Coles Notes of Employment Law in Canada: Performance Related Dismissals

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:

  1. Has the employer established reasonable objective standards of performance?
  2. Have those standards been communicated to the employee?
  3. Has the employee been given suitable instruction such that those standards can be met?
  4. Has the employee failed to meet those standards?
  5. Has the employee been warned of the substandard performance and that termination will be the consequence if the substandard performance continues?
  6. 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:

  1. Eight months base pay;
  2. 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;
  3. The cash equivalent of 8 months personal use of the company car;
  4. The court determined Kurtz was not eligible for either the performance bonus plan or the stock options plan;
  5. 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.

 

Municipalities v Oil Companies: How far can a municipality go?

Imperial Oil Limited v. McAfee, 2005 BCCA 402

It is not an infrequent event when hydrocarbons from a local gas station leak into the ground and then migrate off-site to contaminate surrounding properties.  In numerous instances, those surrounding properties can include municipal streets.

In Imperial Oil Limited v. McAfee, Imperial operated a gas station on a street corner in the City of Vancouver between 1981 and 2000 when the station was decommissioned and the pumps and underground storage tanks were removed.  A major hydrocarbon spill had taken place at the station in 1986.  Attempts by Imperial to remediate the contamination failed and the contamination migrated to surrounding city property including streets.

When Imperial applied to the City of Vancouver for a permit to construct a new gas station at the site, the City made the approval subject to a number of conditions, one of which required Imperial to remediate all off-site contamination on City property before approval to build the new gas station would be given.

Imperial submitted and sought approval of its remediation action plan (the “Plan”) under the British Columbia Environmental Management Act (the “Act”).  Pursuant to the Plan, Imperial removed a substantial amount of contaminated soil from the site and from the streets affected.  The provincial ministry in charge of the administration of the Act, thereafter issued an approval of the Plan (the “Approval”).  As a result of the Plan and the Approval, Imperial was positioned to apply for a development permit to redevelop the site as a new gas station and it did so. It was common ground amongst all concerned that redevelopment of the site would not affect remaining remediation efforts and no remaining off site contamination was believed to be a threat to the redevelopment.  The City of Vancouver, nonetheless, refused to approve Imperial’s application for a development permit until such time as Imperial agreed to clean up the off site contamination to the City’s standard, which standard was higher than that of the Province’s.  Vancouver cited the Vancouver Charter as authority for its position.  The Charter states, in part:

“Council may make by-laws…

 (b) providing that a development permit may be limited in time and subject to conditions….

“The Council may provide for the good rule and government of the city”

It is well established law that when reviewing a municipalities actions and decisions, the courts must construe or interpret municipal legislation using a broad and purposive approach.  In some case the courts talk of a “benevolent” approach to interpreting municipal statutes.  All of which to say is that the courts must respect the municipal level of government and, except where municipal government has acted outside or in excess of its statutory authority, the courts should defer to the municipal government and not substitute the courts view of good government for that of the municipal government in question.

The trial judge determined that the Vancouver Charter did not provide authority to the City to impose conditions on a developer that are not related to the development proposed.  In other words, clean up of off-site contamination was not related in any way to the proposed development so the City did not have the authority to require it as a condition of issuing the development permit.  The City acted outside its authority.  The trial judge also determined that the specific purposes relied upon by the City to impose the clean up condition, could not be brought within the general authority to provide good rule and government.  The Court of Appeal upheld the trial decision.

The key principles to be taken away from this case are:

  1. A municipality in British  Columbia does not have the jurisdiction or authority to impose conditions on the issuance of a development permit that are not related to the development in question.
  2. A municipality in British Columbia cannot use a general “good government” rule as authority for imposing conditions on the issuance of a development permit that are  unrelated to the development in question.

While this is a decision of the British  Columbia Supreme Court and Court of Appeal, it likely would be similarly held by courts in most if not all other provinces and territories throughout Canada.

Can an oral agreement be enforced?

Jeffrie v. Hendriksen, 2015 NSCA 49

The parties  in this case (“Jeffrie” and “Hendriksen”) were equal shareholders in a fishandrew-montgomery-lg buying company called Three Ports Fisheries Limited (“Three Ports”). Three Ports was in the business of purchasing fish from harvesters and selling that same fish.

As can sometimes happen in small business, the relationship between Jeffrie and Hendriksen began to deteriorate after Jeffrie fell ill and was absent from the business for an extended period of time.  The parties commenced negotiating terms of the sale of Jeffrie’s shares to Hendriksen and this resulted in an oral agreement between the parties conveying full interest in Three Ports to Hendriksen.  Hendriksen subsequently refused to honour the agreement.  Jeffrie sued Hendriksen for breach of the agreement of purchase and sale.to processors.

At trial the court found that the parties had, indeed, reached an oral agreement for the sale of Jeffrie’s shares in Three Ports to Hendriksen.  The trial judge, however, dismissed Jeffrie’s law suit because the oral agreement made was not put in writing.  The court held that putting the agreement in writing was a prerequisite to it becoming legally binding and enforceable.  Jeffrie appealed the trial judge’s decision.

When disputes arise between parties to an oral agreement, a trial judge is heavily dependent on his or her assessment of the credibility and reliability of the oral testimony of the parties to the alleged agreement.  The court of appeal found that the trial judge strongly preferred the evidence of Jeffrie and rejected the evidence of Hendriksen in concluding that the parties had reached an oral agreement on the sale of Jeffrie’s shares to Hendriksen.

Specifically, the trial judge rejected Hendriksen’s evidence that:

  1. Hendriksen  had to confirm financing and get his wife’s approval of the purchase before the agreement could be made legally binding;
  2. He allegedly called Jeffrie’s accountant and advised the accountant he was not able to honour the agreement, and
  3. Hendriksen had prepared an altogether new counter proposal which he attempted to introduce through his lawyer.

The court of appeal found that the trial record fully supported the credibility findings made by the trial judge.

Although the judge at trial found there to be more than sufficient evidence of an oral agreement having been reached between the parties, he went on to conclude that the agreement was not  legally enforceable and, consequently, not binding.  It was the determination of the trial court that the oral agreement reached by the parties would only be legally binding once it was set down in a written document and signed.

The appeal court disagreed. In reviewing the law the appeal court stated, “It is well settled that an agreement need not be in writing to be enforceable”The appeal court also referred to one of its earlier decisions in which it stated, “Parties may agree that they will execute a future, more formal document.  If they have agreed on all of the essential terms and it is their intention that their agreement be binding, there is an enforceable contract;  it is not unenforceable simply because it calls for the execution of a further formal document.”  Setting apart specific examples such as  contracts of purchase and sale of real property or, contracts that carry on beyond one year,  contract law recognizes that agreements that are legally binding and enforceable do not always have to be put in writing.

The most important question that must be answered is whether reducing an oral agreement to writing is a condition that must be fulfilled before the agreement becomes legally binding or is the written form merely a descriptive document about how an agreement, already in place, is to be carried out.  In order to answer this question, the court uses a test based on the reasonableness of the parties expectations (the “Test”).  The application of the Test requires the court to look at the entirety of the agreement in the context of how it came about and what its ultimate purpose is. The court must determine whether the parties committed themselves to a firm agreement or, did one or the other retain the discretion to back out of the agreement if certain conditions were not met?  This determination is made by considering what a hypothetical, reasonable person, under the same conditions and circumstances would believe the expectations of the parties were.

The appeal court found that the trial judge failed to properly apply the Test in coming to his decision.  He mistakenly split the Test into two separate steps and then made contradictory findings at each step. At the first step, the trial judge found there was clearly an oral agreement that the parties, including Hendriksen, had committed themselves to.  At the second step, however, the trial judge contradicted his finding at that first step by concluding there could not be a binding enforceable contract because the agreement was never put into writing. On review, the appeal court held that inconsistent findings on the essential question before the court constitutes an error of law.  If there was an oral agreement on the essential terms of a contract between the parties, that should have been the end of the analysis.  An oral agreement on all of the essential terms of an agreement can be legally binding and, therefore, enforceable without having to be put in writing.

To illustrate the principle more clearly, the appeal court quoted from a decision of the Ontario Court of Appeal: “When [the parties] agree on all of the essential provisions to be incorporated into a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.” In the case of the Ontario Court of Appeal, there was no requirement that lawyers prepare a written form of the agreement before it came binding.  The Nova Scotia Court of Appeal held similarly in Jeffrie v. Hendriksen.  Hendriksen was determined to have breached the terms of a binding oral agreement to purchase Jeffrie’s shares.  Jeffrie was entitled either to specific performance (a legal remedy obliging Hendriksen to follow through on and conclude the oral agreement) or to an award of damages equal to the value of purchase price of his shares.

While the oral agreement in Jeffrie v. Hendricksen was upheld by the court of appeal as legally binding and enforceable, this result should not be taken as recommending or favouring the use of oral contracts.  In thes writer’s opinion, it is always prudent and wise to put the terms and provisions of an oral agreement into writing so that it can be made clear to all, what the intentions of the contracting parties are. The written terms should be as precise and clear as possible.  A commercial lawyer is skilled in preparing written contractual agreements.

 

 

Municipal Liability in Vehicle Collision

Gardiner v. MacDonald, 2016 ONSC 602andrew-montgomery-lg

Gardiner v. MacDonald, 2016 ONSC 602 (“Gardiner”) is a recent decision of the Ontario Supreme Court dealing with the apportionment of liability in a tragic vehicle collision involving four individuals occupying an SUV and an Ottawa City public transit bus.  The sole survivor from the SUV, Ben Gardiner (“Gardiner”), one of four individuals in the SUV, suffered what the court characterized as “catastrophic injuries”.  Gardiner and his family commenced a court action against the estate of the driver of the SUV, Mark MacDonald (“MacDonald”), the City of Ottawa, the driver of the Ottawa City bus, Raymond Richer (“Richer”) and those who had supplied alcohol to MacDonald prior to the accident.

Early in the morning of January 23, 2008, Richer was driving his Ottawa City bus north on Riverside Drive.  Richer drove into the intersection at Heron Rd. on a green light.  MacDonald was driving west on Heron Rd. at the same time.  He continued into the intersection with Riverside Drive on a red light.  The bus driven by Richer t-boned MacDonald’s SUV. The occupants of the SUV suffered the most damage with three dead and the fourth very seriously injured.

At the time of the accident it was dark, the roads were covered by slush from melting snow, but the intersection was well lit.  No charges were laid against Richer and alcohol consumed by MacDonald earlier in the evening was determined to be a causal factor in the accident.

By the time of trial, the only issue remaining between the parties was the degree of liability or fault for the accident, if any, on the part of the City of Ottawa and Richer.  The court identified three matters it had to consider in resolving this final issue:

  1. The duty of care owed by Richer, a professional driver for the City of Ottawa who was driving a public transit bus at the time of the accident;
  2. The standard of care Richer, a professional driver, owed to MacDonald and MacDonald’s passengers;
  3. Whether a causal link existed between Richer’s breach, if any, of the standard of care Richer owed and the injuries sustained by Gardiner.

Duty of Care Owed by Richer

The court observed, as a long standing legal principle, that “a driver entering an intersection has a duty to act so as to avoid a collision, if reasonable care will prevent it.”  Other cases relied on by the court expand on this principle and establish that a driver approaching an intersection with a green light does not have the right to proceed into the intersection without exercising proper care to observe what all other users of the road are doing.  Put another way, a driver having the statutory right of way at an intersection will not be relieved of some degree of responsibility for an accident if the driver enters the intersection with  disregard as to what other drivers approaching the same intersection may or may not do.

The court concluded that on any analysis of the facts, Richer was bound by a duty of care to exercise proper caution upon approaching the intersection and to surrender his statutory right of way to MacDonald if by such action the accident might reasonably have been avoided.

Standard of Care Owed by Richer

The court held that the driver who has the statutory right of way at an intersection (e.g., Richer who in this case proceeded into the intersection on a green light) is required in the exercise of this right, to do so as a reasonable and skillful driver would do under similar or like circumstances.  The court stated that the driver with the right of way “will be fixed with some responsibility if he or she had a reasonable opportunity to avoid the collision but failed to do so.”  The court went on to add, however, that a professional driver such as Richer could be held to a higher standard of care than the general driving public if at the particular time in question he was discharging his professional driving duties.  Finally, the court observed that, although the standard of care required of a professional driver might be somewhat higher than that of the general driving public, it is still not a standard of perfection.

On the evidence, the court, while acknowledging that a higher standard of care may be required of a professional driver, concluded it was not necessary in this specific case to determine and apply a higher standard.  Richer’s evidence seriously undermined his credibility by the inconsistencies amongst and between his statements made to police, his discovery evidence and his cross examination at trial. Richer also repeatedly attempted to deny or discredit clear evidence of negligence on his part on the night of the accident.  Richer objected to and sought to discredit GPS records which clearly indicated he was significantly exceeding the speed limit that morning and that he did so under inclement road and driving conditions.  The court found on all of the evidence that Richer did breach the standard of care of the reasonable driver under similar or like circumstances.  There was no need to inquire or determine whether he breached some higher standard of care.

Did Richer’s Breach, if any, Cause Plaintiff’s Injury

The court stated the test for causation as follows: “In order to establish causation….a plaintiff must show that the defendant’ negligence was necessary to bring about the injury – in other words that the injury would not have occurred without the defendant’s negligence.”

The court found that Richer had not only been exceeding the speed limit in his approach to the intersection of the accident, but that he had failed to take into consideration sloppy road conditions that should have led him to drive even more cautiously.  Further, the court found that Richer was not paying proper attention to what the MacDonald vehicle was doing when Richer entered the intersection.  He consequently compromised his opportunity to respond defensively and to possibly avoid the accident.

It was the court’s finding that had Richer been driving prudently and with the care of a reasonable driver under like circumstances, it is unlikely he would have arrived at the intersection where the accident occurred at the same time as MacDonald ran the red light.  The court further found that Richer failed to exercise proper care upon entering the intersection where the accident took place.  The failure to exercise proper care effectively foreclosed on Richer’s ability to  react appropriately and defensively to the uncertainty that existed as to MacDonald’s ability or intention to stop.  In essence the court found that, but for Richer’s negligence, the accident might well have been avoided.  While all parties acknowledged that MacDonald was primarily responsible for the accident, Richer still had an opportunity to avoid the accident if he had been exercising proper care in his own driving.  The court apportioned liability for the damages the plaintiffs suffered 80% to MacDonald and 20% to the City of Ottawa on the basis it was vicariously liable for the negligence of its employee.

The tragic circumstances of this case provide clear lessons for all municipal governments. On the most basic level, and at first blush, the facts of this case might be thought to point the finger of responsibility squarely, fully and exclusively at MacDonald.  He had consumed enough alcohol to impair his judgment and he ran a red light at the intersection of Herod and Riverside the night of the accident. Richer had the statutory right of way at the intersection. These facts, in and of themselves, might seem sufficient on a cursory analysis, to settle any and all questions of responsibility once and for all.  At law, however, the court had to address the question of whether or not Richer, an Ottawa City employee, had any opportunity to avoid the accident.

After reviewing all of the evidence, the court determined Richer did have the opportunity to avoid the accident, but that he squandered it as a result of his own negligence.  He had the statutory right of way at the intersection, but he was driving at an excessive speed and he did not exhibit the standard of care of a reasonable driver in approaching the intersection, to observe and respond to what the MacDonald vehicle was doing.  In the result the court found that, but for Richer’s negligence, the accident, even though primarily put in motion by the actions of MacDonald, might still have been avoided.  It is on this basis that the court apportioned 20% of the liability for the accident to Richer and the City of Ottawa.

On another level, this case squarely focuses the attention of all municipal governments on the need to ensure proper policies, manuals and training programs are in place to inform and educate employees about the duty of care that rests on them to discharge their duties professionally in order to avoid negligence claims.  Equally importantly, the policies, manuals and training programs need to be routinely monitored, evaluated, amended where prudent, and consistently enforced by the municipality. A solicitor knowledgeable and experienced in municipal law can be of great assistance in dealing with these matters.

Hole v. Hole, 2016, ABCA 34

andrew-montgomery-lg

Hole  v. Hole is a recent decision from the Alberta Court of Appeal.  The case highlights a number of the key principles of contract interpretation and showcases what can go wrong when contractual documents are not worded clearly and precisely.

All parties in Hole were family members.  The individual appellant was the father of two of the individual respondents, uncle to a third and brother to the fourth individual respondent. All parties were equal shareholders in a company registered as Lockerbie and Hole Western Ltd.  As such, the appellants held a 20% interest in the company and the Respondents together, held the remaining 80%.

By agreement, the shareholders and directors of Lockerbie and Hole Western Limited had a mandatory retirement clause.  Any individual shareholder, within one year of attaining 60 years of age, was required to sell their shares to the remaining shareholders, and cease acting as a director of the company.

In 1991 the appellant J.F. Hole (“JF”) was instrumental in bringing a major piece of business to Lockerbie.  JF was a shareholder of Westcan Malting Ltd., the malting plant Lockerbie was constructing, and he was chairman of Westcan’s board.  In addition, however, JF was beyond the mandatory retirement age of 60 and all indications were he intended to remain active in Lockerbie as a shareholder and director.  With the express intention of addressing the retirement issue, the individual respondents drafted a specific retirement agreement (the “Retirement Agreement”) designed to encourage and facilitate JF’s retirement. The evidence indicated this Retirement Agreement went through 20 drafts before it was considered to be in final form and ready for execution.  The Retirement Agreement contemplated the redistribution of JF’s interest in Lockerbie upon his retirement. The Agreement further recognized JF’s share in the Westcan malt plant project at $1.6 million. Upon execution of the Retirement Agreement, JF was to receive a partial payment of $600,000 toward his $1.6 million share of the Westcan profits.

Integral to securing J.F. Hole’s signature on the Retirement Agreement, was a Letter of Understanding and Obligation for Payment of One Million Dollars (the balance required to satisfy JF’s full share of the Westcan profits) that the individual respondents also entered into along with the Retirement Agreement .  The $1 million balance was secured by a “non-callable promissory note” that was the subject of the Letter of Understanding (the “LOU”).

Not long after the execution of the new Retirement Agreement the relationship amongst the individual respondents began to unravel and collateral trouble began for JF.  The result of the trouble amongst the individual respondents is that Lockerbie and Hole Western Ltd. became defunct and two new companies were set up by three of the four individual respondents.  By 2000, JF had received no payment on the promissory note.

Notwithstanding repeated inquiries and demands, JF was not paid anything, nor was he permitted access by the respondents to the financial records of the two new companies through which the individual respondents were operating.  A court action was commenced by appellants in 2001, suing on the non-callable promissory note.  The respondents took the position the LOU was not intended to be a binding enforceable agreement and that they owed nothing to the appellants.

At trial, the court found for the respondents and ruled against the appellants.  The basis for the ruling in favour of the respondents was, firstly, that the evidence of the parties was in such conflict as to the intent of the LOU, that it was generally void for uncertainty.  The court found there was no objective way to evaluate and weigh the strongly competing interpretations and understandings of the LOU held by the respective parties.

Secondly, the trial judge found that certain specific phrases in the LOU lacked the requisite certainty to establish a legally binding relationship.  For example, the phrase “non-callable promissory note” was not defined. There was no agreement amongst the parties as to what it was intended to mean, and there was no independent or acknowledged business meaning to the phrase.  Other phrases of the LOU were similarly found by the trial judge to be incapable of certainty as to meaning.

Finally, the trial judge found the action to be statute barred as it was determined to have been filed outside the six year limitation period under the Alberta Limitation of Actions Act.

The end result was that the LOU was determined by the trial judge to be unenforceable on the basis it did not create and was not intended to create a legally binding agreement.

On appeal to the Alberta Court of Appeal, the court relied on a number of principles of contractual interpretation stated and confirmed by the Supreme Court of Canada in Sattva, Capital Corp. v Creston Moly Corp 2014 SCC 53 (CanLII) in overturning the trial judge’s decision.

The appeal court found that the trial judge applied incorrect principles of contract interpretation by taking into consideration the subjective intentions of the parties as stated after the LOU was signed.  Such intentions, under Sattva, are considered irrelevant to the interpretation of the LOU.  A decision at trial based on irrelevant considerations was considered an error of law on the part of the trial judge and thus subject to being overturned by the appeal court.

The court of appeal further re-stated the well established principle that the courts should generally choose an interpretation of a contractual agreement which promotes a sensible commercial result and ignore an interpretation which essentially renders the agreement void of clear intents and objectives.  The trial judge’s decision was found by the appeal court to have accomplished the latter and subject, therefore, to review and to being overturned.

As to the trial judge’s finding that the time limit within which the appellants were required by statute to commence their lawsuit had expired, the court of appeal also determined the trial judge to be in error.  The law is well established that the running of the limitation period for breach of contract commences at the time the breach occurs.  Put another way, the limitation period is said to begin running when the party claiming breach knew or ought to have known about the breach.  In Hole, even if the respondents were considered to have repudiated the contract with the appellants as early as 1994, the law expressly holds that the appellants were not obliged to accept the repudiation.  The appellants had the option of refusing the repudiation and treating the contract as continuing in full force.  The court of appeal further found that the appellants had clearly demonstrated, as late as 2000, that they considered the contract to be continuing in full force and effect when they demanded again that the respondents fulfill their obligations under the contract.

In overturning the trial judge’s decision in favour of the appellants, the court of appeal highlighted several key principles of contractual interpretation:

  1. Oral evidence of the parties to a written contract, that is diametrically opposed and which contradicts the express terms of a written contract, is not admissible and will not be considered by a court in interpreting a written contract;
  2. Uncertainty of terms in a written contract can be fatal to its enforceability but the court will generally look to an interpretation that makes commercial sense and reject an interpretation that does not;
  3. If there is ambiguity in a written contract, such ambiguity will be construed against the party that drafted the contract; and,
  4. A party  not in breach of a contract always has the choice of considering the contract at an end and suing for damages or, treating the contract as continuing in full force and effect and requiring the party in breach to fulfill all of its obligations under the contract.

 

 

 

 

 

 

Non Profit Law News

Gribbon v. Revolving Door Training Centre Inc., 2000 CanLII 1544 (NS SC)

andrew-montgomery-lg

Gribbon is a Nova Scotia Supreme Court case which offers valuable insight into the special nature of the employer/employee relationship in those cases where the employer serves a vulnerable clientele who are disabled, either physically, mentally or both.  It also highlights the fiduciary obligations of employees and employers who work with vulnerable clientele.

Revolving Door Training Centre Inc (“Revolving”) is a non profit society operating a training and employment centre for mentally and physically handicapped adults in Annapolis County.  Larry Gribbon (“Gribbon”) was a qualified carpenter/instructor who commenced work with Revolving in 1983 and continued working there until he was dismissed in the Spring of 1996.  Mickey Lunnon (“Lunnon”) was severely handicapped physically and mentally as a result of a serious motor vehicle accident when he was a young child.  Lunnon was a client of Revolving at the time of Gribbon’s termination.  The termination arose from an incident between Gribbon and Lunnon in February of 1996.  At the time of the incident Lunnon was a young man.  Gribbon was terminated for cause as a result of the incident.  He commenced an action against Revolving for wrongful dismissal.

One of the very interesting features of this case is that Lunnon was not able to give oral evidence in court, not only because of his disability, but because the court determined, based in part on medical evidence, that giving evidence under oath and being subjected to cross examination would place undue emotional strain on him.  Justice Gruchy stated in his decision: “I was convinced that such testimony would be traumatic for him and would serve little purpose”.  Instead, the court admitted a prior statement made by Lunnon as part of Revolving’s investigation at the time of the incident.  It is only under rare circumstances that the court will not require a witness/complainant to testify orally in open court.  Where witnesses are very young or, as in this case, vulnerable to damaging trauma, the court may permit a witness’s evidence to be admitted through a written statement or even in other ways that might, under normal circumstances, constitute hearsay.

Gribbon’s version of events on the day in question were diametrically opposite to Lunnon’s statement which indicates he had been struck by Gribbon either in the neck or the buttocks.  Fortunately, Justice Gruchy was not left only with the competing evidence of Gribbon and Lunnon, though he states he preferred Lunnon’s evidence over that of Gribbon.  Another employee of Revolving happened to be in the shop that day and stated under oath he saw Gribbon “kick Lunnon in the butt”.

The court found that the physical altercation between Gribbon and Lunnon constituted an assault on the part of Gribbon and just cause for his summary dismissal.  The court further found on the evidence that there had been a history of inappropriate language and aggression used by Gribbon towards Revolving’s clients and that such behaviour was not to be tolerated, particularly in the context of a clientele who were highly vulnerable.

Behaviour that may be tolerated in certain workplaces, may not be tolerated in others and, as in Revolving, that behaviour may serve as just cause for summary dismissal.

 

 

 

 

Impact of employer’s financial circumstances on length of notice.

andrew-montgomery-lgMichela v. St. Thomas Villanova Catholic School, 2015 ONCA 801 Date: 20151123 Docket: C59979

Michela is a recent Ontario Court of Appeal decision dealing with the question of whether an employer’s financial circumstances are to be taken into account in determining the reasonable length of notice for the termination of an employee without cause?

The three employees who had been terminated by St. Thomas Villanova Catholic School had been employed with the School for thirteen, eleven and eight years respectively.  Domenica Michela, the eleven year employee, argued at trial that his reasonable notice period should be twelve months.  The trial judge reduced the notice period to six months specifically referencing the financial position of the School.  He stated: “I find that the notice period proposed is too long.  I point out that, if notice for 12 months is reasonable, the School will have to pay the same amount for these teachers as if they had remained on staff for the year that was upcoming.  Assuming that the other two teachers who were terminated maintained the same rights, it is not difficult to see that the School would be unable to reduce its prospective deficit by terminating staff it did not need. The law does not ignore the dilemma of the employer. The teachers should be taken to understand this aspect of their employment and, in this case, were made aware of the concern.  In this situation, I reduce the claim for notice by half, to six months.” [emphasis added]

The most fundamental question on appeal in Michela was whether an employer’s financial circumstances are relevant to determining the length of reasonable notice in the context of a termination without cause.  The Court of Appeal began its analysis stating that the nature and purpose of notice are well established.  It then stated the following legal principle: “….employment contracts for an indefinite period require the employer, absent express contractual language to the contrary, to give reasonable notice of an intention to terminate the contract if the dismissal is without cause.”  The Court went on to state that reasonable notice is intended to provide the terminated employee the necessary time to find replacement employment and that: “The calculation of the notice period is a fact specific exercise.”  The Court then outlined the well known Bardal factors (first stated in Bardal v. The Globe & Mail Ltd. (1960) 24 D.L.R.(2d) 140 (Ont.H.C.)) that are to be considered in determining reasonable length of notice including: the circumstances of the employee, the character of the employment, their length of service, their age, the availability of similar employment, their experience, training and qualifications.

The Court emphasized that the Bardal factors are concerned with the circumstances of the wrongfully dismissed employee and not with the circumstances of the employer.  While an employer in Canada generally has the right to terminate an employment relationship for financial reasons, those same financial reasons have no relevance in determining the length of the notice period for the dismissed employee.  An employer cannot use its financial circumstances to justify a reduction in the length of the notice period.  The Court of Appeal increased Michela’s notice period to twelve months.