October that his government would submit to the court draft legislation expected to be ready this coming spring. Jill Copeland, the top court’s executive legal officer, told The Lawyers Weekly on Jan. 12 that the process “has not yet been officially commenced. “The federal government has

to state the reference questions to start the reference under s. 53 of the Supreme Court Act,” she stated. “This has not been done yet.” Last month, Iris Evans, Alberta’s minister of finance and enterprise, announced that her government will launch its own challenge of the federal proposal in the province’s Court of Appeal. It will also support a similar challenge by the Quebec government in that province. “We believe this intrusion into this important area of provincial jurisdiction will set a precedent for the federal government to intrude in other critical areas of provincial jurisdiction, and we must take bold action now to defend against that,” Evans said.„

FOCUS NEXT WEEK LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under licence. Other products or services may be trademarks or registered trademarks of their respective companies. © 2009 LexisNexis Canada Inc. All rights reserved.

•Personal Injury • Immigration


This article originally appeared in the October 4, 2010 issue of Law Times

DUTY TO MITIGATE IN WRONGFUL DISMISSALS Nikolay Y. Chsherbinin The duty to mitigate arises in almost every wrongful dismissal case. The socalled "duty" is not a duty in the strict legal sense, because a breach of it is not actionable. The reference in the case law to the duty to mitigate derives from the general proposition, rooted in contract law, that a wronged plaintiff cannot recover damages for reasonably avoidable economic loss. Thus, in wrongful dismissal cases it is incumbent on the terminated employee to reduce the damages payable to him by taking reasonable steps to secure comparable, alternate employment. The duty to mitigate is not one owed by the dismissed employee to the defaulting former employer. Rather it is one the employee owes to himself, having regard to his own interests and not that of the former employer. The onus rests upon the employer to prove not only failure to take steps to mitigate, but also that, had the employee taken reasonable steps he would likely have obtained comparable employment. Any gap in the evidence accrues to the terminated employee’s benefit. However, should the court find a failure on the employee’s part to mitigate, it may deduct from the award of damages for pay in lieu of notice an amount it considers the employee should have earned. This article reviews the terminated employee’s obligation to mitigate in the context of several employment scenarios. Wrongful Dismissal occurs when an employee’s employment is terminated on inadequate notice or pay in lieu thereof. Subject to the terms of the contract of employment, the termination triggers the employee’s duty to mitigate. Michaels v. Red Deer College, [1976] 2 S.C.R. 324 is the leading Canadian decision on the duty to mitigate. The vexing question is whether the dismissed employee is entitled to use the reasonable notice period to seek a position commensurate with his level of experience and skills or is he obligated to accept a lesser paying position to reduce his economic loss? In Chann v. RBC Dominion Securities Inc., 2004 CarswellOnt 3341 (OSCJ), the court found an Investment Banker was not obligated to seek a lesser paying generalist position in another investment banking firm until he had completed a reasonable search for comparable employment. The court added, the employee was "entitled to use the reasonable notice period to seek a position commensurate with his level of expertise and skills". The Chann rationale folds perfectly into the British Columbia Court of Appeal’s position in Forshaw v. Aluminex Extrusions Ltd., 1989 CarswellBC 153 (BCCA), where the court aptly noted that the duty to mitigate is: "… a duty to take such steps as a reasonable person in the dismissed employee's position would take in his own interests – to maintain his income and his position in his industry, trade or profession.” But how does an employee’s new and higher paying employment, secured in mitigation, impact on damages the former employer is required to pay? There are conflicting lines of cases: (1) the entire amount earned at the new job must be deducted; and (2) damages stop, and the employer does not get a credit for higher level income. Constructive Dismissal occurs when an employer unilaterally makes substantial changes to the essential terms of an employment contract, thereby giving an employee a right to treat the contract as being at an end. Given that both wrongful dismissal and


constructive dismissal are characterized by employer-imposed termination of the employment contract, there is no principled reason to distinguish between them when evaluating the need to mitigate. The question whether it is reasonable for an employee to mitigate a constructive dismissal by accepting re-employment in a demoted position, with no immediate change in compensation, is a recurring source of uncertainty. Some appellate courts have held that an employee may have an obligation to continue working for the employer (Mifsud v. MacMillan Bathurst Inc., 1989 CarswellOnt 770 (ONCA)). While others have found that an obligation to continue working for the employer will arise only in a situation of mutual understanding and respect and where neither the employer nor the employee is likely to put the other’s interests in jeopardy (Farquhar v. Butler Brothers Suppliers Ltd., 1988 CarswellBC 46 (BCCA)). For example, in Galbraith v. Acres International Ltd., 2002 CarswellOnt 3061 (ONCA), the Ontario Court of Appeal affirmed the trial judge’s finding that the employee was under no obligation to mitigate his constructive dismissal by accepting a demotion from Chief Financial Officer to Treasurer and Corporate Secretary with the same salary, because it was demeaning to him. Similarly, in Wilding v. Qwest Foods Ltd., 1994 CarswellBC 295 (BCCA), the British Columbia Court of Appeal found a General Sales Manager did not have to accept a Sales Representative position with no change in salary, because he would have suffered a substantial loss of prestige and authority with consequent embarrassment. A common thread running through decisions in this category suggests that constructively dismissed employees are not obligated to accept re-employment in a demoted position to satisfy their mitigation obligation if the basis of trust, good faith and sincerity are gone from the employment relationship. Fixed Term Contracts frequently raise a question whether the terminated employee is obligated to take reasonable steps to mitigate his damages. In Sinclair v. Canadian Ice Machine Co., [1955] S.C.R. 777, the Supreme Court of Canada held that where the fixed-term contract makes no mention of the amount of damages payable to the dismissed employee, the employee must still attempt to mitigate his economic losses. More recently, in Graham v. Mareleau, Lemire Securities Inc., 2000 CarswellOnt 333 (OSCJ), Justice Nordheimer concluded: "whether a contract is a fixed term contract or a contract of indefinite duration, the principle of mitigation applies to a claim arising from any breach of that contract". A Non-Competition Clause in an employment contract raises an intriguing question whether the existence of the restrictive covenant relieves a dismissed employee from his duty to mitigate. In 2010, the Ontario Court of Appeal affirmed the trial judge’s finding in Link v. Venture Steel Inc., 2010 CarswellOnt 1049 (ONCA) that the existence of a noncompetition obligation would not, as a matter of course, completely relieve a dismissed employee from his legal duty to mitigate. The trial’s judge opined: “the existence of obligations contained in a restrictive covenant ought to only be a factor in considering the reasonableness of the dismissed employee's efforts”. In Link, the restrictive covenant did not seek to prohibit the plaintiff, Vice-President of Sales, from working in the steel business, but only from the specific area within that business. The caselaw makes it clear that it will always be a question of fact and personal circumstances, and not law, which determine the terminated employee’s obligation to mitigate. The employee’s decision not to mitigate will be judged on the standard of


"reasonableness" not "perfection". The burden which lies on the employer of proving that the employee has failed in his duty to mitigate is by no means a light one.

@Nikolay Y. Chsherbinin is an employment lawyer in Toronto. He can be reached at 416-224-1050 or nc@nclaw.ca


Employment Law Today Published by Thomson Reuters Canada Ltd. I www.employmentlawtoday.com

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS

ISSUE NO. 565 • SEPTEMBER 22, 2010

Disability-related dismissals can be frustrating Recent Ontario case shows termination isn’t always possible even after years of absence EMPLOYEES are expected to perform work in exchange for pay. When an employee fails to attend work due to a permanent illness or disability, an employer may be justified in terminating the employment without liability. Termination of employment in such a case is not based on “just cause,” but rather “frustration” of the employment contract, which can happen due to illness, incapacity, imprisonment, deportation or bail conditions. In disability-related cases, a question that vexes employers is: When can they safely trigger frustration? There is no easy answer as it is usually fact-specific. A quick termination of an employee who is absent from work due to a temporary, but prolonged, illness may have significant legal implications. The risk of liability is especially acute when the employment contract contains long-term disability provisions. The implication would seem to be the parties contemplated the employee may, at some point during the employment relationship, be disabled and prevented from working for a long time. For example, it might be frustrating for employers to learn the frustration defence may not be available in circumstances where an employee can’t work for a long time because of depression, something doctors are often reluctant to declare permanent.

lack of medical prognosis for his anticipated return to employment. The court disagreed, based on the legal test to determine frustration based on illness or incapacity in the employment contract context. “Whether or not the illness or incapacity was of such a nature or likely to continue for such a period of time that either the employee would never be able to perform the duties contemplated by the original employment contract or that it would be unreasonable for the employer to wait any longer for the employee to recover,” said the court. The court found the medical evidence did not support Costco’s position that there was no reasonable likelihood of Naccarato returning to work in the foreseeable future. Rather, the evidence was that Naccarato was still being treated by his doctor and a new psychiatrist was being sought. Naccarato makes it clear the finding of permanent disability must be based on objective evidence, not the subjective belief of either party. The court further concluded keeping Naccarato’s vendor clerk position open during his absence did not disrupt Costco’s business. As a result, the court found the employment contract had not been frustrated and awarded Naccarato 10 months’ reasonable notice.

5-year absence of long-term employee not enough for frustration

Tips for employers

The Ontario Superior Court of Justice grappled with this issue in Naccarato v. Costco Wholesale Canada. Costco terminated Frank Naccarato’s 17-year employment, after he had been off the job for five years because of depression, for frustration of his employment contract. Costco argued it was unlikely Naccarato would be able to return to work in the reasonably foreseeable future, basing it on: the lengthy absence; the fact Naccarato had to prove he was totally disabled from performing work for any occupation; and the

Naccarato demonstrates that uncertainty surrounding the parties’ contractual obligations when an employee suffers from prolonged illness is a problem for both employers and employees. The onus is on the employer to prove the contract has become frustrated. In order to determine if a temporary illness or disability is sufficient to bring the employment contract to an end, employers must take into account: •The terms of the employment contract. The presence of long-term sick leave and disability benefits

indicates a greater tolerance for a lengthy absence before frustration occurs. It has been suggested that contracting for these benefits may postpone frustration because it may be inferred the parties anticipated the employee might take leave for illness (see Antonacci v. Great Atlantic & Pacific Co. of Canada). •The importance of the employee’s position. The employment relationship is more likely to survive an extended absence if an employee’s job is one of many in the same category rather than a key post which must be filled on a permanent basis if the absence is prolonged. In Burgess v. Central Trust Co., the New Brunswick Court of Queen’s Bench found an assistant lending officer was a key person in the employer’s organization due to the upcoming busy season and was more willing to find the contract had been frustrated. •The nature of the employee’s illness. This requires an employer to consider how long the illness has lasted and an employee’s prospects for recovery. A short or routine illness frustrates the employment contract. The greater the degree of illness and the longer the absence, the more likely courts will find the employment contract has been frustrated. •The nature of the employment. If the employment contract is for a fixed term, the prolonged illness or disability will likely frustrate the employment contract than a contract of indefinite hire. •The period of employment. A long standing employment relationship is not easily frustrated. In Yeager v. R.J. Hastings Agencies Ltd., the British Columbia Supreme Court found a 30-year employee’s illness, which caused him to be absent from work for two years, was not lengthy enough to frustrate the employment contract. •The duty to accommodate. Not only must an employer prove frus-

tration of contract to justify termination, but also that the duty to accommodate has been considered and met, if applicable, such as by providing modified duties or time off. When dealing with medical conditions like depression and stress, employers must be absolutely certain that, in all circumstances, the employment contract has been frustrated, before advising ending someone’s employment. The British Columbia Supreme Court in Demuynck v. Agentis Information Services Inc. suggested frustration becomes a justifiable response where an absence from work reaches 18 to 24 months. Nevertheless, employers should always keep in mind each case turns on its unique facts. CELT

For more information see: •Naccarato v. Costco Wholesale Canada, 2010 CarswellOnt 4108 (Ont. S.C.J.). •Antonacci v. Great Atlantic & Pacific Co. of Canada, 1998 CarswellOnt 834 (Ont. C.A.), affirmed in part 2000 CarswellOnt 61 (Ont. C.A.). •Burgess v. Central Trust Co., 1988 CarswellNB 120 (N.B. Q.B.). •Yeager v. R.J. Hastings Agencies Ltd., 1984 CarswellBC 768 (B.C. S.C.). •Demuynck v. Agentis Information Services Inc., 2003 CarswellBC 93 (B.C. S.C.).

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

© Copyright Thomson Reuters Canada Ltd., September 22, 2010, Toronto, Ontario, (800) 387-5164. Web site: www.employmentlawtoday.com


VOLUME 3, NO. 9 – SEPTEMBER 2010

Bill 168: Employers’ Liability for Workplace Violence and Harassment

AUTHORS: Mr. Justice Rick Libman, B.A., LL.B., LL.M. Bernard Aron, B.A., J.D., LL.M. John P. Allen, B.A., B.Sc., LL.B., LL.M.

IN THIS ISSUE

NIKOLAY Y. CHSHERBININ* The Ontario Occupational Health and Safety Act1 (“OHSA”) was recently amended by the Occupational Health and Safety Amendment Act (Violence and Harassment in the Workplace)2 (“Bill 168”), a law which expands and creates new obligations for Ontario employers to take specific steps to proactively prevent and manage workplace harassment and violence. Bill 168 became law on June 15, 2010. This is the third3 of its kind legislation in Canada. It is designed to transform Ontario employers’ practices of assessing workplace violence and harassment from reactive to proactive. Given the direct financial and legal implications, it is critical for Ontario employers to familiarize themselves with their new obligations to ensure compliance with Bill 168.

Competing Definitions: Code vs. Bill 168 Bill 168 defines “workplace harassment” to mean “engaging in a course of vexatious comment or conduct against a worker in a workplace that is known or ought reasonably to be known to be unwelcome”.4 The definition was enacted to deal with abusive behaviours intended to intimidate, degrade, injure, humiliate or bully employees. Unlike the definition of “harassment in employment” under the Ontario Human Rights Code5 * Nikolay Y. Chsherbinin, B. Comm., LL.B., LL.M. (Can.), is a lawyer at Grosman, Grosman & Gale LLP, where he practices in employment law with focus on litigation. 1 R.S.O. 1990, c. O.1. 2 S.O. 2009, c. 23. 3 See, e.g., Act Respecting Labour Standards, R.S.Q., c. N-1.1, a law which deals with psychosocial harassment in the workplace in Quebec; Occupational Health and Safety Act, 1993, S.S. 1993, c. O-1.1, a law which addresses workplace harassment in Saskatchewan. 4 Supra, note 2, s. 1. 5 R.S.O. 1990, c. H.19, s. 5(2).

continued on page 1

Bill 168: Employers’ Liability for Workplace Violence and Harassment— Nikolay Y. Chsherbinin . . . . . Page 1 Personal Information Protection and Electronic Documents Act Amendments— Bernard Aron . . . . . . . . . . . . Page 3 Statement of Sentencing Purposes and Principles for Provincial Offences (Part III): Law Commission of Ontario Modernization of the Provincial Offences Act— Justice Rick Libman. . . . . . . Page 5 Paralegal as a Witness— Vartan HS Manoukian . . . . . Page 8


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Continued from page 1

(“Code”) where the prohibited grounds create boundaries,6 the definition of “workplace harassment” is significantly broader in the range of conduct that can constitute “workplace harassment”. It is not safe, for employers, to assume that safety in the workplace necessarily trumps individual rights under the Code. Nor should employers assume that they can only rely on the Code. Bill 168 should be viewed as complementary to and building on the Code. Reconciliation of these competing definitions would likely be left to courts, which creates a potential for a flood of legal proceedings seeking to delimit a type of conduct, which will give rise to “workplace harassment” complaints. Under Bill 168 “workplace violence” means: • the exercise of physical force by a person against a worker, in a workplace, that causes or could cause physical injury to the worker; • an attempt to exercise physical force against a worker, in a workplace, that could cause physical injury to the worker; • a statement or behaviour that it is reasonable for a worker to interpret as a threat to exercise physical force against the worker, in a workplace, that could cause physical injury to the worker.7 It is important to note that Bill 168 gives an employee the right to refuse work where he or she has reason to believe that “workplace violence is likely to endanger himself or herself.”8 There is no comparable right to refuse work provided to employees, complaining about workplace harassment. Such a dichotomy suggests that the Ministry of Labour expects employers to develop their own internal procedures to investigate the workplace harassment complaints. It further suggests that should employees be denied the right to work due to the alleged workplace harassment, the Ministry of Labour appears to have no jurisdictional basis pursuant to which it may become involved in determining whether workplace harassment exists. However, the Health and Safety Inspectors for the Ministry of Labour may review the workplace harassment investigation procedures and if they do not exist, or are deficient, to issue an Order. Curiously, neither Bill 168 nor the Code specify what remedies might be available to employees seeking to enforce their rights to be free from workplace harassment. It means that it will be left to 6 Ibid. “Every person who is an employee has a right to freedom from harassment in the workplace by the employer or agent of the employer or by another employee because of race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, age, record of offences, marital status, family status or disability”. 7 Supra, note 2, s. 1. 8 Ibid., s. 43(3)(b.1).

2

judicial process to assess an appropriate remedy, which should flow from workplace harassment.

Workplace Policies and Investigations Bill 168 requires employers to develop policies with respect to workplace violence and harassment and review them, at least, annually.9 It further specifies that in developing a workplace violence program, employers must define how they will investigate and deal with incidents of complaints of workplace violence.10 While Bill 168 directs employers to develop workplace harassment investigation procedures,11 it offers no insight into what such procedures may consist of nor does it provide guidance to employers about how an investigation into workplace harassment may be conducted. It is noteworthy that unless an employer regularly employs five or fewer employees, Bill 168 compels employers to have written workplace violence and harassment policies, which they should post at a conspicuous place in the workplace.12 Policies must include measures and procedures for employees to report either incidents or threats of workplace violence or harassment. The legislation also goes on to specify that policies shall “include any prescribed elements”.13 There are no prescribed elements, yet. In addition, Bill 168 requires employers to provide employees with information and instruction on the contents of the policies.14

Assessment of Risk of Violence The rationale behind a risk assessment is to prevent and manage the problem of workplace violence by creating awareness. Section 32.0.3(1) of Bill 168 requires employers to conduct a risk assessment of the workplace to identify and assess the risks of workplace violence that may arise from: (1) the nature of the workplace; (2) the type of work; or (3) the conditions of work. As part of the violence risk assessment, employers should review each part of the workplace’s operating procedures under standard conditions. Employers should also identify every aspect of the workplace that might involve a violence risk and pinpoint situations where the risk of violence is highest. The assessment should be reviewed regularly, including when circumstances such as new operations, design changes, or staffing changes might introduce new or changing risks. 9 Ibid., s. 32.0.1. 10 Ibid., s. 32.0.2.(2)(d). 11 Ibid., s. 32.0.6(2)(b). 12 Ibid., s. 32.0.1.(3). 13 Ibid., s. 32.0.6. 14 Ibid., s. 32.0.7.


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Domestic Violence Bill 168 features a novel requirement for employers to address the issue of domestic violence in the workplace. Without defining what constitutes “domestic violence”, Bill 168 compels employers to “take every precaution reasonable in the circumstances”15 to protect workers from domestic violence that would likely cause physical injury to workers in the workplace. This obligation arises only if the employer is aware, or ought reasonably to be aware, that domestic violence would likely expose an employee to physical injury in the workplace.

Conclusion Bill 168 imposes much broader obligations on employers than have ever existed in Ontario before. Employers need to decide whether they will have: (1) a separate workplace harassment and workplace violence policy pursuant to Bill 168; and (2) a separate workplace harassment under Bill 168 and harassment policy under the Code. Until there is jurisprudence indicating a different course of action is more appropriate, it would appear that employers who have already developed and implemented harassment investigation procedures under the Code complaints could adopt the same procedures for workplace harassment investigations under Bill 168. However, prior to adopting investigation procedures under 15 Ibid., s. 32.0.4.

the Code, employers should be aware how the OHSA is different from the Code. Specifically, employers should familiarize themselves with the potential risk of prosecution under the OHSA. In summary, to ensure compliance with Bill 168, employers should: • draft workplace violence and harassment policies; • educate employees on such policies; • undertake risk assessments to determine the possibility or prevalence of workplace violence or harassment; • disclose incidents of workplace violence and harassment to the Joint Health and Safety Committee and any risk assessments undertaken; • provide for a system of reporting instances or risks of workplace violence and harassment; • keep detailed records of any workplace violence or harassment, investigation or work refusal; • discipline employees for not following workplace violence and harassment policies; and • offer a confidential Employee Assistance Program to allow employees subject to workplace violence or harassment, or those with personal problems, to seek help. Finally, it is advisable that employers consider involving their legal counsel in each allegation of workplace harassment and violence and, particularly, when drafting the response to allegations.

Personal Information Protection and Electronic Documents Act Amendments BERNARD ARON On May 25, 2010, the federal Minister of Industry introduced the Safeguarding Canadians’ Personal Information Act (Bill C-29) in the House of Commons, which contains significant amendments to the Personal Information Protection and Electronic Documents Act (PIPEDA). The proposed amendments contain several provisions, which were recognized as omissions when PIPEDA was first enacted in 2001. The amendments reflect recommended changes following the parliamentary review of the legislation in 2007. The major amendments include breach reporting and notification requirements, and a consent exemption for the use and disclosure of personal information in business transactions.

“Long awaited changes to PIPEDA keeping privacy legislation responsive to needs of private sector.”

Bill C-29 amends PIPEDA to: (a) exclude, in certain circumstances, business contact information from the application of Part 1 of that Act;

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This article originally appeared in the MARCH 28, 2010 issue of Law Times

EMPLOYEE BONUSES: ARE THEY DISCRETIONARY Nikolay Y. Chsherbinin Aside from base salary, employment contracts frequently offer additional economic incentives. Typically, these include deferred profit-sharing plans, short- and long-term incentive plans, stock options, pension benefits, corporate discounts, discretionary bonuses, and merit compensation. Discretionary bonuses are particularly apt to be confused with merit compensation plans. Though each category fits within the rubric of incentives, the term discretionary bonus refers to plans with no predetermined performance objectives or outcomes, while merit compensation plans rely upon the achievement of set personal or corporate performance targets. This dichotomy often shows up in employment contracts stating, for example: “Your remuneration will be further enhanced by a discretionary bonus of 15 per cent” or, in other cases, that “your remuneration will be further enhanced by a bonus of 15 per cent should your department reach $1 million in annual sales.” Importantly, when the employment contract provides for a discretionary bonus, the employee acquires no contractual right to it but an expectation of it. Rights and expectations differ, of course, as do wants and needs. The right to a bonus, as in the latter scenario, is legal and relates to the employer’s liability, while the expectation of a bonus, as in the former scenario, is factual and relates to damages. Simply by characterizing a bonus as discretionary may not always shield employers from liability, however. The discretionary aspect means that it’s not automatic. A bonus may lose its discretionary character if there is proof that it has become an integral part of an employee’s wage structure, particularly if it constitutes a significant component of the total compensation. A related observation is that the more often the employer pays the bonus, the less discretionary it becomes. Moreover, the term discretion implies reaching a decision based on wide criteria, ranging from an employer’s financial ability to pay the bonus to refusal to pay it based on an employee’s performance. Purely subjective considerations can also come into play, such as preventing the employee’s earnings from exceeding those of a manager. Having adopted a supervisory responsibility over the employer-employee relationship, Canadian courts have implied an


obligation on employers to exercise their discretion in good faith. Canadian jurisprudence provides the following scenarios when dismissed employees typically assert a claim for a bonus as part of their salary structure: - When an employer dismisses an employee during the period of bonus calculation. In this case, the employee will be in a position to argue an entitlement to a pro-rated bonus based on the duration of employment and the degree of achievement of predetermined objectives. - When an employee is dismissed before the period of bonus calculation. In this situation, the employee’s entitlement to a bonus will be based on the historic average during the preceding three years. - When an employee is dismissed before the bonus payout date but after the period of calculation. In this scenario, employees are in the most secure position to recover the bonus because they’ve already done the work for which the money was to be paid and, arguably, the employer had reaped the benefits. The claim for a bonus that would have been attained during the notice period is subject to a higher test of whether the incentive has become an integral part of the employee’s salary structure. For example, in D e rk s e n v . W a s a In s u ra n c e C o . L td . (Liquidator of), the B.C. Court of Appeal upheld the amount of the bonus awarded to the employee based on her claim for a loss of opportunity to earn it. The key factor in this case was that the employer had promised to pay the employee a bonus if she stayed until the agreed date but then wrongfully terminated her prior to that time. Where it’s a condition of a bonus plan that an employee must remain “actively employed” until the employer pays the incentive to be eligible for payment, the court, in S c h u m a c h e r v . T o ro n to -D o m in io n B a n k , held such a provision to be ineffective. The facts of this case arose out of a constructive-dismissal setting. The court held that Schumacher’s involuntary inability to comply with the condition of the bonus plan wasn’t a justification for the employer to decline the payment as part of the employee’s damages. Significantly, the court made an explicit reference to the concept of fairness: “Where the bonus was promoted as an integral part of the employee’s . . . compensation, it would be . . . unfair to the employee to be deprived of the bonus by reason of the unilateral action of the employer.” However, in cases where employees assert a claim for an outstanding bonus for the time period when they were actually employed, it appears to be uncertain what effect a successful defence of just cause may have upon a claim for the incentive. As a result, the designation of a bonus as discretionary creates no contractual right, but merely an expectation, in favour of an employee’s entitlement to the money.


A survey of cases demonstrates that the courts aren’t averse to conflating expectations with rights, particularly in circumstances where the employer promoted the bonus as, or it has become, an integral part of an employee’s salary structure. Moreover, the courts will deem the bonus provisions ineffective if they unfairly deprive an employee of the incentive through an employer’s unilateral action. Since the bonus operates within a contractual framework, employers are restricted, under pain of liability, in their power to unilaterally change an incentive plan or methods associated with measuring the achievement of objectives. @Nikolay Y. Chsherbinin is an employment lawyer in Toronto. He can be reached at 416-224-1050 or nc@nclaw.ca .


Employment Law Today Published by Thomson Reuters Canada Ltd. I www.employmentlawtoday.com

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS

ISSUE NO. 553 • MARCH 24, 2010

Managerial employee gets overtime pay Executive chef who filled in on non-managerial duties gets overtime under little-used provision IN ONTARIO, an employer’s statutory obligation to pay for overtime is triggered when an employee works more than 44 hours in a week. The right to overtime pay applies to all employees except those whose “work is supervisory or managerial in character and who may perform non-supervisory or non-managerial tasks on an irregular or exceptional basis,” according to employment standards legislation. The overtime exemption for managers may be applicable even if an employee is not exclusively performing managerial or supervisory work. However, section 22(9) of the Ontario Employment Standards Act, 2000 (ESA), does allow overtime to be paid to managerial employees who find themselves in a situation where they spend 50 per cent or more of their time during a work week performing non-managerial tasks, but this provision hasn’t come into play until just recently. In Glendale Golf and Country Club Limited. v. Sanago and Director of Employment Standards, Massimo Sanago was employed as an executive chef. The fundamental character of his position was managerial, but a short-staffed kitchen required him to perform nonmanagerial duties such as line cooking. Ontario legislation considers non-managerial tasks performed by managerial employees to be performed for the employer, regardless of whether the employer requested or permitted it. Since Sanago was a managerial employee who was forced to perform non-managerial tasks, the Ontario Labour Relations Board had to determine

whether those tasks were performed on an “irregular” or “exceptional” basis. The evidence established that, over a period of two months, Sanago spent 55 per cent of all hours worked performing non-managerial line cooking duties. Since this crisis in the kitchen — brought on by quitting or firings of about onehalf of the kitchen staff — lasted for two months before a state of normalcy returned, the board found it was “out of the ordinary” circumstances and an “exceptional” event. Normally, Sanago’s claim for overtime would have been denied, but the board determined that, despite his position, Sanago was entitled to overtime pay for those weeks where he spent more than one-half of his time performing non-managerial tasks. Having acknowledged there were no prior decisions that have interpreted section 22(9) of the ESA, the board presented the parties with an opportunity to provide submissions with respect to its applicability. Both the employer and the Ministry of Labour claimed section 22(9) of the ESA did not apply to Sanago. The country club argued the executive chef position was 100 per cent managerial and, as such, Sanago was not requested to perform duties of any other kind. The ministry argued the executive chef position did not qualify for the overtime exemption, so there was no work performed that was exempt from the overtime provisions. Short-staffing caused exceptional event However, the board concluded there was no basis, statu-

tory or otherwise, to support an interpretation that would exclude the managerial/supervisory exemption under section 22(9) of the ESA. The board compared the managerial employee status to an employee who works for a taxi company both as a cab driver and as a dispatcher. Working as a cab driver, the employee would be exempt from overtime, but working in the office as a dispatcher, the employee would not be. If the employee worked more than 50 per cent of the work week as a dispatcher, she would be entitled to overtime pay for all hours worked in excess of the statutory threshold of 44 hours. There are many jobs exempt from the overtime provisions, including that of executive chef, whose work is supervisory or managerial in character but may involve nonsupervisory or non-managerial tasks on an irregular or exceptional basis. The board saw no reason to distinguish the overtime exemption for a managerial/supervisory person from other exempt jobs. Glendale is of importance to both managerial employees and employers, albeit for different reasons: For employees: •It clarifies that if a particular job falls within the managerial exemption and the duties of that employee’s job require her to perform non-managerial tasks, section 22(9) of the ESA applies and the employee is entitled to overtime pay for work performed in a work week, so long as the non-managerial work in that work week takes up 50 per cent or more of the time the employee spent working. •It explains that if an employee

is employed in a position that qualifies for the managerial exemption but who spends 50 per cent or more of her time during a work week performing the non-exempt work on an irregular or exception basis, section 22(9) will apply. •It suggests that managerial/ supervisory employees might want to document hours worked performing non-managerial tasks in order to substantiate a claim for the overtime pay. For employers: •It advises employers that once they become aware their managerial/supervisory employees are engaged in non-managerial tasks they should promptly advise them, in writing, to stop performing such tasks, if the employers wish to avoid claims for overtime. •It indicates that it would be prudent for employers to develop a policy requiring managerial/supervisory employees to obtain authorization prior to engaging in non-managerial tasks and ensure consistent compliance with the policy. See Glendale Golf and Country Club Limited v. Sanago and Director of Employment Standards (Jan. 20, 2010), John D. Lewis — Vice-chair (Ont. Labour Relations Bd.). CELT

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

© Copyright Thomson Reuters Canada Ltd., January 27, 2010, Toronto, Ontario, (800) 387-5164. Web site: www.employmentlawtoday.com


Employment Law Today Published by Thomson Reuters Canada Ltd. I www.employmentlawtoday.com

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS

ISSUE NO. 549 • JANUARY 27, 2010

Ontario raises the bar for accommodation New standard under disability legislation requires employers to be more proactive | BY NIKOLAY CHSHERBININ | THE BAR for accommodation for Ontario employers is about to be set a little higher. The final version of the Employment Accessibility Standard developed under the Accessibility for Ontarians with Disabilities Act, 2005, has been released and is expected to become law early in 2010. The standard creates new obligations for employers with respect to recruitment, hiring, retention, training, accommodation, separation and termination of Ontarians with disabilities. It outlines what persons with disabilities can expect in the workplace and extends employers’ legal duty to accommodate beyond the Ontario Human Rights Code’s requirements. Given the direct financial and legal implications, it is crucial for employers to familiarize themselves with their new obligations and budget expenditures to ensure compliance. Who is affected by the standard? The standard applies to all "organizations providing paid employment" in Ontario with at least one employee. It captures full-time, part-time and paid casual employment, paid apprenticeship and paid seasonal employment. Since the standard applies only to "organizations," it does not apply to employment relationships between individuals and domestic workers or professionals and their staff. Such exclusion inadvertently creates a discriminatory environment, as the standard appears to give a disabled person employed at a factory better protection than one working as a housekeeper. In addition, the emphasis on "paid employment" excludes volunteer relationships and internships. Recruitment, assessment and hiring The standard increases employers’ obligations when recruiting, assessing and hiring persons with disabilities. All classes of organizations would be required to inform job applicants that accommodation will be provided to them from the recruitment through hiring stages. When recruiting, either internally or externally, employers will have the following obligations: •Provide information about the essential job duties, which are defined as "duties that are critical to fulfilling the purpose

or outcome of a particular job." •Demonstrate how their external recruitment process enables candidates with disabilities to receive information about job openings. However, it is unclear what "demonstrate" entails and to whom it must be demonstrated. •Include in any job posting a note that "individual accommodation will be provided to applicants who are selected for assessment." •Inform applicants selected for further consideration that the assessment and selection materials and processes are available in accessible format, upon request. •Ensure such materials and processes measure the applicants against the "essential duties" of the position. When an employer makes a formal job offer to a person with a disability, it must include information on its individual accommodations procedures. Accessible employment policy statement and policies The standard stipulates that within one year of its implementation, all classes of organizations shall develop and maintain an "accessible employment policy statement" that should include the following commitments: •Identification, prevention and removal of barriers throughout the employment life cycle. •Development of inclusive systems and procedures. •Support of persons with disabilities with accommodations, from recruitment through hiring. •Development of individual accommodation plans to support employees with disabilities. •Provision of information in accessible formats and methods. •Provision of disability awareness training to employees. The standard also requires organizations "to develop, document and maintain accessible employment policies" that support the implementation of the commitments included in the policy statement and identify a person who will be responsible for adherence to these policies. The standard requires accessible maintenance policies to be put in place within four years of its implementation by organizations with more than 50 employees. Employers

with fewer than 50 employees are exempt from this requirement. General training Employers are required to provide disability awareness training for all employees including employment policies and procedures, what accommodations can be made, how to identify accommodations or how to develop an individual accommodation plan. Implementation timelines range from three to five years and are applicable only to employers with more than 50 employees. Retention The standard would require organizations to develop formal, up-to-date procedures aimed at establishing individual accommodation plans, which must: •Assess and accommodate employees on an individual basis. •Detail how an employee can request accommodation. •Describe the type of accommodation to be provided. However, it is unclear how this can be meaningfully done, given the individualized nature of disability and related accommodation needs. •Specify the timing for the accommodation. •Include individualized emergency evacuation procedures, if necessary. •Detail how plans are reviewed and modified. •Detail how the privacy of accommodation is protected. •Set out the process of solving disputes with respect to plans. Accessible information and communications Employers will be required to provide individual accommodation plans, employee orientation materials, job testing materials, performance management processes, separation or termination information, return to work procedure, and emergency and safety information, in formats or methods compliant with the accessible information and communications standard. This arguably inflexible requirement would have a significant financial and operational impact on employers. Other requirements Most employers will be required to identify indicators of progress that are

suitable and reasonable for their workplace, to assist in tracking progress toward accessible employment. Employers will also have to explain emergency and safety information and disseminate it to employees with disabilities as soon as practicable, including information on alarm systems and emergency evacuation procedures. Other components of the standard include performance management, care management and advancement requirements, which must be applied to employees with disabilities in a way that is consistent with their individual accommodation needs or plans. Tips for employers The proposed changes will transform HR practices in Ontario from reactive to proactive. Unfortunately, such a transformation will be costly for employers, especially those with undeveloped HR practices. Employers should not assume they will be only obligated to comply with the standard and not the Human Rights Code. The standard should be viewed as complementary to and building on the code. However, reconciliation of competing requirements under the standard and the code would likely be left to the judicial process, which creates the potential for a flood of legal proceedings and varying decisions on accommodation issues. Employers should be vigilant in ensuring compliance with phased implementation timelines of various standards for different classes of employers. Corporate policies and procedures must be developed or revised to ensure compliance with the standard.

ABOUT THE AUTHOR

Nikolay Y. Chsherbinin Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

© Copyright Thomson Reuters Canada Ltd., January 27, 2010, Toronto, Ontario, (800) 387-5164. Web site: www.employmentlawtoday.com


VOLUME 2, NO. 12 – DECEMBER 2009

Employers are Obligated to Protect Employees from Themselves

AUTHORS: Mr. Justice Rick Libman, B.A., LL.B., LL.M.

NIKOLAY Y. CHSHERBININ*

Bernard Aron, B.A., J.D., LL.M.

In Ontario, employers are responsible for the health and safety of employees in the workplace. Increasingly, employers are charged with a breach of the Occupational Health and Safety Act1 (“OHSA”), which is designed to protect employees against health and safety hazards at work. The OHSA establishes procedures for dealing with workplace hazards and empowers the Ministry of Labour to prosecute any person for a contravention of the OHSA. Convicted individuals can be fined up to $25,000.00 or imprisoned for a term of up to 12 months. Corporate employers are subject to a maximum fine of $500,000.00. Supervisors and managers are often found liable in addition to the corporate body.

John P. Allen, B.A., B.Sc., LL.B., LL.M.

For the most part, the OHSA creates strict liability offences, where the prosecution needs only to prove, beyond a reasonable doubt, the factual elements of the offence, leaving it open to the accused employer to avoid conviction by proving, on a balance of probabilities, that it exercised all reasonable care to prevent commission of the OHSA offence. The difficulty arises in situations where the accused employer contends that the accident was due to the injured employee’s neglect. While employers’ and employees’ neglect creates two separate nubs of liability, the accused employer will only be relieved of liability if it establishes that it was in no way negligent. The prosecution’s inquiry will be directed not at whether the injured employee may have been negligent, bur rather whether the accused employer used all reasonable precaution to ensure that its procedures for protection of employees were monitored and carried out. In other words, the injured employee’s negligence is no defence to the accused employer who fails to establish that it acted in due diligence to protect even the foolish, heedless or thoughtless workers.

Judicial Considerations In 2008, a related issue came before Mr. Justice Griffen in R. v. Goodyear Canada Inc.2 In this case, the employer, Goodyear, was charged with having failed to ensure that * Nikolay Y. Chsherbinin, B. Comm., LL.B., LL.M. (Candidate), is an associate at Grosman, Grosman & Gale LLP, where he practices in employment law and related litigation. 1 R.S.O. 1990, c. O.1. 2 Unreported, April 22, 2008 (Ont. C.J.).

continued on page 2 ...

IN THIS ISSUE Employers are Obligated to Protect Employees from Themselves — Nikolay Y. Chsherbinin . . . . Page 1 Cases to Watch For . . . . . . Page 3 Winlow – A Prosecutor’s Perspective — Jane Moffatt . . . . . . . . . . . . . . Page 3 Holding a Hammer to the Defendant’s Head? — Vartan HS Manoukian . . . . . . . Page 5 The Decision of R. v. Grant and the Implication to Regulatory Offences — Julie Santarossa & Jessyca Greenwood . . . . . . . . . . . . . . . . . . . . . . . . Page 8

Case Comment. . . . . . . . . . . . Page10 “Race-chasing” is a mens rea Offence, with a Modified Objective Test for Intention . . Careless Discharge of a Firearm Case. . . . . . . . . . . . . . Investment Dealers Association has Jurisdiction over Resigned Dealer, because of Original Contract . . . . . . . . . . When a Distribution of Securities Outside of B.C. is Subject to B.C. Law . . . . . . .

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the employee locked-out a piece of machinery, which caused the employee injury. Justice Griffen found that the factual elements of the offence had been made out, but nonetheless acquitted Goodyear. He was satisfied that the employee’s careless actions occurred despite Goodyear’s due diligence in taking every reasonable precaution to prevent the offence. Later that year, in R. v. Petro-Canada,3 the same court found Petro-Canada guilty and fined it $150,000.00 for failing, as an employer, to take the reasonable precaution of having a procedure, which ensured that when a locking pin was removed from an overflow valve employees were not endangered by steam. As a result of the breach of Petro-Canada’s duty to protect, one of its employees suffered painful and disabling burns to various parts of his body. In 2007, in R. v. Toronto Transit Commission4 a $165,000.00 fine was imposed on the TTC, upon a guilty plea, involving seven workers working in a subway tunnel overcome by carbon monoxide from gas powered equipment. In 2006, in R. v. Woodbine Entertainment Group,5 a fine of $175,000.00 was imposed on an incident that involved a stationary engineer employed by Woodbine Racetrack who smelled gas and ultimately became injured. A survey of recent cases demonstrates that the courts are not adverse to imposing hefty fines for the OHSA violations. By imposing such fines the courts do not seek to punish employers for employees’ injuries, but rather to enhance the remedial and deterrent effects of the OHSA.

Victim Surcharge Another factor tending to raise the financial impact of a conviction on an employer is the statutory “victim surcharge”, which is imposed on fines levied under the OHSA, pursuant to section 60.1 the Ontario Provincial Offences Act6 (“POA”). The Ontario Regulation 161/00 made under the POA specifies that for fines over $1,000.00, the surcharge is 25%. Importantly, the surcharge is mandatory and is not taken into account by the courts when determining the appropriate fine. But just what factors do judges take into account when assessing the appropriate sentencing?

Factors Affecting Sentencing The OHSA does not specify the factors that are to be weighed in assessing the penalty. In R. v. Cotton Felts Ltd.,7 the Ontario Court of Appeal explained that the amount of fine will be 3 4 5 6 7

2008 CarswellOnt 8585, 2008 ONCJ 727 (Ont. C.J.). Unreported, December 10, 2007 (Ont. C.J.). 2006 CarswellOnt 1008, 2006 ONCJ 535 (Ont. C.J.). R.S.O. 1990, c. P.33. (1982), 1982 CarswellOnt 1235, [1982] O.J. No. 178, 2 C.C.C. (3d) 287, C.E.S.H.G. 95,056 (Ont. C.A.).

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determined by a number of considerations, which include: (1) the size of the company involved; (2) the scope of the economic activity in issue; (3) the extent of actual and potential harm to the public; (4) the maximum penalty prescribed by the statute; and above all (5) the need to enforce regulatory standards of deterrence. In light of the aforementioned decisions, one can add another factor: steps taken by an employer to avoid a violation of the OHSA. To minimize the penalty, on a guilty plea, employers typically adduce evidence explaining and justifying the nature and extend of their health and safety programs. Therefore, one of the strong factors in favour of employers will be their efforts to comply with the standards and their regard for, or disregard towards, employees’ health and safety. The issue of whether evidence of ex post facto improvements to the employer’s safety policies and procedures should be admissible in the OHSA prosecutions remains unsettled. Prudent employers should take remedial measures to ensure the post-incident safety of their employees. It would allow employers and their managers to mitigate any potential penalty, which may be imposed upon them in any subsequent OHSA prosecutions.

Defences The primary defence for the OHSA prosecutions is due diligence, which leads to the accused employer’s acquittal if it could be established that a reasonable person in the circumstances would have foreseen and took all reasonable steps to avoid the particular event. The OHSA does not impose a duty on the accused to anticipate every possible failure, but only to exercise reasonable precaution. For some violations, the OHSA provides for a statutory defence equivalent to the common law defence of due diligence. Specifically, section 66(3) provides that the accused employer will not be liable for a failure to comply with sections 23(1), 25(1)(b),(c),(d) or 27(1), if it can prove that it took every “precaution reasonable in the circumstances”. Can the due diligence defence be established in cases where compliance with the statutory requirements is, for example, prohibitively expensive for the accused employer? The Ontario Court of Appeal decision in R. v. Nickel City Transport (Sudbury) Ltd.8 allows the defence of due diligence if it can be demonstrated that any efficient method to comply with the statutory requirement is prohibitively costly for the 8 (1993), 1993 CarswellOnt 108, [1993] O.J. No. 1277, 47 M.V.R. (2d) 20, 104 D.L.R. (4th) 340, 82 C.C.C. (3d) 541, 22 C.R. (4th) 155, 14 O.R. (3d) 115, 63 O.A.C. 289 (Ont. C.A.).


R E G U L AT O RY O F F E N C E S A N D C O M P L I A N C E N E W S L E T T E R VOLUME 2, NO. 12

accused employer to afford or pass on to its customers. However, in 2005, the Ontario Superior Court of Justice in R. v. Canada Brick Ltd./Briques Canada Ltée,9 ignored the Nickel City case and instead adopted the Newfoundland Court of Appeal pronouncement in R. v. Alexander,10 that “as a matter of principle, it should be observed that arguments based on the expense associated with compliance cannot generally be sustained”. Arguably, in light of the Nickle City case, it remains open for the accused employer to invoke the “financial inability” argument in an attempt to make out the due diligence defence. In addition to due diligence, the defence of “officially induced error” may be available to the accused employers, albeit it is rarely made out. This defence is available where the accused employer can prove, on a balance of probabilities, that it reasonably relied on the erroneous legal opinion or advice of a public official who is charged with administration and enforcement of the particular statute. In Maitland Valley Conservation Authority v. Cranbrook Swine Inc.,11 the Ontario Court Appeal held that to succeed the accused employer needs to establish that: (1) it considered the legal consequence of its actions and sought legal advice; (2) the legal advice was given by an appro-

9 (2005), 2005 CarswellOnt 3107, [2005] O.J. No. 2978 (Ont. S.C.J.). 10 (1999), 1999 CarswellNfld 19, [1999] N.J. No. 19, 171 Nfld. & P.E.I.R. 74, 525 A.P.R. 74, 28 C.E.L.R. (N.S.) 217 (Nfld. C.A.). 11 (2003), 2003 CarswellOnt 1470, [2003] O.J. No. 1433, 64 O.R. (3d) 417, 2 C.E.L.R. (3d) 6, 170 O.A.C. 346, 38 M.P.L.R. (3d) 1, 225 D.L.R. (4th) 255 (Ont. C.A.).

priate individual; (3) the legal advice was erroneous; (4) it relied upon the erroneous advice; and (5) reliance upon the erroneous advice was reasonable.

Practical Suggestions for Employers Prudent employers should ensure that those employees entrusted with directing how work is performed understand their, and their employer’s, OHSA obligations. Employers should ensure that their supervisory and managerial employees undergo recurring training on the OHSA compliance that is appropriate for their jobs. The training should include training with regard to the role and responsibilities of the Ministry of Labour and its Inspectors. It is essential that the corporate policies and procedures be put in place to address, inter alia, issues of how to (1) deal with employees invoking the right to refuse work under section 43(3) of the OHSA; (2) respond to employees’ injuries or fatalities; (3) interact with the Ministry of Labour and its inspectors. In this regard, a specific individual should be designated to deal with the Ministry of Labour and its inspectors; (4) deal with the Ministry of Labour orders, issued for the OHSA violations; (5) behave during the Ministry of Labour investigations to avoid allegations of obstruction; and (6) act during the time the warrant is being executed. In addition, the policies should set out circumstances when the corporate employer will be required to retain an independent counsel to provide advice to its supervisors and managers and in which instances its officers, directors, supervisors and managers will be indemnified for legal fees and fines incurred in the OHSA prosecutions.

CASES TO WATCH FOR Winlow – A Prosecutor’s Perspective JANE MOFFATT* The Ontario Court of Appeal on September 10, 2009 released the “Winlow” decision. In Winlow,1 the Court of Appeal was asked to answer the following questions: 1. Is the particular rate of speed an essential element of the offence of speeding? * Prosecutor, Regional Municipality of Durham. President, Prosecutors’ Association of Ontario. 1 2009 CarswellOnt 5208, 2009 ONCA 643 (Ont. C.A.).

2. Depending on the rate of speed, is the fine for speeding fixed or does the court have discretion to reduce the fine? 3. Did the courts below err in refusing to amend the charge, and more broadly and importantly, is the practice of “amending-up” permissible?

Why this Case is Important The Winlow decision is a very important case – a “must read” for all Provincial Offences Act (“POA”) prosecutors, POA defence counsel/agents and for the judiciary. The Ontario Court of Appeal has given clear direction to the courts below regarding the practice of “amending-up” the rate of speed at trial to conform with evidence adduced at trial. In fact, the analysis has

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CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS

ISSUE NO. 541 • SEPTEMBER 9,2009

September 9, 2009

CASE IN POINT: REASONABLE NOTICE

Serving notice in economic dismissals Dismissing employees for financial reasons may be justified but could lead to greater notice requirements in a poor job market BACKGROUND

More notice to cut payroll the most common solutions companies consider during an economic downturn is cutting staff, something that's been quite evident from the hundreds of thousands of jobs that have been lost in the recent recession. Sometimes this course of action is chosen among several cost-cutting options or sometimes there's no other option. Either way, it's important for employers to consider how much the same economic conditions that lead to job cuts affect fired employees' chances of finding another job. If the pickings are slim, it could mean the employer is on the hook for a larger notice period or severance package. Toronto-based employment lawyer Nikolay Chsherbinin examines the effects a recession can have on an employer's obligations to employees whose jobs are cut as part of a company's cost-cutting measures.

ONE OF

I BY NIKOLAY CHSHERBININ I THOUSANDS of job casualties being claimed each week by the wounded economy, buzzwords like downsizing, corporate reorganizations, economic restructuring and layoffs are becoming increasingly ingrained in employers' minds. By contrast, ambushed by employers' unpreparedness to survive another recession, employees frantically search the Internet in the hope to understand concepts of wrongful dismissal, litigation, legal costs and, especially, what constitutes a reasonable notice period. But just how does the recessionary economy impact on the employees' reasonable notice entitlement? To answer this question one should first understand that notice is the information that employment will end on a certain date. The purpose of notice of impending termination is not to pay, but to

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give employees the chance to arrange their affairs and try to find new employment. The question of common law notice is more complex. It requires a court or arbitrator to make a case-specific inquiry and assess its findings against the four traditional factors used to determine the period of reasonable notice as set out in Bardal v . Globe & Mail Ltd. Those factors are: age, length of service, nature of the position and availability of similar employment. An additional factor comes into play in periods marked by economic slump, which is the economy itself. Still, as the court in Bardal said, "There can be no catalogue laid down as to what is reasonable notice in particular classes of cases." Courts divided in their support

A survey of cases ranging from 1980 to 2009 that discussed an economic downturn as a factor in determining

Canadian HR Reporter, a Thomson Reuters business

the period of reasonable notice revealed that, during the 1980s, courts were divided between supporting employers and employees in their discussion of economic conditions, contrasting the hardships of employees with the financial peril of employers who blamed factors "beyond their control." Some judgments emphasized the unique perspective that law is autonomous from the economy. This approach signaled that economic conditions have little or no relevance to the employment contract. In the 1986 case Ansari v . British Columbia Hydro & Power Authority,

the British Columbia Supreme Court said, "it does not seem to me that economic considerations such as reduced business activities or opportunities should be a factor in fixing the period of reasonable notice." The Alberta Court of Queen's Bench followed this reasoning a year later in Dasent v . D. Molesky Surveys Ltd.

"The condition of the economy .. . is a factor to consider but because of social programs and unemployment benefits that are available, it should not operate as a reason for extending the reasonable notice that is required to be given," the Alberta court said. In the recession of the 1990s, judgments were often characterized by rationalizations of economic dismissals based on the approach of the Ontario High Court in Bohemier v. Storwal International Inc. In Bohemier, the court recognized the need for an employer to operate in an

Continued on page 5 2009


CANADIAN EMPLOYMENT LAW TODAY

CASE IN POINT: REASONABLE NOTICE

Judgments continue to be pro-employee reducing staff during a downturn to tions. With the latest recession, judg- remain competitive or even viable "unfavourable economic climate." The ments continue to be pro-employee. In most likely will not be received sympacourt found when an employee was dis- Munoz v. Canac Kitchens, the dis- thetically in the courts. Recessions in a general economy are missed for economic reasons, there missal took place in the context of the should be a limit on the notice termination of other Canac employees not isolated and thus are a foreseeable as a result of a steady decline in event. Given the historic evidence, required. Following this lead, courts refrained Canac's business. Despite being employees may be able to argue that a from chastising employers for dis- advised during the trial that Can~c was recession is never too far down the road charging employees in a period with a in the process of closing down entirely, and employers should have anticipated limited job market. Rather, it appears the Ontario Superior Court of Justice it and structured their employment they agreed recessionary economic found the employee, a team leader with relationships more responsibly. • conditions "required" organizations to more than 12 years of service who was reduce their staff. Nevertheless, in 52 years old and remained unemployed For more information see: Russell v. Winnifred Stewart Assn. for 16 months after his termination, was -Bardal v. Globe & Mail Ltd., 1960 Carthe Mentally Handicapped, the Alberta entitled to 12 months' notice. In Janu- swellOnt 144 (Ont. H.C.). Court of Queen's Bench criticized the ary 2009, when Canada lost 129,000 -Ansari v. British Columbia Hydro & employer for how it responded to the jobs, the court in Mahesuram v. Canac Power Authority, 1986 CarswellBC 86 new economic context and questioned Kitchens Ltd. awarded another (B.C. S.C.). the necessity of the dismissal for eco- employee of Canac, 59 years old with 19 -Dasent v. D. Molesky Surveys Ltd., 1987 CarswellAlta 499 (Alt. Q.B.). years of service, 18 months' notice. nomic reasons. While judges accepted the legitiAn economic downturn will seldom -Bohemier v. Storwal International macy of economic dismissals for other serve to reduce an appropriate .notice Inc., 1983 CarswellOnt 771 (ant. c.A.). types of employers, they still empha- period, but may well serve to increase -Russell v. Winnifred Stewart Assn. for sized that "a contract is a contract" it if the employee cannot find alternate the Mentally Handicapped, 1993 Carand contractors upheld their end employment. Without supporting swellAlta 110 (Alt. Q.B.). through their loyalty to the organiza- financial evidence, a rationale . for -Munoz v. Canac Kitchens, 2008 CarswellOnt 7059 (On. S.C.J.). ... continued from page 4

Limiting liability through employment contracts

-Mahesuram v. Canac Kitchens Ltd.,

2009 CarswellOnt 229 (On. S.C.J.).

ABOUT THE AUTHOR

ULTIMATELY, judicial interpretation of economic dismissals varies to the extent that each downturn is characterized by a different combination of rationalizations on economic dismissals. The common thread running through the recessionary periods is this: A carefully drafted employment contract will substantially reduce potential litigation. In this sense, the contract can: -Limit employers' liability on termination to the notice period set out in it. -Specify that the provincial law will apply in resolving employment-related disputes, such as reasonable notice of termination. -Define the job description, which from the employer's perspective should be broadly based in order to avoid implication that changes in job responsibilities will result in a fundamental breach of the employment relationship. This approach could be especially helpful for employers that contemplate a merger. -Cap incentives, benefits, expenses and severances, so these do not become troublesome in the future. -Limit the mobility of key employees after the employment relationship ends. -Limit the length of the employment relationship and provide for a renewal period if it is in the employer's interests to do so.

Nikolay Chsherbinin Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 or nikolayc@grosman.com.

Canadian HR Reporter, a Thomson Reuters business 2009

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