Managing Employment & Immigration issues in Ontario

THE ASSUMPTION of jurisdiction bycourts over tort cases in which plain-tiffs sue in one province, but at leastsome of the events that gave rise to theclaims occurred outside the province,is often highly discretionary andunstable.

In Van Breda v. Village Resorts Ltd.,the Supreme Court of Canada crafted anew test, which requires a plaintiff toidentify “presumptive connecting fac-tors” that might link a legal situationto a court’s jurisdiction. If no presump-tive connecting factor applies in thecircumstance of a case, or if the pre-sumption of jurisdiction resulting fromsuch a factor is properly rebutted, thecourt will lack jurisdiction on the basisof the common law real and substantialconnection test.

While vacationing in Cuba, MorganVan Breda suffered catastrophic injury,which rendered her a paraplegic. Uponher return to Canada, Van Berda suedthe resort and its associates in theOntario Superior Court of Justice.Some of the defendants, includingthose who were served outsideOntario, moved to dismiss the actionfor want of jurisdiction. At each level,

the Canadian courts found there was aconnection between Ontario and theresort, because prior to their depar-ture Van Breda’s husband, a profes-sional squash player, entered into acontract with the resort through anOttawa-based travel agent, requiringhim to provide two hours of tennis les-sons a day in exchange for bed, boardand other services. The benefit of thiscontract was extended to Van Breda,who was injured in the context of herhusband’s performance of his contrac-tual obligations. The existence of a con-tract made in Ontario was thepresumptive connecting factor, whichentitled the Ontario courts to assumethe jurisdiction.

The Supreme Court of Canadaacknowledged that a sufficient connec-tion existed between Cuba and the sub-ject matter of the litigation to supportan action in Cuba. However, the courtconcluded that Cuba would presentserious challenges to litigation due toproblems with witnesses, concernsabout the application of local proce-dures and expenses linked to litigationin Cuba. The court determined that theburden on Van Breda would be farheavier if she were required to bringher action in Cuba.

Connecting factors importantin determining jurisdiction

Van Breda draws a clear linebetween the assumption of jurisdictionand forum non conveniens, which con-cerns the court’s discretion to declineto exercise its jurisdiction. Forum nonconveniens comes into play only afterthe court’s jurisdiction over a claim isestablished. It is not relevant to thejurisdiction analysis itself.

Presumptive connecting factorsentitling a court to assume jurisdictionover a dispute, exist if:•The defendant’s location or residentis in the province•The defendant carries on business inthe province.•A contract connected with the disputewas made in the province•The tort is committed in the province.

The Supreme Court of Canada madeit clear that this “list of presumptiveconnecting factors is not closed.” Itacknowledged that, over time, courtsmay identify new factors that also pre-sumptively entitle a court to assumejurisdiction and the burden of rebut-ting the presumption of jurisdictionrests on the party challenging theassumption of jurisdiction. For exam-ple, where the presumptive factor is acontract made in the province, the pre-sumption can be rebutted by showingthat the contract had little or nothingto do with the subject matter of the lit-igation.

In the context of employment law,the working of jurisdiction is aptlydemonstrated by the Ontario Divi-sional Court’s decision in Elguindy v.Core Laboratories Canada Ltd, whichinvolved the claim for damages basedon the tort of inducing breach of con-tract. The employee asserted that

September 19, 2012

4 Published by Canadian HR Reporter, a Thomson Reuters business 2012

CASE IN POINT: BREACH OF CONTRACT

Continued on page 5

Home or visitors?When a contract is breached in another province or country,

there are a variety of factors determining who has jurisdiction

| BY NIKOLAY CHSHERBININ |

BACKGROUND

The right place to sueWHEN an employer operates in multiple provinces or countries, it can be sub-ject to varying laws of different jurisdictions. Things can also get tricky if itsoperations in different locations overlap and employees in one jurisdictionare overseen by an office in another jurisdiction.

If an employment contract is breached or one party decides to launch a legalaction, there are factors to take into account before the courts of a particularregion assume jurisdiction, and also precautions employers can take with theiremployment contracts to give them a better indication of where legal proceed-ings will take place.

sometime after he was hired inOntario, there was a telephone com-munication between his new employerand his former employer in Alberta,which resulted in his dismissal. Thecentral issue was whether the tort ofinducing breach of contract was com-mitted in the province of Ontario. Thecourt held that the geographicalsource of the inducement was of noconsequence. Having referred to caseswhich held that the representationcannot be said to have been made untilreceived, the court concluded that ifthe representation is received in a par-ticular province, the tort of inducingbreach is deemed to be committed inthat province.

The Ontario Rules of Civil Proce-dure and the Supreme Court of Canada— since the 1994 decision of Tolofson v.Jensen — have stipulated that claimsrelated to a tort committed in Ontarioentitles the province’s courts toassume jurisdiction over a dispute. Inaddition, the use of damage sustained,which in the context of the tort ofinducing breach of contract is anactual breach of contract, serves as aconnecting factor which wouldsquarely place a claim within the juris-diction of the Ontario courts.

However, in Van Breda, the topcourt cautioned that the unreserveduse of damage as a connecting factormay raise difficult issues and thereforepresumptive effect cannot be accordedto this factor. For torts like defamationand inducing breach of contract, sus-taining damage often completes thecommission of the tort and often tendsto locate the tort in the jurisdictionwhere the damage is sustained. Inother cases the situation is less clear,because an injury may happen in oneplace, but the pain resulting from itmight be felt in another country.

Important clause in employmentcontracts for interjurisdictional employers

Given that the list of presumptive

connecting factors is not closed, inorder for inter-jurisdictional and inter-national employers to potentially avoidcourts of a specific jurisdiction, theyshould include the forum selectionclause in their employment contracts.

A recent case in point is MackieResearch Capital Corp. v. Mackie,where a corporate merger was fol-lowed by dissatisfaction that causedemployees to resign and take positionswith a competitor. The action con-cerned the rights of the company andthe obligations of some of the employ-ees under the merger agreement madein Ontario and breached in Alberta.Under the merger agreement, it wasagreed that the Ontario courts shouldhave jurisdiction, even though theemployees lived in Alberta. JusticeLow had no difficulty in holding thatOntario had jurisdiction over the mat-ter and despite the fact that the major-ity of defendants reside in Alberta, theconduct alleged to have been engagedin by the defendants took place inAlberta and that a significant numberof witnesses reside in Alberta, herefused to exercise his discretion tooverride the forum selection clause.The Ontario Superior Court of Justiceobserved that: “the balance may favourAlberta as the more convenient forumdoes not per se constitute strongcause.” It explained that the agree-ment was not the product of unevenbargaining position. Both parties“were sophisticated business people,represented by solicitors, concluding asophisticated series of transactions.”

In circumstances of unequal bar-gaining power, employers should bemindful of the public policy concerns

when imposing the forum selectionclause on their employees withoutnotice and fresh consideration, asexemplified in Hayes v. Peer 1 NetworkService Solutions Inc., where theOntario Divisional Court set the mas-ter’s decision with regards to jurisdic-tion aside, in circumstances where adismissed employee’s employmentcontract contained a clause in whichthe law of the state of Washington waschosen to govern the agreement.

For more information see:

■Van Breda v. Village Resorts Ltd., 2012CarswellOnt 4268 (S.C.C.).■Elguindy v. Core LaboratoriesCanada Ltd.,1987 CarswellOnt 497(Ont. Div. Ct.).■Tolofson v. Jensen, 1994 CarswellBC2578 (S.C.C.).■Mackie Research Capital Corp. v.Mackie, 2012 CarswellOnt 8457 (Ont.S.C.J.).■Hayes v. Peer 1 Network Inc., 2007CarswellOnt 4093 (Ont. Div. Ct.).

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CANADIAN EMPLOYMENT LAW TODAY

CASE IN POINT: BREACH OF CONTRACT

...continued from page 4

Published by Canadian HR Reporter, a Thomson Reuters business 2012 5

Location of damage sustained is a connecting factor

In order for interjurisdictionalemployers to potentially avoidcourts of a specific jurisdiction,

they should include a forum selection clause

in their employment contracts

ABOUT THE AUTHOR

Nikolay Y.Chsherbinin

Nikolay Y. Chsherbinin is an employmentbarrister in Toronto. He can be reached at(416) 907-2587, [email protected] or by visitingwww.nclaw.ca.

MORE CASES IN POINT

To view more Cases in Point andother Canadian Employment LawToday articles, go to www.employmentlawtoday.com and clickon “Advanced Search,” where youcan search for articles by keywordsor department.

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 non-competition 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 e-mailed 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 non-solicitation 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, [email protected] or nclaw.ca.

FRUSTRATION of an employment contractoccurs whenever the law recognizesthat, without the fault of either party, acontractual obligation cannot be ful-filled. Physical disability, commercialimpossibility, or changes in legislationare frustrating events,which may excuse a non-performance of contrac-tual duties withoutliability. In considering thelatter eventuality, the Ontario DivisionalCourt in Cowie v. Great Blue HeronCharity Casino resolved that an employ-ment contract could be immediatelyfrustrated if the frustration was inducedby supervening changes in legislationthat made an employee’s continuedemployment illegal. Cowie drew a brightline between frustrations caused by ill-ness or disability and illegality, wherethe former entitles and the latter disen-titles employees to severance.

In 2000, Great Blue Heron CharityCasino in Port Perry, Ont., hired GeorgeCowie as a security guard. Cowie’semployment contract required him to belicensed by the Ontario Gaming ControlCommission. On June 9, 2005, Cowie waspromoted to the position of SecurityTraining Officer and on April 4, 2007, hisposition was re-classified to TeamLeader.

In August 2007, the Private Securityand Investigative Services Act, 2005(PSISA) came into effect, adding addi-tional licensing requirements for secu-rity guards. Section 10(5) of the PSISA

requires guards to have a “clean crimi-nal record.” On Aug. 13, 2008, Cowie wasinformed that he was ineligible to hold aPSISA licence due a break and enterconviction in March 1983, for which hehad yet to be pardoned. Since employingCowie without a licence constituted anoffence under the PSISA, the casino

informed Cowie on August21, 2008, that their employ-ment contract had beenfrustrated. No wrongdoingon Cowie’s part was

alleged nor any pay in lieu of notice wasgiven. Predictably, Cowie sued forwrongful dismissal. He won at trial, butlost on appeal.

Suspension is a solution: Trial court

The trial court found that Cowie’scontract had not been frustrated andawarded him damages equal to eightmonths’ salary in lieu of notice. In thetrial judge’s view, the absence of a PSISAlicence was not a permanent, but rathera temporary, disruption of the employ-ment contract. She found that there wasa reasonable alternative to termination— suspension of at least six months toone year — which would have allowedCowie to obtain a pardon. In fact, Cowieobtained the pardon 3.5 months after hisdismissal.

Illegality frustrates contract: Appeal court

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

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS FEBRUARY 22, 2012

Illegality of employmentfrustrates contract

Continued on page 6

Legislative changes made security guard’s licence invalid so employer dismissed him

2ASK AN EXPERT:When to launch an investigation •Reclassifying unionized work

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

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

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

AN ONTARIO government worker wholied twice about criminal chargesagainst him does not deserve to bereinstated, an arbitrator has ruled.

The worker was employed with theCanada Revenue Agency (CRA) untilJanuary 2005, and was later chargedwith fraud, breach of trust and person-ation. While the police investigationwas underway, the worker applied foran enforcement service representativeposition at the Family ResponsibilityOffice (FRO) of the Ontario govern-ment. Normally, a successful hire forthe job would be subject to a criminalrecords check, but the worker wasonly offered a six-month contract anddid not undergo the check. He beganwork in March 2006.

In June, the worker signed a con-sent form for a criminal records check.The charges against him were discov-ered, as well as the fact his case waspending. The worker explained he had

Worker tried to coverup legal troubles


Continued on page 7

In This Issue

JUST CAUSE

tion as akin to those involving illness ordisability, rather than a situation wherecontinued employment cannot be donelegally. The court criticized the trial judgefor placing too much emphasis on thenotion that the disruption of the contractmust be permanent in the sense of neverbeing possible to resume in the future. Inthe appeal court’s view, the “real ques-tion” is whether the performance of thecontract becomes a “thing radically dif-ferent from that which was undertakenby the contract.” It found that to continueto bind an employer to an employmentcontract, when an employee by law is pro-hibited from performing any servicesunder it, is imposing something radicallydifferent from what the parties originallyagreed to. The legal principle thatemerged from Cowie is that superveningillegality immediately frustrates anemployment contract and disentitles anemployee to severance.

In assessing whether a contract wasfrustrated, employers are only requiredto scrutinize circumstances that dis-rupted the contract, without regard towhat could transpire after the contractends. In the factual context of Cowie, the

appeal court observed: “the focus is noton when, if ever, the provisions of thoseservices will once again be legal.”

Employers beware

Cowie can be credited with clarifyingthe law of frustration. However, it alsocreated uncertainty for employers. As aresult, employers should beware of thefollowing practical considerations:•Despite its justification that a “lengthyand open-ended period of time” duringwhich an employee will be prohibitedfrom performing any services under thecontract can lead to the frustration of thecontract, the appeal court did not pro-vide any guidance for employers as tohow they should conduct themselves ifthe illegality is transient in nature. Giventhis uncertainty, employers that prema-turely invoke the bold doctrine of frus-tration do so at their peril.•Employers should: update their policiesand contracts to reflect the change inlegislation; advise their employees of theeffect of the changes, and; clearly com-municate their expectations in terms ofcompliance with statutory require-ments. Failure to do so may facilitate anargument that an employee is entitled tocompensation on dismissal.

•Employers should be mindful thatemployees’ entitlement to notice or ter-mination pay is only extinguished in sit-uations where the contract is frustrateddue to illegality. Section 9(2)(b) of theOntario Regulation 288/01 makes it clearthat severance is payable to employeeswhose contract was frustrated due to the“impossibility or … illness or injury suf-fered by the employee.”•Employers will always bear the onus ofestablishing frustration of a contract.

By integrating the supervening ille-gality concept into the employment law,the appeal court in Cowie relied on adated commercial case from Alberta,Petrogas Processing Ltd. v. WestcoastTransmission Co. In my view, the super-vening illegality brought about by achange in legislation should not havebeen accepted as a ground for frustra-tion in the context of employment. Itsacceptance contributes to employer-employee power imbalance and superfi-cially ignores the reality that it wasreasonably foreseeable at the time par-ties — especially those operating withina licence-required industry — enteredinto a contract that changes in legisla-tion may occur. After all, any statute is a“living tree capable of growth andexpansion within its natural limits.”


■Cowie v. Great Blue Heron CharityCasino, 2011 CarswellOnt 13771 (Ont.Div. Ct.).■Petrogas Processing Ltd. v. WestcoastTransmission Co., 1988 CarswellAlta 75(Alta. Q.B.).

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February 22, 2012



Employers concerned with present requirements, not future

Nikolay Y. Chsherbinin is an employmentbarrister in Toronto. He can be reached at(416) 907-2587, [email protected] or by visitingwww.nclaw.ca.

ABOUT THE AUTHOR


Ontario Labour Board said: “It is accu-rate to state that a party to a collectiveagreement cannot lawfully bargain theunit configuration to impasse.”

Jobs within a bargaining unit can bereclassified, which may be a done infuture collective bargaining, or theemployer may be able to rely upon itsmanagement rights under the collectiveagreement to implement the reclassifi-cation. Some collective agreements con-tain specific provisions dealing withreclassification.

Because collective agreements play arole in defining positions on work per-formed, it is very important to ensure

that the wording associated with workwithin a collective agreement is draftedin such a way to deal with any futurechanges in the work.


■C.U.P.E., Local 1602 v. Haliburton,Kawartha, Pine Ridge District HealthUnit, 1997 CarswellOnt 5504 (Ont. Lab.Rel. Bd.).■Kingston Typographical Union, Local30204 v. Kingston Whig-Standard, 2008CarswellOnt 6613 (Ont. Lab. Rel. Bd.).■Robichaud v. Brennan, 1987 Carswell-Nat 907 (S.C.C.).

Brian Johnston is a partner withStewart McKelvey in Halifax. Hecan be reached at (902) 420-3374 [email protected].

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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 Elsegood v. Cambridge Spring Service (2001) Ltd. , 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 Macht inger v. HOJ Industr ies Ltd . , 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, [email protected] 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 Hart v. Roman Cathol ic Episcopal Corp. of the Diocese of Kingston in Canada . 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 six-year 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 David v. Congregat ion B’Nai Israel . 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 Ivantchenko v. The Sisters of Saint

Kosmas Aito los Greek Orthodox Monastery , 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, [email protected] or nclaw.ca.

In an era of high employee mobility, em-ployers frequently attempt to safeguard business interests by contractually pre-venting employees from competing,

soliciting or using confidential information once they leave.

Typically, this is achieved through re-strictive covenants, such as non-competi-tion or non-solicitation clauses. But, histori-cally, judges have been hostile towards the enforcement of restrictive covenants, corre-lating them with invalid restraints of trade.

The judicial trend towards a discrimina-tory 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, includ-ing the effect of wrongful dismissal on the enforceability of restrictive covenants, miti-gation to consideration.

Sign or resignIn 2003, David Kelcher, Luciano Olive-

rio and Mark Mac- Lean joined Globex, a foreign currency exchange company. Their jobs were governed by employment agree-ments that included non-competition and non-solicitation clauses. While MacLean signed his agreement when he began em-ployment, Oliverio and Kelcher signed several agreements after working there for some time.

In 2005, Globex attempted to impose more rigorous requirements on the em-ployees. 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 dis-missed, the clauses were not enforceable against him. He also found Oliverio’s and Kelcher’s agreements were unenforceable because there was no fresh consideration

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 Glo-bex 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 ambigu-ous both in meaning and practical applica-tion, found the court.

Given that MacLean agreed to the re-strictive covenants when he accepted em-ployment, 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 can-not enforce a restrictive covenant. To find otherwise rewards employers for mistreat-ing employees.

The dissenting judge disagreed, stat-ing 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 ap-peal, if any, to the Supreme Court of Can-ada.

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 employ-ment until there are grounds for dismissal or reasonable notice of termination is giv-en, concluded the court.

The dissenting judge stated consider-ation is a threshold issue to the enforce-ment of contracts, which “should not be applied in a mechanical or artificial way and not be used to undermine the legiti-mate commercial expectations of the par-ties.” He equated “commercial” with “em-ployment” expectations, where the latter are unique due to the power imbalance between an employee and an employer de-manding non-competition covenants.

MitigationThe court viewed a duty to mitigate as

an additional reason why wrongful dis-missal ought to relieve an employee from compliance with covenants that restrict fu-ture employability.

If a wrongfully terminated employee is prevented from doing similar work because of a restrictive covenant, the ability to miti-gate will be severely constrained, said the court.

Contrast that view with the position of the Ontario Court of Appeal in Link v. Ven-

THE NATIONAL JOURNAL OF HUMAN RESOURCE MANAGEMENT www.hrreporter.comPublished by Thomson Reuters Canada Ltd.

SEPTEMBER 26, 2011

Page 1 © Copyright Thomson Reuters Canada Ltd., September 26, 2011, Toronto, Ontario, (800) 387-5164. Web Site: www.hrreporter.com

Wrongful dismissal weakens restrictive covenants

NIKOLAY CHSHERBININ

n LEGAL VIEW

Page 2 © Copyright Thomson Reuters Canada Ltd., September 26, 2011, Toronto, Ontario, (800) 387-5164. Web Site: www.hrreporter.com

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 employersGlobex presents a good analysis of fac-

tors the courts consider in determining when restrictive covenants are likely to be deemed unenforceable.

Employers should always ensure a re-strictive covenant:•is timely and properly introduced into the

employment relationship•precisely addresses a legitimate business interest

•has a termination date•limits geographical scope•defines the types of business activities that are prohibited•identifies with certainty clients that can-not be contacted.

If the employer overreaches a cov-enant’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 Carswel-lOnt 1049 (Ont. C.A.).

Nikolay Y. Chsherbinin is an employment lawyer in Toronto. He can be reached at (416) 224-1050, [email protected] or by visiting www.nclaw.ca.

The term ‘dealings’ was also ambiguous both in meaning and practical application.


DECEMBER 14, 2009

Most written employmentcontracts include a pro-vision that limits thecompensation to which

an employee is entitled in the eventof termination. If an employmentcontract provides for a period of no-tice that, at the time of dismissal,would be less than the employmentstandards minimum, is the termina-tion provision void from the outsetor does it become void when thestatutory requirement first exceedsthe contractual term?

Courts have ruled a contractualterm with a specified notice periodthat may be consistent with mini-mum employment standards at thetime of the employee’s dismissal, butcould “potentially” violate thosestandards, is void from the begin-ning and a reasonable notice periodis to be calculated using commonlaw principles.

Notice provisions failing to account for the future are unenforceable

The vulnerability of a clause de-signed to limit an employee’s right tonotice was exposed by the BritishColumbia Court of Appeal in the 1998decision Shore v. Ladner Downs.

In this case, the employment con-tract stipulated the employee couldbe terminated with 30 days’ notice.The employee was terminated aftereight months of service at a timewhen B.C.’s Employment StandardsAct (ESA) provided for two weeks’notice of dismissal for one year ofservice and one additional week foreach year of service up to a maxi-mum of eight weeks. Although at thetime of termination the employee’scontractual entitlement was moregenerous than that mandated by theESA, it was void from the beginning,found the court. The rationale wassimple: Had the employee workedlong enough, the termination provi-sion would have resulted in him re-ceiving less than the employmentstandards minimum on dismissal.Curiously, the employee would havehad to work five years before thestatutory requirement actually ex-ceeded the contractual term.

Relying on a policy considera-tion outlined in Machtinger v. HOJIndustries Ltd. by the SupremeCourt of Canada, the court said: “Itis neither reasonable nor practicalto leave the individual employee inthe position of having to keep an eyeon the relationship between thestatutory minimum and the contrac-tual term.”

Shore illustrates that a termina-tion provision with a specified noticeperiod is generally void from the be-ginning unless the notice period islong enough to meet any potentialstatutory notice period require-ments. Importantly, the terminationprovision will be void even if at thetime of termination the statutoryminimum has yet to exceed an em-ployee’s contractual entitlement.

Notice provisions are void for ‘potentially’ violating ESA: Court

An example of a more recentcase in which an employer’s attemptat limiting a notice period wasthwarted is the Ontario case ofSlepenkova v. Ivanov. In this case,the employee worked for 33 monthsunder a series of ostensibly sepa-rate, fixed-term contracts, stipulat-ing two weeks’ written notice for ter-mination.

In dismissing the employer’s ar-gument the employee was a fixed-term employee and not entitled tothe protection of Ontario’s ESA,2000, the Ontario Superior Court ofJustice said had the employee notbeen dismissed, her contract would

have expired after about 38 monthsof employment. As such, the con-tractual notice provision would haveviolated section 57 of the ESA, whichprovides for two weeks’ notice for anemployee with less than three years’employment.

The employer argued the termi-nation provision conformed to theESA because, at the time of termi-nation, the employee had yet to passthe three-year mark in her employ-ment. However, the termination pro-vision was void and unenforceablebecause it “potentially” violated em-ployment standards, found thecourt.

In addition, the court regardedthe termination provision as an at-tempt to contract out of the employ-ment standards minimum contraryto the ESA. Slepenkova demon-strates if a termination provisioncould ever result in notice that isless than the statutory minimum, itwill be void and unenforceable.

The Shore and Slepenkova deci-sions show courts will void a termi-nation provision whenever there is apossibility, however remote, an em-ployment contract provides an em-ployee with less notice than shewould be entitled to under an applic-able employment standards legisla-tion. Employers should ensure noticeprovisions in employment contractssatisfy, at least, the minimum statu-tory standards for notice and sever-ance pay at any point in an employ-ment relationship. If such provisionsdo not meet these criteria, courtswill strike the contracts down.

Tips for employers

Employers that want to limit em-ployees’ notice entitlement to theminimum prescribed by applicableemployment standards legislationmust draft termination provisions inclear and exact terms.

An example of a relatively clearnotice provision that is unlikely tobe struck down is: “The employermay terminate the employee’s em-ployment for any reason whatsoev-er, by satisfying the notice and sev-erance pay requirements containedin the applicable employment stan-

dards legislation. No other notice orseverance whatsoever, either atcommon law or other statutes, shallbe payable.”

Language that encompasses sev-erance pay as well as notice is ad-visable because if an employer qual-ifies or in the future might qualify asa severance employer, a terminationprovision that only addresses noticeentitlement will be voided for strip-ping an employee of her statutoryright to severance pay.

Furthermore, this exampledemonstrates termination provi-sions must refer to applicable em-ployment standards “legislation” asopposed to applicable “law.” The lat-ter concept creates uncertainty as towhether reference is being madeonly to statutory law or also to com-mon law. It also facilitates an argu-ment the employee signed the con-tract without understanding it couldhave the effect of limiting her rightto notice.

There is a tendency in Canada,which should be resisted, to hire em-ployees on the basis of an informalhiring letter. Where the offer lettermethod is used, employers mightwant to consider drafting an em-ployee manual that spells out noticeand severance pay entitlementsupon termination.

It is advisable to make employ-ment conditional upon employeesaccepting the terms contained in themanual. Employees should be re-quired to sign a memorandum con-firming they have read the manualand understood the effect the termi-nation provision will have on theirentitlements upon termination.

For more information see:•Shore v. Ladner Downs, 1998 Car-swellBC 973 (B.C. C.A.).•Slepenkova v. Ivanov, 2007 Car-swellOnt 5643 (Ont. S.C.J.).•Machtinger v. HOJ IndustriesLtd., 1992 CarswellOnt 892 (S.C.C.).

Nikolay Chsherbinin is anemployment lawyer at Grosman,Grosman and Gale in Toronto. Hecan be reached at (416) 364-9599 [email protected].

Are your employment contracts enforceable?

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

When it comes to notice on termination, looking ahead crucial to enforcement

NIKOLAY CHSHERBININ

■ LEGAL VIEW

DETERMINATION of an appropriate noticeperiod is a crux of virtually every wrong-ful dismissal lawsuit. However, there isno formula for what will constituteproper notice in circumstances sur-rounding termination. In the pursuit ofdetermining a proper notice period,judges are guided by theso-called Bardal factors:the character of theemployment, theemployee’s length of service, theemployee’s age and the availability ofcomparable employment in the market.

In Love v. Acuity Investment Manage-ment Inc., the Ontario Court of Appealacknowledged trial judges’ tendency togive a disproportionate weight to the“length of service” factor in their assess-ment of a proper notice period. Fourmonths later, the court was presentedwith an opportunity, in Di Tomaso v.Crown Metal Packaging Canada LP, toconsider the “character of the employ-ment” factor, in the context of terminat-ing a non-managerial employee’semployment, which came about througha string of five working notices of termi-nation. Like in Love, the court reinvigo-rated the importance of attributing equalweight to all of the Bardal factors whendetermining notice. It further clarifiedthe law of reasonable notice for unskilled,clerical and low level employees.

Antonio Di Tomaso, 62, was a 33-yearnon-managerial employee of CrownMetal Packaging Canada. On Sept. 9,2009, Crown Metal informed Di Tomaso

that it no longer required his services.Days before his expected terminationdate, Crown Metal informed him hisemployment would be extended by sev-eral weeks. Over the next five months,Crown Metal repeatedly extended DiTomaso’s employment for a “temporaryperiod” just before each terminationdate. In total, Di Tomaso received five

separate written noticesof termination, containinga total of four terminationdates. On Feb. 26, 2010,

Crown Metal closed the facility, resultingin a de facto termination of Di Tomaso’semployment.

Displeased with his severance pack-age, which consisted of just his statutoryentitlements, Di Tomaso sued CrownMetal for wrongful dismissal, seekingcommon law damages equivalent to 24months’ pay. Crown Metal argued thatits Sept. 9, 2009, notice of terminationwas valid and Di Tomaso’s subsequent“temporary employment” constituted anauthorized period of “working notice”under Ontario’s Termination and Sever-ance of Employment regulation. Thisshould reduce Di Tomaso’s reasonablenotice entitlement to 12 months, havingspecific regard to the character of hisemployment as unskilled and low levelworker, said the employer.

Regulation’s impact on working notice

Crown Metal relied on section 6 of theregulation, that each of its extensions ofthe notice of termination was less than 13

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS SEPTEMBER 7, 2011

Unskilled worker gets 22 months’ notice

REASONABLE NOTICE

Continued on page 6

Other factors can play a role in determining noticeregardless of type of job: Court

2ASK AN EXPERT:Malfunctioning climate control •Workplace emergency procedures

CASE IN POINT:Employer wins rightto proactive alcohol testing

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

4

3

8

CASES AND TRENDS:Forklift driving reinstatedafter dismissal for accident

AN ONTARIO worker who refused tostart working Saturdays when shecame back from parental leave wasforced to quit, the Ontario LabourRelations Board has ruled.

Sasha de Moel was an administra-tive assistant to the owner of NiagaraGranite & Marble, a seller and installerof marble and granite countertopsbased in St. Catherines, Ont. Hired inAugust 2008, she worked full days fromMonday to Friday.

Seven months after she startedworking for Niagara Granite — onMarch 14, 2009 — de Moel went onmaternity leave with an expectedreturn date one year later. While shewas on leave, business improved onthe weekends, leading Niagara Gran-ite to increase its hours on Saturdays.

On Jan. 7, 2010, de Moel called thecompany to arrange for her return to

Employee fired for refusing more

hours after mat leave


Continued on page 7

C A N A D I A N

Published by Canadian HR Reporter, a Thomson Reuters business ■ www.employmentlawtoday.com

Employment Law Today

In This Issue

September 7, 2011


weeks in length and, as such, the originalnotice remained valid, thus providing himwith working notice. The court rejectedCrown Metal’s argument, stating that theregulation contemplates a “single periodof temporary work that is not to exceed 13weeks.” The court further observed thatto assume the regulation allows employ-ers to give notice of termination, but thenextend employment for multiple, serial-ized periods of less than 13 weeks wouldbe inconsistent with the EmploymentStandards Act, 2000’s status as remedial,benefit-conferring legislation designed toprotect the interests of employees. Addi-tionally, the court stressed the impor-tance of giving employees a “clear andunambiguous” notice of termination witha final termination date. The cumulativeeffect of the multiple extensions createduncertainty for Di Tomaso as to when hewould no longer have his job.

No 12-month cap on notice

In support of its proposition that DiTomaso’s common law notice should be12 months, Crown Metal unsuccessfullyinvoked the court’s 1995 decision in Cronkv. Canadian General Insurance Co., argu-ing it established a hard limit of 12months on the notice to unskilled work-ers. This now-discredited proposition isrooted in the theory that low-level,unskilled employees have an easier timefinding comparable employment. The

court disagreed, relying on its 1999 deci-sion in Minott v. O’Shanter DevelopmentCompany, which rejected the notion that12 months is the cap for every clerical andunskilled employee. Having acknowl-edged its limited discretion to interferewith the motion judge’s determination ofthe appropriate notice, the court upheldthe award of 22 months notice, addingthat any interference with the originalaward of damages would amount to“unwarranted tinkering.”

With regard to Crown Metal’s argu-ment that Di Tomaso’s non-managerial,technical position should minimize thenotice period, the court unequivocallyrejected this approach. As in Love, thecourt observed the character of the termi-nated employee’s employment must notbe eclipsed by other Bardal factors. Theimportance of this approach was stressedby the Supreme Court of Canada in Keaysv. Honda Canada Inc., where the courtcautioned: “no one Bardal factor shouldbe given disproportionate weight.”

The Di Tomaso decision has severalimportant implications for employers,judges and legal advisors alike: •No longer will the “length of service” fac-tor dominate the process of determiningproper notice of termination.•The “character of employment” factorwill no longer be accorded lower priority,when determining proper notice, particu-larly for unskilled, clerical or low-levelemployees. •Employers need to monitor the total

number of weeks that have passed ifemployment is extended beyond the orig-inal termination date. Should theemployee’s last day of work fall outside 13weeks following the original notice of ter-mination, a new notice of terminationmust be provided.•All notices of termination must be clearand unequivocal and must specify, prefer-ably in writing, the employee’s final dayof work. Without such clarity, judges mayfind the employee is entitled to her entirecommon law notice from the date of dis-missal, despite any prior working notice.•The law of reasonable notice forunskilled employees has been clarified.

In both Love and Di Tomaso, the courtrejuvenated the 51-year old Bardal fac-tors. It sent a clear message that employ-ers dismissing employees without causeshould properly recognize and affordequal weight to all the Bardal factorswhen determining proper notice of termi-nation. This, however, may cause employ-ers uncertainty when calculating pay inlieu of notice, necessitating legal advicebefore proceeding.


■Love v. Acuity Investment ManagementInc., 2011 CarswellOnt 1060 (Ont. C.A.).■Di Tomaso v. Crown Metal PackagingCanada LP, 2011 CarswellOnt 5356 (Ont.C.A.). ■Cronk v. Canadian General InsuranceCo., 1995 CarswellOnt 1200 (Ont. C.A.).■Minott v. O’Shanter development Com-pany, 1999 CarswellOnt 1 (Ont. C.A.).■Keays v. Honda Canada Inc., 2008 Car-swellOnt 3743 (S.C.C.).

CELT


ABOUT THE AUTHOR


Character of employment shouldn’t eclipse other factors: Court

Nikolay Y. Chsherbinin is an employmentlawyer for Grosman, Grosman and GaleLLP in Toronto. He can be reached at(416) 364-9599 or [email protected].

a dangerous situation. Cavan may havethought the same thing, said the board.

“I cannot conclude that it would havebeen reasonable for (Cavan) to suspectthat the damage he caused created a sit-uation of imminent or obvious harm,”said the board. “It did not pass the line ofconstituting such reckless disregard forthe safety of himself and his co-workersto constitute just cause for summary dis-

missal.”The board also noted Cavan eventu-

ally reported the incident after thesupervisor’s meeting. Given hisremorse, his vow to not repeat his mis-conduct and his clean record, the boardfound a 10-week suspension, equal to thetime of his dismissal to the date of itsdecision, was appropriate discipline. SeeSysco Food Services of Toronto v. Team-sters, Local 491, 2011 CarswellOnt 6954(Ont. Arb. Bd.). CELT


Employer didn’t consider damage serious


OCTOBER 19, 2009

As a general rule, dismissedemployees have a duty totake reasonable steps to re-duce or mitigate their loss

by looking for another job. If an em-ployment contract provides for aseverance payment upon termina-tion, the question is whether the em-ployee is still obligated to mitigateher loss. Recently, the Ontario Courtof Appeal touched on this issue intwo cases: Soye v. Corinthian Col-leges Inc. and Wronko v. Western In-ventory Services.

It ultimately concluded that,when an employment contract ex-pressly provides for a severancepayout either immediately or veryshortly after termination, it relievesan employee of the duty to mitigateher loss by looking for alternate em-ployment.

In Wronko, Darrel Wronko wasemployed at Western Inventory asvice-president of national accountsand marketing. His employmentcontract included a severance provi-sion for the payment of two years’salary if he was terminated. The to-tal amount of potential damages forhis notice period of two years was$286,000. However, the court reducedhis damages to $67,795 because heearned $218,205 in the two-year peri-od following his termination.

A peculiar feature in Wronko isthat, following the release of thejudgment, Wronko requested andwas given an opportunity to makewritten submissions with respect todamages. He argued his damagesaward should not have been subjectto the duty to mitigate. In his post-judgment submissions, Wronkopointed to a clause in his employ-ment contract that was not previ-ously drawn to the court’s attention.It required Western Inventory to payhis severance payment of $286,000 byno later than Oct. 31, 2004. As a re-sult, the court issued an addendumreversing its judgment to awarddamages equal to two years’ salary.

“By requiring (the employer) tomake a lump sum payment shortlyafter termination, this term of thecontract amounted to a waiver by(the employer) of any obligation onthe part of (the employee) to miti-gate,” said the court.

A related issue also came before

the courts in Western Canada. InMills v. Alberta the Alberta Court ofAppeal established that, in caseswhere an employment contract con-templates a specific payment ofsalary in lieu of notice upon termi-nation, an employee is contractuallyentitled to the salary componentwithout obligation to mitigate loss-es.

The British Columbia Court ofAppeal reasoned likewise in Philp v.Expo 86 Corp. However, in Neilson v.Vancouver Hockey Club Ltd., thesame court suggested that, evenwhere there is no duty to mitigate,moneys earned may be deductedfrom a damages award. While it mayappear Neilson implicitly overruledPhilp, the latter case is still being cit-ed as authority for the propositionarticulated in Mills and Philp. Thecommon thread running throughthe discussed jurisdictions is theduty to mitigate does not arisewhenever an employment contractobligates an employer to make alump sum payment of severance im-mediately, or very shortly, after ter-mination.

Mitigation doesn’t affect contractual pay: Court

In Soye, Corinthian Colleges ac-quired CDI Career Development In-stitute in August 2003. Corinthianmade attempts to enter into newagreements with a number of CDIsenior executives, includingDesmond Soye. The parties failed toreach an agreement and on Sept. 11,2003, Soye’s employment was termi-

nated without cause.His employment contract pro-

vided for the payment of 12 months’salary upon termination. The courtawarded Soye $418,732 in damagesfor wrongful dismissal, which in-cluded $5,123 in mitigation expensesSoye incurred while looking for an-other job. The Ontario Court of Ap-peal overturned the award for miti-gation expenses, stating: “Theagreement provided for payment inlieu of notice regardless of whether(Soye) mitigated.”

However, the decision is silenton how the court arrived at its con-clusion. Arguably, a contractualguarantee of a cash payout upon ter-mination is a “contractual right” tosalary and not “damages.” As such,Soye was not subject to the duty tomitigate his loss.

When is there no duty to mitigate?

While Soye and Wronko certain-ly clarified the law of mitigation inOntario, it is regrettable the courtdid not seize the opportunity to rec-oncile the approaches used by trialcourts in deciding whether or not anemployee is subject to the duty tomitigate. As such, employers arecautioned not to misinterpret theoverall impact of the rulings on thegeneral duty of mitigate. The duty tomitigate is presumed in every case,subject to the contracting parties’contrary intention expressed in anemployment contract.

At present, courts will likely findan employee is not subject to miti-gation in the following circum-stances:•Where an employment contractprovides for a lump sum paymentimmediately, or very shortly, aftertermination (per Soye; Wronko;Wells v. Conestoga Meat PackersLimited).

•Where a severance provision wasintended to provide an employeewith a minimum entitlement in theevent of termination of employ-ment (Eady v. TrekLogic Technolo-gies Inc.).

•Where a termination provisioncontains an express obligation tocontinue to make the payment un-der an employment contract(Paquin v. Gainers Inc.).

•Where an employer’s policy pro-vides an employee is relieved of theduty to mitigate at the event of ter-mination (Jardine v. Gloucester(City)).

•Where a termination provision pro-vides a choice between advance no-tice or a lump sum but no advance

notice was provided (Orr v. MagnaEntertainment Corp.).

•Where a severance provision con-tains an express waiver of the dutyto mitigate (Neilson v. VancouverHockey Club Ltd.).

Soye and Wronko serve as use-ful reminders the disposition of anymitigation-related dispute wouldturn on a court’s scrutiny of the lan-guage of the severance provision.The main focus of inquiry will bethe parties’ intention in relation tothe timing and the manner of pay-ment of severance in the event oftermination. For employees, it willbe prudent to ensure severanceprovisions in their contracts makeit absolutely clear a contractualguarantee of a severance payoutupon termination is not subject tomitigation.

For employers, these decisionsunderscore the importance of clear,direct and precise language in anemployment contract, especiallywhen drafting termination and mit-igation provisions. Properly drafted,severance clauses may substantial-ly reduce employers’ liability fordamages because any amountearned in mitigation will be creditedagainst their damages.


•Soye v. Corinthian Colleges Inc.,2009 CarswellOnt 1848.•Wronko v. Western Inventory Ser-vices, 2008 CarswellOnt 3610 (Ont.C.A.).•Mills v. Alberta, 1986 CarswellAlta149 (Alta. C.A.).•Philp v. Expo 86 Corp., 1987 Car-swellBC 335 (B.C. C.A.).•Wells v. Conestoga Meat PackersLimited, 2007 CarswellOnt 7197(Ont. S.C.J.).•Eady v. TrekLogic TechnologiesInc. (April 30, 2008), Doc. 04-CV-280897 (Ont. S.C.J.).•Paquin v. Gainers Inc., 1991 Car-swellAlta 88 (Alta. C.A).•Jardine v. Gloucester (City), 1999CarswellOnt 437 (Ont. Gen. Div.).•Orr v. Magna EntertainmentCorp., 2008 CarswellOnt 2398 (Ont.S.C.J.).•Neilson v. Vancouver Hockey ClubLtd., 1988 CarswellBC 143 (B.C.C.A.).

Nikolay Chsherbinin is anemployment lawyer at Grosman,Grosman and Gale in Toronto. Hecan be reached at (416) 364-9599 [email protected].

Contracts let employees off mitigation hook

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

Contractually set severance payments can remove dismissed worker’s duty to mitigate damages by looking for another job

NIKOLAY CHSHERBININ

■ LEGAL VIEW

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

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) 2 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.

economic expectations

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.). 13 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.

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 [email protected]

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

Employment is a game andwrongful dismissal is agamble. Employers some-times roll the dice by op-

portunistically offering just thestatutory minimum to dismissedemployees instead of what workersmight be entitled to under the com-mon law.

Sometimes it works — employ-ees fold their rights and walk away.But, in other cases, workers up theante and litigate. The pot: Recoveryof significant damages, which mayinclude the value of long-term dis-ability (LTD) insurance benefits forthe entire period of reasonable no-tice and beyond.

A case in point is Brito v. CanacKitchens, in which the Ontario Su-perior Court of Justice dealt withthe vexing question of whether em-ployers are required to continueemployees’ LTD insurance cover-age during a period of reasonablenotice. The court found they are.

This has significant ramifica-tions for both employers and em-ployees, albeit from different legalperspectives. It entitles dismissedemployees, who become disabledduring the notice period, to suetheir former employers for the val-ue of the LTD benefits they wouldhave received had they workedduring the notice period.

It also refines a mechanism ofconverting employers into insurersliable for LTD coverage, thereby ex-posing them to substantive dam-ages for terminating LTD coverageduring the reasonable notice period.

Dismissed employee received minimum severance pay, LTD coverage

On July 15, 2003, after nearly 24years of service, Luis Romero Ol-guin, 55 — who was one of the sev-en plaintiffs in Brito v. CanacKitchens — was dismissed withoutcause due to organizational re-structuring at Canac Kitchens.Upon Olguin’s dismissal, the em-ployer chose to go the “bare mini-

mum” route. It provided Olguinwith only the statutory minimumsin pay and eight weeks’ LTD cover-age, and “then gambled that hewould get another job and staywell,” said Justice Randall Echlin.About 16 months into what wouldbe his common law notice, disasterstruck, causing Canac Kitchens tolose its gamble — Olguin became to-tally disabled.

On Nov. 5, 2004, Olguin had atracheostomy tube inserted in histhroat, underwent surgery for la-ryngeal cancer and receivedchemoradiation treatment untilJune 1, 2005. Although Olguin se-cured alternate employment at amuch lower rate of remunerationon Aug. 1, 2003, he received no dis-ability benefits.

As a result, Olguin sued his oldemployer for wrongful dismissal.Canac lost its gamble, said Echlin,who awarded Olguin 22 months’ no-tice period at law together with “allbenefit coverages for the entirety”of the notice period.

In arriving at his decision, Ech-lin chastised Canac for consciouslychoosing not to make alternativearrangements to provide a loyal,long-service employee with re-placement disability coverage dur-ing the notice period. When con-fronted with its potential,significant exposure, Canac raisedthe predictable argument Olguinfailed to mitigate his potential dam-

ages by purchasing a replacementdisability policy. But the court stat-ed the onus is on the employer toestablish the employee’s failure tomitigate.

Subsequently, Canac arguedthat, pursuant to the language ofthe LTD policy, Olguin was a “no-tional employee” who was disenti-tled to receive the disability cover-age because he failed to satisfy the“actively at work” requirementcontained in the policy. Echlin dis-missed this argument as circularlogic.

“If (Olguin) was to be deemed a‘notional employee,’ then how can itbe asserted that he was ‘not active-ly at work?’” he said.

As a consequence, Canac con-ceded Olguin was eligible for 17weeks of short-term disability(STD) coverage. Predictably, thelanguage of LTD policies may soonbe revised to address Echlin’s view.

The court was then required todetermine, following the expirationof his STD coverage, whether Ol-guin was entitled to receive dam-ages for loss of LTD coverage. Inthis regard, Canac argued the in-surance policy contractually pro-hibited recovery of LTD damages.Relying on the Supreme Court ofCanada’s 1997 decision in Sylvesterv. British Columbia — which standsfor the proposition the value of LTDbenefits is deductible from dam-ages if they are paid solely by anemployer — Echlin determined Ol-guin was entitled to the value ofLTD benefits because he con-tributed to the costs of his disabili-ty coverage.

As a result, Canac was liable for$71,000 for 22 months’ salary, $9,079for STD entitlement and $194,214for loss of LTD benefits up to Ol-guin’s 65th birthday. In addition,the court slapped Canac with$15,000 in punitive damages for its“cavalier, harsh, malicious, reck-less, outrageous and high-handedtreatment” of Olguin.

Lessons for employers

Brito is a classic case of an em-ployer being penny-wise but poundfoolish. An award of $289,292 indamages sends a loud and clearmessage of the court’s disapprovalof employers’ opportunistic gam-bling with dismissed employees’benefits.

There are several lessons fromthis case:•The language of a policy confininga dismissed employee’s entitle-ment to LTD to her statutory no-tice might no longer serve as ashield for employers but it will like-ly be exploited as a sword by em-ployees. As such, review of the lan-guage of the LTD policy prior todismissal of an employee is a must.

•If LTD coverage is unavailable fol-lowing the completion of a statu-tory notice, an employer shoulddraw this to the dismissed em-ployee’s attention and request theemployee, in writing, purchase areplacement disability policy, ifshe so wishes. Such a consideredapproach may assist an employerin discharging the onus a dis-missed employee failed to miti-gate.

•Employers that resort to hardballtactics — commonly manifestedby a desire to litigate when con-fronted with potential, significantexposure in order to exhaust anemployee financially — play sucha game at their own economic per-il.

•In a case where a younger em-ployee becomes totally disabledduring her reasonable notice peri-od and has no LTD coverage, thefinancial impact on the employer’sbusiness may be devastating asthe employer could be found liableto pay the value of LTD benefits,potentially indefinitely.

For more information see:•Brito v. Canac Kitchens, 2011CarswellOnt 934 (Ont. S.C.J.).•Sylvester v. British Columbia,1997 CarswellBC 1025 (S.C.C.).

Nikolay Y. Chsherbinin is anemployment lawyer at Grosman,Grosman and Gale in Toronto. Hecan be reached at (416) 364-9599 [email protected].

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


JUNE 6, 2011

Rolling the dice on disabilityEnding LTD benefits during notice period risky for employers

NIKOLAY CHSHERBININ

■ LEGAL VIEW

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:

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

Inducement Tort Interference Tort

1. The knowledge of contract Interference with the plaintiff’s business or livelihood by unlawful means

2. Intention to procure the breach of contract

an intention to injure the plaintiff

3. Actual breach of contract -- 4. Damage Economic loss caused to the plaintiff 5. A Lack of justification --

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 [email protected]

A RESIGNATION is matter of substance,not form. To constitute a valid resigna-tion, there must be unequivocal evidencesupported by conduct consistent with anemployee’s intention to voluntary resignher employment. The employee’s con-duct before and after the supposed res-ignation is relevant in making thedetermination. A recent British Colum-bia Court of Appeal decision, Beggs v.Westport Foods Ltd., serves as a usefulreminder that employers who jump tothe conclusion that an employee hasresigned, without inquiring into reasonsfor the employee’s prolonged absence, doso at their economic peril.

Jantsje Beggs, 52, was a 10-yearemployee of the Fairway Market in PortAlberni, B.C., which was owned by West-port Foods. On Feb. 18, 2009, a firedestroyed her house. The following dayshe called her employer and advised thatshe did not know when she would beable to return to work. On March 16,2009, having not heard from Beggs foralmost a month, her manager instructedthe payroll department to prepare aRecord of Employer (ROE).

On April 3, 2009, unbeknownst to heremployer, Beggs was diagnosed withanxiety and depression arising from thecircumstance around the fire. In order toreceive disability employment insur-ance, Beggs obtained a medical notestating that she was unfit to work andwould be re-assessed at the end of May2009. Consequently, she called heremployer to ask for the ROE based onsick leave. She was advised the ROE hadbeen prepared for her already and wasready to be picked up.

At this point, both parties were oper-ating on a misunderstanding about theother’s intention concerning their

employment relationship. After review-ing the ROE, Beggs learned that sheapparently had quit. Beggs interpretedthe ROE, which she received togetherwith her final paycheque, as a dismissaland retained legal counsel.

A dialogue ensued between Begg’slawyer and Westport’s counsel, whichresulted in an offer to return her towork. The language of the letter thatpurported to offer the job was guardedand ambivalent, leaving Beggs uncertainon what her situation would be. Sherejected the offer and sued for a wrong-ful dismissal. Westport demurred, argu-ing Beggs had resigned and failed tomitigate her damages by not returningto work.

The trial judge sided with Beggs andawarded her 11 months’ pay in lieu ofnotice and $20,000 in moral damages formental distress. On appeal, the pay inlieu of notice was upheld, while the men-tal distress damages were overturned. Inupholding the trial judge’s finding thatBeggs did not resign, the Court ofAppeal re-stated the test for resignation:“(A) finding of resignation requires theapplication of both a subjective andobjective test: whether the employeeintended to resign and whether theemployee’s words and acts, objectivelyviewed, support a finding that sheresigned.”

This test stresses the importance foremployers to learn to distinguishbetween the employee’s words and acts.Verbally saying “I quit,” writing “Ihereby resign” or the physical act ofabsenteeism are not, in and of them-selves, the employee’s decisions to endthe employment relationship. They aremere evidence of the employee’s inten-tion to do so. The critical factors forassessing the voluntariness of theemployee’s resignation are the

employee’s state of mind and any ambi-guities in relation to the conduct whichis alleged to constitute resignation and,to a certain degree, the employee’stimely retraction, or attempted retrac-tion, of her resignation.

The Beggs decision serves to under-score the onus which employers bear, inalmost all circumstances, of proving theemployee resigned. In many cases, thisinvolves reaching out to the employeeusing any means of communication andseeking out any mitigating circum-stances, ensuring she has understood allof the circumstances surrounding theresignation and not rushing, as the casedemonstrates, to file the ROE indicatingthat the employee had quit.

Employers who opportunistically orcarelessly snap up, or infer, theemployee’s resignation, do so at theirown risk. In cases where the absence isin any way caused by the employee’s per-sonal crisis or health issues, employersare advised to reinstate the employee toher previous position. Such a good-faithapproach would serve to repair theemployment relationship and avoidcostly litigation. See Beggs v. WestportFoods Ltd., 2011 CarswellBC 283 (B.C.C.A.). CELT

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Employment Law TodayCURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS MARCH 23, 2011

Wrongful dismissal damages for employee fired after fire upheldAppeal court’s decision reminds employers a prolonged absence is not necessarily a resignation


Nikolay Y. Chsherbinin is an employment lawyer for Grosman,Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 [email protected].

ABOUT THE AUTHOR


© 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 arms-length 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 416-224-1050 or [email protected]

DISMISSED employees with a certainamount of service are usually entitledto statutory severance pay. For exampleOntario employees with at least fiveyears of service are entitled to oneweek of wages for every year of serviceup to 26 weeks, if their employers’ pay-roll is at least $2.5 million or 50 or moreemployees were dismissed within a six-month period due to a business closure.Severance pay compensates for loss ofemployees’ service credit and job-related benefits. But sometimes otherfactors can reduce this compensation.

In Ontario, in the first significantdecision involving a severance payexemption — CAW-Canada, Local 1451v. Kitchener Frame Ltd. — the OntarioDivisional Court grappled with thequestion of whether employers areexempted from paying severance pay toemployees who retire with actuariallyunreduced pension due to a businessclosure. In dismissing the employees’appeal, the court found they were notentitled to severance pay if alreadyreceiving unreduced pension benefits.This employer-friendly decision can becontrasted with that reached by theBritish Columbia Court of Appeal in TedLeroy Trucking v. Century ServicesInc., where it considered employees’claims for benefits recoverable from abankrupt employer as part of wages.

Ontario: Severance pay vs. pension benefits

Until it went out of business in 2009,Kitchener Frame was a manufacturerof automobile parts with a generouspension plan permitting younger work-ers to retire early with income security.The plan specifically contemplatedearly retirement eligibility upon plantclosure. While many employees wereeligible to receive a supplementary pen-sion payment — bridging them to theage of 65 — equal to the amount theywould have received under the Old AgeSecurity program, some were also enti-tled to a special early retirementallowance. Upon closing its plant, Kitch-ener Frame was subject to the sever-ance pay requirements under theEmployment Standards Act, 2000 (ESA).

The central issue in this case waswhether Kitchener Frame’s employeeswere eligible for severance pay,notwithstanding the value of the pen-sion benefits upon termination. Kitch-ener Frame took the position that allemployees who received pensions fellunder a regulatory exemption and noseverance pay was due. The employeescontended that on a proper valuation ofthe pension benefits the exemption didnot apply and they were entitled to sev-erance pay. The essential differencebetween the two positions is that Kitch-ener Frame argued the comparison

under the exemption provision is basedupon the commuted value of the pen-sion, which must include the bridgingand supplementary benefits value. Theemployees argued only the basic pen-sion benefit should be included in thevalue calculation. In short, this caseturned entirely on the interpretation ofthe term “actuarially unreduced pen-sion benefit” in Ontario’s Terminationand Severance of Employment Regula-tion.

“Actuarially unreduced pensionbenefit” is defined in neither the ESAnor the Ontario Pension Benefits Act. Inits simplest form, it means a pensionbenefit paid without any penalty forearly retirement. To qualify for the sev-erance pay exemption, this pensionmust reflect “any service credits whichthe employee… would have earned inthe normal course of events.” The courtupheld the arbitrator’s position that thisprovision was designed to protect ben-efits employees would have earned inthe normal course of events for the pur-pose of the pension plan. Therefore, themethod of determining whetheremployees received the actuariallyunreduced pension benefit must takeinto account “both the basic pensionentitlements and other components andbenefits” to which employees are eligi-ble upon termination.

“To do otherwise would be to ignorethe facts and specifics of the pensionplan and to ignore the real effect of thetermination on the affected employees,”said the court.

Everyone who is terminated hastheir opportunity to earn service cred-its cut short. If anyone whose servicecredits are cut short is entitled to sever-ance pay, then the words in the excep-tion would never apply. Were itintended to be so the words “reflectsservice credits which theemployee…would have been expectedto have earned in the normal course ofevents for purposes of the pensionplan” would not have been added to the

regulation. The court agreed with thisproposition and dismissed the appeal.

Guidance for employers

Kitchener Frame confirms that theloss of the opportunity to earn servicecredits does not automatically entitleemployees to severance pay. It suggeststhat in determining whether severancepay is payable, employers should followthese steps:•Consider the effect of a business clo-sure on the value of pension benefits,which must take into account the valueof the bridging and other supplemen-tary benefits for eligible employees.•Compare the pension benefits employ-ees received upon termination to thepension benefits employees would haveearned if the business had not discon-tinued. Importantly, employers mustuse converted values in order to com-pare the value of one pension benefit toanother, because it is “standardaccounting and actuarial practice.” •Determine whether the total pensionbenefits employees received compen-sated them for the loss of service cred-its they could have earned in thenormal course if the business had notclosed.•Pay severance pay, if it is determinedthat the pension benefits received areless than what employees would haveearned in the normal course if the busi-ness had not discontinued.

Despite being a pro-employer deci-sion, Kitchener Frame cautions employ-ers that just because employees may beentitled to receive pension benefitsprior to their normal retirement agewithout any penalty for early retire-ment, this might not be enough toexempt them from statutory liability topay severance.

British Columbia: What are wages under WERRA?

The British Columbia Court ofAppeal decision Ted Leroy TruckingLtd., Re, is an example of a recent pro-employee decision involving employees’claims for benefits from a bankruptemployer. This appeal concernedwhether the protection provided towages under the province’s WagesEarner Protection Program Act(WERRA) and Bankruptcy and Insol-vency Act (BIAS) extends to contrac-tual payments employers made to thirdparties on employees’ behalf.

The WERRA establishes a schemewhereby eligible employees can recoverup to $3,000 or an amount equal to fourtimes the maximum weekly insurableearning under the Employment Insur-ance Act. The BIAS provides a limitedpriority to wages, salaries, commissionsor compensation owed by a bankruptfor services rendered in the six monthsbefore the bankruptcy.

In Ted Leroy Trucking, employeesargued the WERRA entitlement andBIAS priority extend to compensationof payments their bankrupt employermade on their behalf to third-parties,such as union dues, contributions to ahealth or welfare trust, health insur-ance premiums and payment to human-

ity and education funds. Century Serv-ices, the secured creditor of the bank-rupt employer with the highest-rankingpriority, contended that the protectionextends only to funds payable directlyto employees and not to money paid ontheir behalf to third-parties. The courtdisagreed and ruled the protection didextend to third-party payments.

Similar in its approach to KitchenerFrame, this case turned on the interpre-tation of the term “wages.” TheWERRA broadly defines wages as“salaries, commissions, compensationfor services rendered, vacation pay, sev-erance pay, termination pay and anyother amounts prescribed by regula-tion.”

Wages: Employees vs. third-parties

Relying on the words “compensa-tion for services rendered” in theWERRA definition, the court held this“must mean all compensation earnedby the employee.” Asserting that Parlia-ment did not mean to include amountsnot paid directly to an employee aswages, Century Services directed thecourt to the words “owing to the indi-vidual” in the WERRA and the descrip-tion of prescribed wages as amountspaid directly to an employee, such asgratuities, bonuses and shift premiums.The court found it was not clearWERRA allowed for payments to any-one other than an employee.

The court concluded that under theWERRA and BIAS, the payments andthe priority are for “the benefit of theemployee,” not a third-party. Given thatthe legislation provides for a limited pri-ority to compensation owed to employ-ees, the court resolved thatcompensation might be in respect of apayment “directly or indirectly” remit-ted to a third-party. In dismissing Cen-tury Services’ argument this effectivelygives third-party benefit providers apriority over secured creditors, thecourt concluded the legislation does notprovide this priority. The deciding fac-tor in the court’s analysis was the recog-nition that contractual payments madeby employers to third parties are for thebenefit of employees.

Against this background, the courtsaw no principled basis for differentiat-ing between benefits paid for jointly byemployers and employees or solely byemployers, because those paymentsform part of employers’ compensationobligation and employees’ compensa-tion entitlement.

Though Ted Leroy Trucking sends aloud message that just because a partic-ular benefit is not referenced in the def-inition of wages in the WERRA, it willneither be excluded from employees’compensation package nor will it serveto disentitle employees from recoveringits value as part of wages owed by abankrupt employer.


■CAW-Canada, Local 1451 v. KitchenerFrame Ltd., 2010 CarswellOnt 5199 (Ont.Div. Ct.).■Ted Leroy Trucking Ltd., Re, 2010 CarswellBC 1109 (B.C. C.A.).

CELT

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Published by Canadian HR Reporter, a Thomson Reuters business � www.employmentlawtoday.com

Employment Law TodayCURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS FEBRUARY 23, 2011

Going out of businessRecent cases in Ontario and B.C. contrast what maybe owed to employees when they’re sent packing

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

Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599or [email protected].

ABOUT THE AUTHOR


THE DEDUCTIBILITY of disability benefitsand gross sales that dismissed employ-ees earn during the notice period is arecurring source of uncertainty foremployers, as is the awarding of moraldamages arising out of wrongful dis-missal. The distinction between theforms of benefits and their deductibility,and the role of moral damages, wasrecently revisited by the Ontario Courtof Appeal in Simmons v. Webb.

John Simmons was a founder of theSimmons Group, a real estate appraisalfirm. In 1991, Walter Webb joined thefirm and by 1996, Webb and a recruitacquired controllinginterest, rendering Sim-mons a non-voting share-holder. In 1997, personalproblems — including arthritis thatrestricted his mobility and led to hipreplacement surgery — began to inter-fere with Simmons’ professional life.

The relationship between Simmonsand Webb deteriorated when a disputearose over a client account. Tensionsescalated, culminating in the termina-tion of Simmons’ employment on Nov. 29,2004. Webb delivered a letter of termina-tion to the 64-year-old Simmons, whichdirected him to immediately removehimself and any personal items from thepremises. Simmons alleged he experi-enced depression because of the firing,but offered no medical evidence.

Moral damages added to payin lieu of notice

The trial judge found the manner ofdismissal was insensitive, particularly

given the state of Simmons’ health andhis length of service. The judge alsofound the firm’s conduct after the termi-nation to be “mean-spirited,” particu-larly Webb’s refusal to return adictionary that held sentimental value toSimmons.

This treatment, along with Webb’sunfair denial to provide Simmons withmaterials he had repeatedly requestedto assist his mitigation efforts, led thetrial judge to award Simmons 24 months’pay in lieu of notice, totalling $98,928 and$20,000 in moral damages.

While the award of moral damageswas not appealed, the trial judge’sapproach in assessing them is of inter-

est, because it highlightsthe difficulty courts arehaving in developing con-sistent jurisprudence

related to the method of assessing dam-ages for conduct in the context of termi-nation of employment.

Determining moral damages

In Keays v. Honda Canada Inc., theSupreme Court of Canada pronouncedthat moral damages are to be awarded ifan employee “can prove that the mannerof dismissal caused mental distress”manifested in the “actual damages.”

In light of the Supreme Court’s asser-tion, the method of assessing moraldamages in Simmons is troubling forseveral reasons: •There was no analysis that links thesum of $20,000 to any non-pecuniary losscaused by the manner of termination.•There was “no medical evi-

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS ISSUE NO. 572 • JANUARY 12, 2011

Damage control

WRONGFULDISMISSAL

Continued on page 6

Ontario courts address moral damages anddeductibility of earnings during notice period 2ASK AN EXPERT

Tracking employees’ ages • Medical benefits during notice period

CASE IN POINT:When the employer is the victim

YOU MAKE THE CALLRecruiter shipped out after missing benchmarks

4

3

8

CASES AND TRENDS:Constructive dismissal upheldbut punitive damages denied

A MANITOBA employer was not enti-tled to deduct money from advancesfrom an employee’s final paycheque,the Canada Arbitration Board hasruled.

John Demelo worked for Win-nipeg Motor Express, a Winnipeg-base shipping service. As part of hisemployment contract, Demelo had aguaranteed bonus of at least 15 percent, and up to 30 per cent, based onprofitability and sales targets. Dur-ing his time with the company,Demelo often borrowed money andthen repaid it. Other employees alsoreceived advances and each monththe company reconciled theaccounts. If an employee still had anadvance outstanding when heremployment ended, the companywould take it out of her remaining

Advances can’t bededucted from

paycheque: Board


Continued on page 7

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In This Issue

January 12, 2011


Employee-paid disability benefits not deductible from damages

dence…called to substantiate” Simmons’depression after the termination or the“impact that it had on his daily life.”•There was, however, evidence Simmonsimmediately “took active steps to startup a new business.”

Given that Keays mandates anemployee to prove the manner of dis-missal caused him mental distress, theemployee must prove: •Not only an employer’s reprehensibleconduct in the manner of termination,but also any psychological injury isrelated to the manner in which theemployee was treated at termination.•The manner of dismissal and associ-ated mental distress caused “actualdamages.” “Damage” and “damages”differ, of course: The former is a form ofan injury (such as mental distress),while the latter is a sum of money paid incompensation for that injury.

Because Simmons did not seek anymedical attention or professional assis-tance, moral damages arguably shouldnot have been awarded due to lack ofproof of mental distress, as required byKeays. The Ontario Court of Appeal’sdecision in Brien v. Niagara Motors Ltd.affirms this line of reasoning, whileSlepenkova v. Ivanov disputes it.

At their core, moral damages arecompensatory, designed not to penalizean employer for its conduct, but to com-pensate an employee for breached con-tractual rights. The employer’s conductis not the nub of liability for moral dam-ages, but rather a means giving rise tothe employee’s compensation should shebe able to prove the manner of dismissal,and not dismissal itself, caused her men-tal distress. Keays’ pronouncement that“the normal distress and hurt feelingsresulting from dismissal are not com-pensable” raises a vexing question: Howdoes one, as a practical matter, provemental distress was caused by the man-ner of and not dismissal itself? Untilsuch time that judicial consistencyregarding the form of evidence requiredto prove mental distress for moral dam-ages is achieved, employers are justified

in demanding employees provide evi-dence, medical or physical, corroborat-ing their psychological injury and“actual damages” suffered.

Strict limits on deductions to damages

The Ontario Court of Appeal had todeal with two issues, both of whichrelated to the quantification of wrongfuldismissal damages awarded at trial.

First, the employer argued disabilitybenefit payments Simmons receivedduring the 24-month notice periodshould have been deducted. The courtdisagreed, stating that according to thetermination letter, disability insurancebenefits were halted immediately. Rely-ing on the available “circumstantial evi-dence,” the court found Simmonsreceived the disability insurance bene-fits from a private insurance provider,which he obtained and paid for. In sup-port of its position, the court cited theSupreme Court of Canada decisionSylvester v. British Columbia.

Sylvester determined that disabilitybenefits paid to disabled employees dur-ing the reasonable notice period aredeductible from damages, provided theyare paid solely by employers. Notably,disability benefits should not be consid-ered contracts which are distinct froman employment contract, but rather inte-gral components of it. In Simmons, thecourt was unable to conclude the partiesdid not intend for Simmons to receiveboth disability benefits and damages forwrongful dismissal. This remindsemployers that in order to successfullydeduct disability benefit payments fromwrongful dismissal damages, two condi-tions must be met: Disability benefitsmust be paid for solely by employers andan employment contract must make itclear the parties intended for disabilitybenefits to be deducted from severance.

Secondly, the company argued thegross sales generated by Simmons in hisnew business should similarly have beendeducted from damages for wrongfuldismissal. In many instances, starting abusiness is a perfectly acceptable form ofmitigating damages. Given Simmons’precarious state of health, starting a

business appeared to be the only realis-tic option for him.

In PCL Construction ManagementInc. v. Holmes, the Alberta Court ofAppeal found profits made by a corpora-tion set up by the dismissed employeewhich are earned during the noticeperiod may be properly deducted. InSimmons, the employer acknowledged,but did not challenge, the legitimacy of aseries of expenses listed in the relevantfinancial statement for Simmons’ busi-ness, which substantially reduced thegross sales he realized during the noticeperiod. Similarly, it neither attacked thenet income figures set out in those state-ments nor argued the distinctionbetween gross sales and net income.

Simmons serves as a useful reminderthat failure by an employer to lead evi-dence to show that an employee’s busi-ness generated income within the noticeperiod may result in a disallowance of aclaim for deductibility of that incomefrom damages for wrongful dismissal.


■Simmons v. Webb, 2010 CarswellOnt6689 (Ont. C.A.).■Keays v. Honda Canada Inc., 2008 Car-swellOnt 3743 (S.C.C.).■Brien v. Niagara Motors Ltd., 2009 Car-swellOnt 7820 (Ont. C.A.).■Slepenkova v. Ivanov, 2009 CarswellOnt3749 (Ont. C.A.).■Sylvester v. British Columbia, 1997 Car-swellBC 1025 (S.C.C.).■PCL Construction Management Inc. v.Holmes, 1994 CarswellAlta 281 (Alta.C.A.).

CELT


Nikolay Y. Chsherbinin is an employment lawyer at Grosman, Grosman and Gale LLP in Toronto. He can be reached at (416) 364-9599 [email protected].

ABOUT THE AUTHOR


In Lewis v. Terrace TourismSociety, the British Colum-bia Court of Appeal wasfaced with two intriguing

issues: Whether an employeeon maternity leave was entitledto receive reasonable notice oftermination of her employmentif the employer ceased opera-tions prior to her return andwhether the employee’s lawsuitagainst the employer, filed dur-ing the course of employment,amounted to just cause for dis-missal.

In a two-to-one decision, thecourt determined that duringunpaid leave, the employee’s le-gal right to reasonable noticedoes not change. In reversing alower court’s finding that herlawsuit was just cause for dis-missal, the B.C. Court of Ap-peals raises an interesting ques-tion about the legal effect of alawsuit on the employment re-lationship.

Employer closes shopJennifer Lewis was an exec-

utive director at the TerraceTourism Society in Terrace,B.C. While Lewis was on mater-nity leave, the society found it-self in dire financial straits. Itdecided to wind up its opera-tions and terminate her posi-tion.

As part of that process, it dis-missed her temporary replace-ment, removed Lewis’ signingauthority and closed her work-place. Having received no no-tice of termination of her em-ployment or payment in lieu,Lewis brought a small claimsaction against the society seek-ing damages for constructivedismissal.

As a result of that action, thesociety dismissed Lewis for just

cause. In response, Lewis suedthe society, seeking damagesfor wrongful dismissal or, in thealternative, constructive dis-missal. That action was dis-missed and Lewis appealed.

The dissenting judge in theB.C. Court of Appeal decision,Justice David Frankel, arguedduring leave, the employmentrelationship is essentially ashell since the employee is notrequired to perform any ser-vices nor is she entitled to pay.

Because the nature of thechanges to the society’s opera-tions had no immediate effecton her employment status,there was no reason why the so-ciety should be expected to“keep an empty chair in anempty office” until her returnfrom leave when it could for-mally give Lewis notice, he said.The society did not breach itsobligations to Lewis prior to hersmall claims action because itintended to pay her severance,found Frankel. However, the so-ciety never gave her notice orpaid severance.

Writing for the majority,Justice Risa Levine disagreedwith Frankel’s conclusion, stat-ing Lewis’ employment hadended when the society decided

to cease operations and termi-nate her position. The societyeffectively dismissed Lewiswhen it dismissed her replace-ment, closed her workplace and,ultimately, terminated her posi-tion without notice, concludedLevine. The society’s delay ininforming Lewis her employ-ment had ended, apparently be-cause she was on maternityleave, amounted to the repudia-tion of her employment con-tract, which falls under therubric of constructive dismissal.

Despite Lewis’ absence onleave, her legal right to reason-able notice of termination wasnot suspended or altered, foundLevine. The justice relied on asection of B.C.’s EmploymentStandards Act that expresslyprotects an employee on leavefrom being dismissed with no-tice that coincides with the peri-od of leave. Accordingly, the so-ciety’s “intention to offerseverance sometime in the fu-ture did not keep the contractalive,” said Levine.

No repudiation, no just causeIn reversing the lower

court’s decision that Lewis re-pudiated her contract of em-ployment by initiating her smallclaims action, the Court of Ap-peal found, where all the ele-ments of the employment rela-tionship had ended with thesociety’s cessation of business,it would constitute a “trap for

the unwary.” This would meanan employee cannot sue fordamages and assert her rightswithout risking a finding thatshe had, by doing so, repudiatedwhatever vestige of the employ-ment contract might remain.

Lewis was entitled to sue forwrongful dismissal and her com-mencement of the lawsuit didnot give the society just causefor dismissal, said the court.

Suing employer while still employed

Commencing an actionagainst an employer can effec-tively end the employment rela-tionship. For example, inZaraweh v. Hermon, Bunbury &Oke, the lawsuit was conduct“incompatible with the employ-ee’s continued employment,”found the B.C. Court of Appeal.

In Zaraweh, the employeesued for wrongful dismissal dur-ing the period of working notice.Lewis is distinguishable fromZaraweh because the societygave Lewis no notice whatsoev-er. In this context, the society’srepudiation of Lewis’ employ-ment contract renders the issueof continuation of her employ-ment moot, thereby allowingLewis to sue without risking dis-missal for just cause. These cas-es illustrate the need to decideeach case on its own uniquefacts.

Interestingly, an employer’scommencement of a lawsuit

against an employee does notseem to signal the end of theemployment relationship. Oneof the very few cases to dealwith this scenario was theSaskatchewan Court of Queen’sBench decision McLean v. Con-ter Investment Ltd. Like Lewis,this case came before the courton appeal from a small claimsjudgment in favour of the em-ployer for damages, in this casearising from the employee’snegligent operation of a truck.The court upheld the employ-er’s contractual claim againstthe employee and there was nosuggestion the employer hadbreached the employment con-tract by suing the employee.

Either party to an employ-ment contract has an option tosue for damages and continuethe employment. In practice,this legal option is unworkableand very rarely used. Indeed, itis difficult to maintain a rela-tionship of mutual understand-ing and respect when one partyis suing the other.

Lessons for employersLewis is of interest to em-

ployers and employees alike. Itmakes the following clarifica-tions:•The law applies evenly to em-ployees who are dismissedwhile on leave.

•Employees’ legal right to

October 18, 2010 CANADIAN HR REPORTER EMPLOYMENT LAW 5

Maternity leave no excuse to delay noticeB.C. Court of Appeal overturns lower court’s decision that constructive dismissal lawsuit repudiated employment contract

See Page 6 / TIMELY

NIKOLAY CHSHERBININ

■ LEGAL VIEW

eral government and deliveredthrough the Industry TrainingAuthority of B.C.

“All of our trades founda-tions programs give them theskills they need to be employ-able right away. We worked re-ally closely with industry so ourtraining is up to par and it’swhat employers are expectingso they’re really ready to hit theground running once they’vefinished their foundations train-ing,” said Darling.

That could mean a job or anapprenticeship as they work to-wards attaining their Red Sealcertification.

The college also referswomen to the British ColumbiaConstruction Association forhelp finding jobs in the industry.

Of the four women referredto the association’s Kelownabranch, none have beenmatched with an employer yet,said Glenn Olien, regional man-ager for the association’sSkilled Trades EmploymentProgram. But he expects that tochange soon.

“The economy is a little slow-er in British Columbia withinthe construction industry,” hesaid. “It’s difficult for everybodyright now to get some entry-lev-el trades positions. But it shouldbe picking up as soon as theeconomy picks up again.”

There should be a lot of op-portunities for women in theconstruction trades in the nextfew years. About 20 per cent to25 per cent of the constructionworkforce — about 200,000workers — will be retiring over

the next 10 years, according toforecasts from the ConstructionSector Council in Ottawa.

“We need to start thinkingabout refreshing that work-force,” said Rosemary Sparks,senior director of planning anddevelopment at the Construc-tion Sector Council.

With women making up justfour per cent of constructiontradespeople, according to the2006 census, women representan untapped source of labourfor the industry, said Sparks.

Respectful workplaces, family-friendly policies help attract women

But the industry needs to domore to promote trades and en-courage women to consider con-struction trades as a career,said Sparks.

The work environment

needs to be welcoming and re-spectful and there need to bementoring opportunities asabout 80 per cent of trainingtakes place on the job, she said.

Also, employers need to con-sider family-friendly policies be-cause construction hours are of-ten at odds with the availabilityof child care, she said.

If the B.C. industry, in partic-ular, doesn’t do what it can toget more people interested intrades, it will see the same prob-

lems it experienced in 2008 and2009, said Olien.

“There was such a skillshortage that some projectswere put on hold and not com-pleted,” he said.

Besides the fact there will bea lot of jobs available to peoplewith the right training, con-struction trades jobs also paywell and there’s lots of room foradvancement, said Sparks.

“The sky’s the limit,” shesaid.

In Prince Edward Island, ahairdresser (a female-dominat-ed trade) earns about $25,000 ayear while an electrician (amale-dominated trade) earnsabout $50,000 a year, said SarahRoach Lewis, project managerof Trade HERizons.

“Traditionally, male-domi-nated workplaces, they paymore than traditionally female-

dominated workplaces,” saidRoach Lewis.

Trade HERizons is a 14-weekcareer exploration pilot pro-gram, delivered by Charlotte-town’s Holland College andWomen’s Network, for womeninterested in careers in tradesor technology. The program,which started in February, alsooffers a college preparationcomponent after the 14 weeks ofcareer exploration.

The 12 women who took partin the program received hands-on experience with trades suchas automotive, carpentry,plumbing and ventilation, aswell as technology careers suchas engineering, bioscience andaircraft maintenance.

Like Okanagan College’sGateway program, Trade HER-

izons is designed for womenwith low income and who mayhave been out of the workforcefor awhile, said Roach Lewis.

“We view this as an opportu-nity for women to move frompoverty to a livelihood,” shesaid.

Trade HERizons also workswith participants to help themapply for college programs intheir area of interest. Sixwomen from the February in-take started a college programin September, while a couple ofothers had to defer their entrydue to personal reasons andsome, such as one woman inter-ested in bioscience, had to takesome upgrading courses beforeentering full-time studies intheir chosen field.

Women bring unique skillsSome employers have told

Darling they would prefer tohire a woman for particular jobs.For example, a heavy equipmentoperator told her a truck drivenby a woman requires about 30per cent less maintenance be-cause women tend to drive morecarefully than men.

“That boils down to probablymillions of dollars (saved),” saidDarling.

Also, the owner of a plumb-ing company said vulnerableclients, such as the elderly orwomen living on their own, aremore amenable to having a fe-male plumber come into theirhomes, she said.

And in some instances, awoman’s smaller hands can bean advantage for plumbing jobsin tight spaces, said RoachLewis.

“Having a smaller statureand smaller hands can actuallywork in your favour,” she said.

And with advances in tech-nology and increased focus onhealth and safety, trades jobsdon’t require as much brutestrength as they used to, shesaid.

reasonable notice of termina-tion or severance is not sus-pended or varied while onleave.

•Employers are obligated toprovide employees on leavewith a timely notice of dis-missal or severance.

•Employers cannot use leavesas an excuse for a delay in pro-viding employees on leavewith notice or severance.

•A delay in providing notice orseverance, whether deliberateor not, may give rise to a claimfor constructive dismissal.

•Employers cannot invoke thedelay in providing an employ-ee’s notice or severance as adefence against the construc-tive dismissal claim.

The case is going to theSupreme Court of Canada,which will determine damages.

For more information see:•Lewis v. Terrace Tourism So-ciety, 2010 CarswellBC 1783(B.C. C.A.).•Zaraweh v. Hermon, Bunbury& Oke, 2001 CarswellBC 2195(B.C. C.A.).•McLean v. Conter InvestmentsLtd. 1998 CarswellSask 695(Sask. Q.B.).

Nikolay Chsherbinin is anemployment lawyer atGrosman, Grosman and Gale inToronto. He can be reached at(416) 364-9599 [email protected].

6 NEWS CANADIAN HR REPORTER October 18, 2010

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TimelynoticeContinued from Page 5

Women move from poverty to livelihoodContinued from Page 2

With advances in technology and increased focuson health and safety, trades jobs don’t require asmuch brute strength as they used to.

10 | January 29, 2010 www.lawyersweekly.caTHE LAWYERS WEEKLY

F O C U S

Dismissed employees fre-quently attempt to bolster their wrongful dismissal claims by pleading economic torts. One of these increasingly pleaded eco-nomic torts is the tort of induc-ing 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 underly-ing the inducement tort must be re-assessed: treating liability as turning on the breach of a com-plainant’s contractual rights, rather than on an inducer’s wrongdoing, leads to unneces-sary and unfortunate blurring between “interference” and “inducement” cases.

Arguably, the very classifica-tion “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 con-tractual rights.

For example, in RBC Dominion Securities Inc. v.

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 con-tract intentionally procured the co-contractor to breach its val id employment contract with the complainant.

At the very core of induce-ment lies a rival’s conduct aimed at procuring a desired action on a part of an inducee. The induce-ment tort should be viewed as

penalizing the inducer’s condu ct, rather than compensating the complainant for the breached contractual rights. This conduct-centred theory of liability is rein-forced by the fact that dismissed employees seeking to increase their damages typically plead reliance on the inducing employ-er’s pre-contractual inducements (i.e. conduct), rather tha n that their contractual relations with the initial employers were inter-fered 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 conduct-centred 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 automati-cally improper to poach rivals’ employees, but legitimate com-petition does not justify interfer-ence with existing valid con-

tracts. Simply causing an inter-ference with the employee’s con-tractual relation with his employ-er is insufficient to trigger liabil-ity under the inducement tort. There must be procurement and the actual breach of the employ-ee’s contract.

More specifically, the induce-ment tort demands: (1) the knowledge of contract; (2) inten-tion 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 unlaw-ful means doesn’t require the existence of a contract or its breach. Designed only to enforce basic standards of civ ilized behaviour in economic rivalry, it is concerned with the defendant’s own wrongful interference caus-ing economic loss by “unlawful means.” No intermediate party — as in the inducement to rt — is necessary.

The tort of causing loss by unlawful means requires: (1) the defendant’s wrongful interfer-ence with the actions of a third party in which the plaintiff has an economic interest; (2) inten-tion to cause loss to the plaintiff; (3) use by the defendant of

unlawful means; and (4) damage in any form, for example, frustra-tion 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, wh ile 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 con-tract 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 i gnore the inducer’s wrongdoing. Bu t for the induc-er’s wrongdoing, there could be no viable claim in the induce-ment 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.

Nikolay Chsherbinin is an employment lawyer at Grosman, Grosman & Gale LLP in Toronto.

NIKOLAY CHSHERBININ

Why liability for inducing breach of contract needs reassessingBusiness Law

The federal government wants the Supreme Court of Canada’s opinion on whether Parliament has the constitutional authority to enact a national securities reg-ulatory 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 govern-ment in that province.

“We believe this intrusion into this important area of pro-vincial jurisdiction will set a precedent for the federal govern-ment 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•Personal Injury • Immigration

GARY OAKES

Battle begins brewing over national securities regulator

Practice Management

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.

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

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 so-called "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

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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 non-competition 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 [email protected]

EMPLOYEES are expected to per-form work in exchange for pay.When an employee fails to attendwork due to a permanent illness ordisability, an employer may be jus-tified in terminating the employ-ment without liability. Terminationof employment in such a case is notbased on “just cause,” but rather“frustration” of the employmentcontract, which can happen due toillness, incapacity, imprisonment,deportation or bail conditions.

In disability-related cases, aquestion that vexes employers is:When can they safely trigger frus-tration? There is no easy answer asit is usually fact-specific. A quicktermination of an employee who isabsent from work due to a tempo-rary, but prolonged, illness mayhave significant legal implications.

The risk of liability is espe-cially acute when the employmentcontract contains long-term dis-ability provisions. The implicationwould seem to be the parties con-templated the employee may, atsome point during the employ-ment relationship, be disabled andprevented from working for a longtime. For example, it might be frus-trating for employers to learn thefrustration defence may not beavailable in circumstances wherean employee can’t work for a longtime because of depression, some-thing doctors are often reluctantto declare permanent.

5-year absence of long-termemployee not enough for frustration

The Ontario Superior Court ofJustice grappled with this issue inNaccarato v. Costco WholesaleCanada. Costco terminated FrankNaccarato’s 17-year employment,after he had been off the job forfive years because of depression,for frustration of his employmentcontract. Costco argued it wasunlikely Naccarato would be ableto return to work in the reason-ably foreseeable future, basing iton: the lengthy absence; the factNaccarato had to prove he wastotally disabled from performingwork for any occupation; and the

lack of medical prognosis for hisanticipated return to employment.The court disagreed, based on thelegal test to determine frustrationbased on illness or incapacity inthe employment contract context.

“Whether or not the illness orincapacity was of such a nature orlikely to continue for such a periodof time that either the employeewould never be able to perform theduties contemplated by the origi-nal employment contract or that itwould be unreasonable for theemployer to wait any longer forthe employee to recover,” said thecourt.

The court found the medicalevidence did not support Costco’sposition that there was no reason-able likelihood of Naccaratoreturning to work in the foresee-able future. Rather, the evidencewas that Naccarato was still beingtreated by his doctor and a newpsychiatrist was being sought.

Naccarato makes it clear thefinding of permanent disabilitymust be based on objective evi-dence, not the subjective belief ofeither party. The court furtherconcluded keeping Naccarato’svendor clerk position open duringhis absence did not disruptCostco’s business. As a result, thecourt found the employment con-tract had not been frustrated andawarded Naccarato 10 months’reasonable notice.

Tips for employers

Naccarato demonstrates thatuncertainty surrounding the par-ties’ contractual obligations whenan employee suffers from pro-longed illness is a problem forboth employers and employees.The onus is on the employer toprove the contract has becomefrustrated. In order to determineif a temporary illness or disabilityis sufficient to bring the employ-ment contract to an end, employ-ers must take into account:•The terms of the employment con-tract. The presence of long-termsick leave and disability benefits

indicates a greater tolerance for alengthy absence before frustra-tion occurs. It has been suggestedthat contracting for these benefitsmay postpone frustration becauseit may be inferred the partiesanticipated the employee mighttake leave for illness (seeAntonacci v. Great Atlantic &Pacific Co. of Canada).•The importance of the employee’sposition. The employment rela-tionship is more likely to survivean extended absence if anemployee’s job is one of many inthe same category rather than akey post which must be filled on apermanent basis if the absence isprolonged. In Burgess v. CentralTrust Co., the New BrunswickCourt of Queen’s Bench found anassistant lending officer was a keyperson in the employer’s organi-zation due to the upcoming busyseason and was more willing tofind the contract had been frus-trated.•The nature of the employee’s ill-ness. This requires an employer toconsider how long the illness haslasted and an employee’sprospects for recovery. A short orroutine illness frustrates theemployment contract. The greaterthe degree of illness and thelonger the absence, the morelikely courts will find the employ-ment contract has been frus-trated.•The nature of the employment. Ifthe employment contract is for afixed term, the prolonged illnessor disability will likely frustratethe employment contract than acontract of indefinite hire. •The period of employment. A longstanding employment relation-ship is not easily frustrated. InYeager v. R.J. Hastings AgenciesLtd., the British ColumbiaSupreme Court found a 30-yearemployee’s illness, which causedhim to be absent from work fortwo years, was not lengthyenough to frustrate the employ-ment contract.•The duty to accommodate. Notonly must an employer prove frus-

tration of contract to justify termi-nation, but also that the duty toaccommodate has been consid-ered and met, if applicable, suchas by providing modified duties ortime off.

When dealing with medicalconditions like depression andstress, employers must beabsolutely certain that, in all cir-cumstances, the employment con-tract has been frustrated, beforeadvising ending someone’semployment. The British Colum-bia Supreme Court in Demuynckv. Agentis Information ServicesInc. suggested frustrationbecomes a justifiable responsewhere an absence from workreaches 18 to 24 months. Never-theless, employers should alwayskeep in mind each case turns onits unique facts.


•Naccarato v. Costco WholesaleCanada, 2010 CarswellOnt 4108(Ont. S.C.J.).•Antonacci v. Great Atlantic &Pacific Co. of Canada, 1998 Car-swellOnt 834 (Ont. C.A.), affirmedin part 2000 CarswellOnt 61 (Ont.C.A.).•Burgess v. Central Trust Co., 1988CarswellNB 120 (N.B. Q.B.).•Yeager v. R.J. Hastings AgenciesLtd., 1984 CarswellBC 768 (B.C.S.C.).•Demuynck v. Agentis Informa-tion Services Inc., 2003 CarswellBC93 (B.C. S.C.).

CELT

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS ISSUE NO. 565 • SEPTEMBER 22, 2010

Disability-related dismissals can be frustratingRecent Ontario case shows termination isn’t always possible even after years of absence

Published by Thomson Reuters Canada Ltd. � www.employmentlawtoday.com


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


ABOUT THE AUTHOR


VOLUME 3, NO. 9 – SEPTEMBER 2010

Bill 168: Employers’ Liability for Workplace Violence and Harassment

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 vio-

lence. 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 reason-

ably 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 ha-

rassment 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).

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 ISSUEIN THIS ISSUEBill 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

continued on page 1

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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

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2

(“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 proceed-

ings 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 com-

parable 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 pro-

cedures 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).

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 vio-

lence 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 harass-

ment 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 leg-

islation 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 assess-

ment 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 condi-

tions. Employers should also identify every aspect of the work-

place 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 physi-

cal 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 investiga-

tion 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 them-

selves 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 harass-•

ment, 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.

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 provi-

sions, 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.

Bill C-29 amends PIPEDA to:

(a) exclude, in certain circumstances, business con-tact information from the application of Part 1 of that Act;

Personal Information Protection and Electronic Documents Act Amendments

BERNARD ARON

“Long awaited changes to PIPEDA keeping

privacy legislation responsive

to needs of private sector.” “ ”

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 Derksen v. Wasa Insurance Co. Ltd . (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 Schumacher v. Toronto-Dominion Bank, 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 [email protected] .

IN ONTARIO, an employer’sstatutory obligation to pay forovertime is triggered when anemployee works more than 44hours in a week. The right toovertime pay applies to allemployees except those whose“work is supervisory or mana-gerial in character and whomay perform non-supervisoryor non-managerial tasks on anirregular or exceptional basis,”according to employment stan-dards legislation. The overtimeexemption for managers maybe applicable even if anemployee is not exclusively per-forming managerial or supervi-sory work. However, section22(9) of the Ontario Employ-ment Standards Act, 2000(ESA), does allow overtime tobe paid to managerial employ-ees who find themselves in asituation where they spend 50per cent or more of their timeduring a work week performingnon-managerial tasks, but thisprovision hasn’t come into playuntil just recently.

In Glendale Golf and Coun-try Club Limited. v. Sanagoand Director of EmploymentStandards, Massimo Sanagowas employed as an executivechef. The fundamental charac-ter of his position was manage-rial, but a short-staffed kitchenrequired him to perform non-managerial duties such as linecooking. Ontario legislationconsiders non-managerialtasks performed by managerialemployees to be performed forthe employer, regardless ofwhether the employerrequested or permitted it. SinceSanago was a managerialemployee who was forced toperform non-managerial tasks,the Ontario Labour RelationsBoard had to determine

whether those tasks were per-formed on an “irregular” or“exceptional” basis.

The evidence establishedthat, over a period of twomonths, Sanago spent 55 percent of all hours worked per-forming non-managerial linecooking duties. Since this crisisin the kitchen — brought on byquitting or firings of about one-half of the kitchen staff —lasted for two months before astate of normalcy returned, theboard found it was “out of theordinary” circumstances and an“exceptional” event. Normally,Sanago’s claim for overtimewould have been denied, but theboard determined that, despitehis position, Sanago was enti-tled to overtime pay for thoseweeks where he spent morethan one-half of his time per-forming non-managerial tasks.

Having acknowledged therewere no prior decisions thathave interpreted section 22(9)of the ESA, the board pre-sented the parties with anopportunity to provide submis-sions with respect to its appli-cability. Both the employer andthe Ministry of Labour claimedsection 22(9) of the ESA did notapply to Sanago. The countryclub argued the executive chefposition was 100 per cent man-agerial and, as such, Sanagowas not requested to performduties of any other kind. Theministry argued the executivechef position did not qualify forthe overtime exemption, sothere was no work performedthat was exempt from the over-time provisions.

Short-staffing caused exceptional event

However, the board con-cluded there was no basis, statu-

tory or otherwise, to support aninterpretation that wouldexclude the managerial/super-visory exemption under section22(9) of the ESA. The boardcompared the managerialemployee status to an employeewho works for a taxi companyboth as a cab driver and as a dis-patcher. Working as a cabdriver, the employee would beexempt from overtime, butworking in the office as a dis-patcher, the employee wouldnot be. If the employee workedmore than 50 per cent of thework week as a dispatcher, shewould be entitled to overtimepay for all hours worked inexcess of the statutory thresh-old of 44 hours. There are manyjobs exempt from the overtimeprovisions, including that ofexecutive chef, whose work issupervisory or managerial incharacter but may involve non-supervisory or non-managerialtasks on an irregular or excep-tional basis. The board saw noreason to distinguish the over-time exemption for a manage-rial/supervisory person fromother exempt jobs.

Glendale is of importance toboth managerial employeesand employers, albeit for differ-ent reasons:

For employees: •It clarifies that if a particularjob falls within the managerialexemption and the duties of thatemployee’s job require her toperform non-managerial tasks,section 22(9) of the ESA appliesand the employee is entitled toovertime pay for work per-formed in a work week, so longas the non-managerial work inthat work week takes up 50 percent or more of the time theemployee spent working.•It explains that if an employee

is employed in a position thatqualifies for the managerialexemption but who spends 50per cent or more of her timeduring a work week perform-ing the non-exempt work on anirregular or exception basis,section 22(9) will apply.•It suggests that managerial/supervisory employees mightwant to document hoursworked performing non-mana-gerial tasks in order to sub-stantiate a claim for theovertime pay.

For employers:•It advises employers that oncethey become aware their man-agerial/supervisory employeesare engaged in non-managerialtasks they should promptlyadvise them, in writing, to stopperforming such tasks, if theemployers wish to avoid claimsfor overtime.•It indicates that it would beprudent for employers todevelop a policy requiring man-agerial/supervisory employeesto obtain authorization prior toengaging in non-managerialtasks and ensure consistentcompliance with the policy.

See Glendale Golf and Coun-try Club Limited v. Sanago andDirector of Employment Stan-dards (Jan. 20, 2010), John D.Lewis — Vice-chair (Ont.Labour Relations Bd.). CELT

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS ISSUE NO. 553 • MARCH 24, 2010

Managerial employee gets overtime payExecutive chef who filled in on non-managerial duties gets overtime under little-used provision



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


ABOUT THE AUTHOR



THE BAR for accommodation for Ontarioemployers is about to be set a littlehigher. The final version of the Employ-ment Accessibility Standard developedunder the Accessibility for Ontarianswith Disabilities Act, 2005, has beenreleased and is expected to become lawearly in 2010. The standard creates newobligations for employers with respectto recruitment, hiring, retention, train-ing, accommodation, separation and ter-mination of Ontarians with disabilities.It outlines what persons with disabilitiescan expect in the workplace and extendsemployers’ legal duty to accommodatebeyond the Ontario Human RightsCode’s requirements. Given the directfinancial and legal implications, it is cru-cial for employers to familiarize them-selves with their new obligations andbudget expenditures to ensure compli-ance.

Who is affected by the standard?

The standard applies to all "organi-zations providing paid employment" inOntario with at least one employee. Itcaptures full-time, part-time and paidcasual employment, paid apprenticeshipand paid seasonal employment. Sincethe standard applies only to "organiza-tions," it does not apply to employmentrelationships between individuals anddomestic workers or professionals andtheir staff. Such exclusion inadvertentlycreates a discriminatory environment,as the standard appears to give a dis-abled person employed at a factory bet-ter protection than one working as ahousekeeper. In addition, the emphasison "paid employment" excludes volun-teer relationships and internships.

Recruitment, assessment and hiring

The standard increases employers’obligations when recruiting, assessingand hiring persons with disabilities. Allclasses of organizations would berequired to inform job applicants thataccommodation will be provided tothem from the recruitment through hir-ing stages. When recruiting, eitherinternally or externally, employers willhave the following obligations: •Provide information about the essentialjob duties, which are defined as "dutiesthat are critical to fulfilling the purpose

or outcome of a particular job."•Demonstrate how their externalrecruitment process enables candidateswith disabilities to receive informationabout job openings. However, it isunclear what "demonstrate" entails andto whom it must be demonstrated.•Include in any job posting a note that"individual accommodation will be pro-vided to applicants who are selected forassessment."•Inform applicants selected for furtherconsideration that the assessment andselection materials and processes areavailable in accessible format, uponrequest.•Ensure such materials and processesmeasure the applicants against the"essential duties" of the position. Whenan employer makes a formal job offer toa person with a disability, it mustinclude information on its individualaccommodations procedures.

Accessible employment policy statement and policies

The standard stipulates that withinone year of its implementation, allclasses of organizations shall developand maintain an "accessible employ-ment policy statement" that shouldinclude the following commitments:•Identification, prevention and removalof barriers throughout the employmentlife cycle.•Development of inclusive systems andprocedures.•Support of persons with disabilitieswith accommodations, from recruit-ment through hiring.•Development of individual accommo-dation plans to support employees withdisabilities.•Provision of information in accessibleformats and methods. •Provision of disability awareness train-ing to employees.

The standard also requires organi-zations "to develop, document and main-tain accessible employment policies"that support the implementation of thecommitments included in the policystatement and identify a person whowill be responsible for adherence tothese policies. The standard requiresaccessible maintenance policies to beput in place within four years of itsimplementation by organizations withmore than 50 employees. Employers

with fewer than 50 employees areexempt from this requirement.

General training

Employers are required to providedisability awareness training for allemployees including employment poli-cies and procedures, what accommoda-tions can be made, how to identifyaccommodations or how to develop anindividual accommodation plan. Imple-mentation timelines range from three tofive years and are applicable only toemployers with more than 50 employees.

Retention

The standard would require organi-zations to develop formal, up-to-dateprocedures aimed at establishing indi-vidual accommodation plans, whichmust: •Assess and accommodate employeeson an individual basis.•Detail how an employee can requestaccommodation.•Describe the type of accommodation tobe provided. However, it is unclear howthis can be meaningfully done, given theindividualized nature of disability andrelated accommodation needs.•Specify the timing for the accommoda-tion.•Include individualized emergencyevacuation procedures, if necessary.•Detail how plans are reviewed andmodified.•Detail how the privacy of accommoda-tion is protected.•Set out the process of solving disputeswith respect to plans.

Accessible information and communications

Employers will be required to pro-vide individual accommodation plans,employee orientation materials, job test-ing materials, performance manage-ment processes, separation ortermination information, return to workprocedure, and emergency and safetyinformation, in formats or methods com-pliant with the accessible informationand communications standard. Thisarguably inflexible requirement wouldhave a significant financial and opera-tional impact on employers.

Other requirements

Most employers will be required toidentify indicators of progress that are

suitable and reasonable for their work-place, to assist in tracking progresstoward accessible employment.

Employers will also have to explainemergency and safety information anddisseminate it to employees with disabil-ities as soon as practicable, includinginformation on alarm systems and emer-gency evacuation procedures. Othercomponents of the standard include per-formance management, care manage-ment and advancement requirements,which must be applied to employeeswith disabilities in a way that is consis-tent with their individual accommoda-tion needs or plans.

Tips for employers

The proposed changes will trans-form HR practices in Ontario from reac-tive to proactive. Unfortunately, such atransformation will be costly for employ-ers, especially those with undevelopedHR practices. Employers should notassume they will be only obligated tocomply with the standard and not theHuman Rights Code. The standardshould be viewed as complementary toand building on the code. However, rec-onciliation of competing requirementsunder the standard and the code wouldlikely be left to the judicial process,which creates the potential for a flood oflegal proceedings and varying decisionson accommodation issues. Employersshould be vigilant in ensuring compli-ance with phased implementation time-lines of various standards for differentclasses of employers. Corporate policiesand procedures must be developed orrevised to ensure compliance with thestandard.

CURRENT NEWS AND PRACTICAL ADVICE FOR EMPLOYERS ISSUE NO. 549 • JANUARY 27, 2010

Ontario raises the bar for accommodationNew standard under disability legislation requires employers to be more proactive



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


ABOUT THE AUTHOR


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.

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 con-

tends 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 precau-

tion 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 ConsiderationsIn 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

VOLUME 2, NO. 12 – DECEMBER 2009

Employers are Obligated to ProtectEmployees from Themselves

NIKOLAY Y. CHSHERBININ*

continued on page 2 ...

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 ISSUEIN THIS ISSUE

Employers are Obligated to ProtectEmployees from Themselves —Nikolay Y. Chsherbinin . . . . Page 1

Cases to Watch For . . . . . . Page 3Winlow – A Prosecutor’s Perspective —Jane Moffatt . . . . . . . . . . . . . . Page 3Holding a Hammer to theDefendant’s Head? —Vartan HS Manoukian . . . . . . . Page 5The Decision of R. v. Grantand the Implication to RegulatoryOffences —Julie Santarossa & Jessyca Greenwood. . . . . . . . . . . . . . . . . . . . . . . . Page 8

Case Comment. . . . . . . . . . . . Page10“Race-chasing” is a mens reaOffence, with a ModifiedObjective Test for Intention . . Page 10Careless Discharge of aFirearm Case. . . . . . . . . . . . . . Page 11Investment Dealers Associationhas Jurisdiction over ResignedDealer, because ofOriginal Contract . . . . . . . . . . Page 11When a Distribution ofSecurities Outside of B.C.is Subject to B.C. Law . . . . . . . Page 11

* 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.).

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the employee locked-out a piece of machinery, which caused

the employee injury. Justice Griffen found that the factual ele-

ments of the offence had been made out, but nonetheless

acquitted Goodyear. He was satisfied that the employee’s care-

less 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 employ-

ees 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 ulti-

mately 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 SurchargeAnother factor tending to raise the financial impact of a convic-

tion 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 SentencingThe 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

determined by a number of considerations, which include: (1)

the size of the company involved; (2) the scope of the econom-

ic 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 stan-

dards 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 dili-

gence, which leads to the accused employer’s acquittal if it

could be established that a reasonable person in the circum-

stances 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 circum-

stances”. 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

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R EGULATORY OFFENCES AND COMPLIANCE NEWSLETTER

V O L U M E 2 , N O . 12

3 2008 CarswellOnt 8585, 2008 ONCJ 727 (Ont. C.J.).4 Unreported, December 10, 2007 (Ont. C.J.).5 2006 CarswellOnt 1008, 2006 ONCJ 535 (Ont. C.J.).6 R.S.O. 1990, c. P.33.7 (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.).

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, 14O.R. (3d) 115, 63 O.A.C. 289 (Ont. C.A.).

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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 sus-

tained”. Arguably, in light of the Nickle City case, it remains

open for the accused employer to invoke the “financial inabili-

ty” 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 rea-

sonably relied on the erroneous legal opinion or advice of a

public official who is charged with administration and enforce-

ment 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-

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 poli-

cies 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 employ-

ees’ 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 man-

agers will be indemnified for legal fees and fines incurred in the

OHSA prosecutions.

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V O L U M E 2 , N O . 12

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.).

Winlow – A Prosecutor’sPerspectiveJANE 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?

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 con-

form with evidence adduced at trial. In fact, the analysis has

CASES TO WATCH FOR

* Prosecutor, Regional Municipality of Durham. President, Prosecutors’Association of Ontario.

1 2009 CarswellOnt 5208, 2009 ONCA 643 (Ont. C.A.).





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CANADIAN

Employment Law Today Published by Canadian HR Reporter, a Thomson Reuters business www.employmentlawtoday.com

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 ONE OF 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.

I BY NIKOLAY CHSHERBININ I

WITH 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

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

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

4 Canadian HR Reporter, a Thomson Reuters business 2009

CANADIAN EMPLOYMENT LAW TODAY

CASE IN POINT: REASONABLE NOTICE

Judgments continue to be pro-employee ... continued from page 4

"unfavourable economic climate." The court found when an employee was dismissed for economic reasons, there should be a limit on the notice required.

Following this lead, courts refrained from chastising employers for discharging employees in a period with a limited job market. Rather, it appears they agreed recessionary economic conditions "required" organizations to reduce their staff. Nevertheless, in Russell v. Winnifred Stewart Assn. for the Mentally Handicapped, the Alberta Court of Queen's Bench criticized the employer for how it responded to the new economic context and questioned the necessity of the dismissal for economic reasons.

While judges accepted the legitimacy of economic dismissals for other types of employers, they still emphasized that "a contract is a contract" and contractors upheld their end through their loyalty to the organiza-

Limiting liability

tions. With the latest recession, judg

ments continue to be pro-employee. In Munoz v. Canac Kitchens, the dismissal took place in the context of the termination of other Canac employees as a result of a steady decline in Canac's business. Despite being advised during the trial that Can~c was in the process of closing down entirely, the Ontario Superior Court of Justice found the employee, a team leader with more than 12 years of service who was 52 years old and remained unemployed 16 months after his termination, was entitled to 12 months' notice. In January 2009, when Canada lost 129,000 jobs, the court in Mahesuram v. Canac Kitchens Ltd. awarded another employee of Canac, 59 years old with 19 years of service, 18 months' notice.

An economic downturn will seldom serve to reduce an appropriate .notice period, but may well serve to increase it if the employee cannot find alternate employment. Without supporting financial evidence, a rationale . for

through employment contracts 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.

reducing staff during a downturn to remain competitive or even viable most likely will not be received sympathetically in the courts.

Recessions in a general economy are not isolated and thus are a foreseeable event. Given the historic evidence, employees may be able to argue that a recession is never too far down the road and employers should have anticipated it and structured their employment relationships more responsibly. •


-Bardal v. Globe & Mail Ltd., 1960 CarswellOnt 144 (Ont. H.C.). -Ansari v. British Columbia Hydro & Power Authority, 1986 CarswellBC 86 (B.C. S.C.). -Dasent v. D. Molesky Surveys Ltd., 1987 CarswellAlta 499 (Alt. Q.B.). -Bohemier v. Storwal International Inc., 1983 CarswellOnt 771 (ant. c.A.). -Russell v. Winnifred Stewart Assn. for the Mentally Handicapped, 1993 CarswellAlta 110 (Alt. Q.B.). -Munoz v. Canac Kitchens, 2008 CarswellOnt 7059 (On. S.C.J.). -Mahesuram v. Canac Kitchens Ltd., 2009 CarswellOnt 229 (On. S.C.J.).

ABOUT THE AUTHOR

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 [email protected].

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