Kurtz v Carquest Canada Ltd., 2015 ONSC 7997 (CanLII)
Kurtz v Carquest Canada Ltd. (“Kurtz“), a recent decision of the Ontario Supreme Court, provides one of the clearest statements of the law and the correct procedure in Canada when it comes to terminating an employee for poor performance. Does the employer have cause? How is cause determined? If the employer does not have cause, what constitutes reasonable notice and how should it be determined? Over and above the appropriate length of reasonable notice, what damages suffered by the employee should be compensated?
Kurtz commenced his employment with Carquest in 2005 at a Carquest distribution centre in Sacramento California. By 2009, he had been promoted into the position of Director of Operations. In January of that year, Kurtz was told the Sacramento distribution centre was to be closed. Carquest offered Kurtz alternative employment as Director of Operations at an Ontario distribution centre. Kurtz accepted the position and commenced work in Ontario in May of 2009. All of his relocation expenses were paid by Carquest.
After serving 2 years in Ontario, Carquest determined Kurtz was not performing up to its standards and he was immediately terminated. His total tenure at Carquest, in California and Ontario, amounted to 5.5 years.
The issues addressed by the court were; first, did Carquest have legal cause to terminate Kurtz and secondly, if Carquest did not have legal cause, what employee’s damages?
With respect to the first issue, the court laid out the test for determining whether an employer has established legal cause for termination. After reviewing the general common law rights and obligations of employers and employees when it comes to termination of the employment relationship, the court went on to list six criteria the employer must satisfy in order to establish legal cause for termination:
- Has the employer established reasonable objective standards of performance?
- Have those standards been communicated to the employee?
- Has the employee been given suitable instruction such that those standards can be met?
- Has the employee failed to meet those standards?
- Has the employee been warned of the substandard performance and that termination will be the consequence if the substandard performance continues?
- Was the employee given a reasonable amount of time to correct the substandard performance?
The burden of proving legal cause for termination rests on the employer. The test is often difficult to meet and in the absence of documentary evidence, can become extremely difficult to meet. The employer must satisfy the court on a balance of probabilities that it has fulfilled each of the six criteria. Failure on the part of the employer to satisfy the court it has fulfilled any one criterion out of the six means the employer has failed to discharge its burden of proving legal cause. The result is, the employee will be found to have been wrongfully dismissed and the employee will be entitled to damages.
In Kurtz, the court found that Carquest met the burden of proof on the first four criteria, but that it failed on the 5th criterion and the 6th criterion. Kurtz was found to have been wrongfully dismissed and the court turned its focus to assessing the resulting damages
With respect to the damages suffered by Kurtz, the court laid out the key questions to be answered.
- What was the proper period of reasonable notice?
- What is the appropriate amount of compensation during the notice period?
- Was Kurtz entitled to relocation back to California at Carquest’s expense?
- Was Kurtz entitled to post-termination accounting costs and tax reimbursement?
- Is vacation pay owing to Kurtz?
- Did Kurtz reasonably mitigate his damages?
- Did Carquest’s conduct justify an award of moral damages?
- Did Carquest’s conduct justify an award of punitive damages?
What was the proper period of reasonable notice?
In answering this question, the court turned to a review of the standard factors generally considered in determining reasonable notice. These include, amongst others depending on the facts of the case, the age of the employee, the nature of the work performed, the length of service, the likelihood of finding suitable replacement employment. Kurtz wanted 16 months. Carquest was offering between 5 and 8 months. The court emphasized the need to arrive at a length of notice that is “fair” for both parties. On the basis that Kurtz was a senior management employee and that it was likely he would have to relocate back to the United States to find suitable replacement employment, the court determined he required a lengthier notice period than what otherwise might have been appropriate. Kurtz was awarded an 8 month notice period.
What is the appropriate amount of compensation during the notice period?
The various heads of damage used by the court to calculate the appropriate amount of compensation included:
- Eight months base pay;
- Out of pocket expenses for health care. The court determined that Kurtz’s actual health costs were a more accurate measure of his damages than the cost of continuing coverage during the notice period;
- The cash equivalent of 8 months personal use of the company car;
- The court determined Kurtz was not eligible for either the performance bonus plan or the stock options plan;
- Reimbursement of additional taxes owing from 2009, the year of Kurtz’s move to Canada.
Was Kurtz entitled to relocation back to California at Carquest’s expense?
Kurtz claimed relocation costs under Carquest’s International Expatriate Policy. In addition, because he had to leave 4 months early before the expiry of his lease in Ontario, he claimed 4 months rent. He also claimed for certain household goods that had to be left behind in Ontario since they would not fit in the moving truck.
The court determined that the International Expatriate Policy only applied to employees in a continuing relationship with Carquest and not to employees after they had been terminated. Kurtz was not entitled, therefore, to recover any costs of relocation back to the United States.
Was Kurtz entitled to post-termination accounting costs and tax reimbursement?
When Kurtz originally moved from California to Ontario in 2009 he claimed the costs of the move on his 2009 income tax return. He was later audited and the moving costs deduction was disallowed. Carquest was ordered to pay the resulting tax owing.
Is vacation pay owing to Mr. Kurtz?
Kurtz was paid out for the two days he had remaining from his vacation entitlement in 2010.
Did Kurtz reasonably mitigate his damages?
An employee who is wrongfully dismissed is legally bound to make every reasonable effort to find suitable replacement employment in order to minimize his or her damages. Failure to discharge this obligation can lead to a reduction in the length of the notice period. It is the employer’s burden to prove the employee has failed in the discharge of this obligation.
Kurtz had made some effort to find employment both in Ontario and back in California. He refused to consider several specific locations in the United States because of family concerns. The court found that Carquest did not prove on a balance of probabilities that Kurtz failed to mitigate his losses.
Did Carquest’s conduct justify an award of moral damages?
Awards of moral damages in wrongful dismissal cases require medical evidence supporting mental distress arising from the behaviour of the employer in dismissing the employee. The mental stress must be something more than the expected stress that would normally be experienced when being terminated from employment. In addition to the fact that Kurtz failed to introduce any medical evidence, the court determined there was nothing in the evidence to prove that the methods used by Carquest in the termination justified any moral damages award. In the termination of Kurtz, Carquest did not act callously, or in bad faith, or in any other manner perceived by the court to be egregious.
Did Carquest’s conduct justify an award of punitive damages?
Punitive damages are a discretionary costs award designed to punish a wrongdoer for the egregious way they treated the other party and, or for the egregious way they conducted themselves in the court. They are rarely awarded. The court determined in this case that there was not anything in the employer’s behaviour that even remotely justified an award of punitive damages.
NOTE: The value in the decision in Kurtz v. Carquest is not so much in the facts of the case as it is in the procedure articulated by the court for determining when an employee has been wrongfully dismissed and what the quantum of damages should be.