Probationary Employee Dismissed: Out of Luck Says ON CA

Is a probationary employee entitled to wrongful dismissal damages?  Can an employer contract out of these damages?  Until now, most Canadian court decisions have held that even a probationary employee is entitled to wrongful dismissal damages.  The exception is where the employer uses a properly worded contract.  Generally, the contract must specify the length of the period and what, if anything, the employee will be paid if dismissed during the probationary period.  An employee must be paid at least one week’s damages if the probationary period is longer than three months, since that is the amount specified by the Ontario Employment Standards Act, 2000.  But the contract must specify how much the employee will be paid if dismissed after three months, while still on “probation.”

Surprisingly, this was not the conclusion of the Ontario Court of Appeal in a recent decision.  In Nagribianko v. Select Wine Merchants Ltd., the Court reviewed a case that had been to the Ontario Small Claims Court and the Divisional Court.  The employee had signed a contract that referenced a six month probationary period.  But the contract does not appear to have specified a payment that the employer was required to provide if dismissed after the first three months.  This should have made the contract null and void in accordance with the Supreme Court of Canada’s powerful decision in Machtinger v. HOJ Industries Ltd. [1992] 1 S.C.R. 986.

The employee had worked for the employer for just less than six months.  He was dismissed on a without cause basis.  He sued for damages and was awarded four months’ compensation in the Ontario Small Claims Court.  The judge ruled that he had been induced to join the employer and that the clause did not effectively oust the employee’s common law entitlement.  This seems consistent with most of the case law.

The Ontario Divisional Court reversed the decision and held that the trial judge had failed to give effect to the probationary language.  The Ontario Court of Appeal upheld the Divisional Court’s decision and held that the term “probation” was not ambiguous. It ruled that “probationary status enables an employee to be terminated without notice during the probationary period if the employer makes a good faith determination that the employee is unsuitable for permanent employment, and provided the probationary employee was given a fair and reasonable opportunity to demonstrate their ability.”

The Appeal Court went on to conclude that the employer could not contract out of the minimum standards required by the Ontario Employment Standards Act, 2000 and that therefore the employee was entitled to one weeks’ pay, which the employee received, even though this one week’s pay was apparently not specified in the contract.

This analysis all would have been correct if the contract had specifically stated that the employee could be dismissed after three months but before six months with the payment of one week’s pay and the continuation of one week’s benefits.  However, if the contract did not say that specifically, it should have been viewed as a contract that would violate the common law case law as set out in Machtinger v. HOJ.  The contract appeared to specify that the employee could be dismissed at any time during the six months as a probationary employee with no notice or payment.  The fact that the employer paid the minimum one week’s compensation required by the ESA 2000 ought not to have fixed a poorly drafted contract.

Here, in contrast to the Brake v. PJ-M2R Restaurant Inc. that I looked at last week, the Ontario Court of Appeal weighed in heavily on the side of employers and was quite unsympathetic to what should have been a reasonable employee claim.  The decision is good news for Ontario employers, even those with poorly drafted contracts, who may now find it easier and cheaper to dismiss probationary employees.  The decision also demonstrates, as I indicated previously, that the outcome of a case at the Ontario Court of Appeal may well depend on the particular panel that is hearing the decision.  In this case, justices LaForme, Hourigan and Paciocco have issued a ruling that strongly favours employers and provides quite the contrast with the previous decision that I examined in Brake v. PJ-M2R Restaurant Inc., which went the other way.

Other recent Ontario Court of Appeal decisions have also gone in different directions and I will review two or three more of them in coming blogs.  The most significant take-away is probably a strong measure of uncertainty, which underscores the risks inherent in civil ligation and, particularly, in employment law cases.

Deficient Notice Clause Upheld by Ontario CA in Dismissal Case

A recent decision of the Ontario Court of Appeal, involving a deficient notice clause, illustrates the perils of attempting self-representation in a wrongful dismissal case.  In the case of Musoni v. Logitek Technology Ltd., the case appears to have been decided without some of the key arguments relating to the validity of employment contracts even being raised.

The plaintiff worked as a customer support agent from October 2005 to March 6, 2008, a total of about 2 1/2 years.  Six months after the plaintiff began his employment, he signed an employment agreement.  The agreement included a clause which provided for fifteen days’ notice in the event of dismissal.

The plantiff was dismissed and was provided with two weeks’ severance.  He did not accept this amount and sued for $70,000 in wrongful dismissal damages.

At trial, the plaintiff noted that he had not obtained legal advice at the time he signed the contract.  However, he apparently agreed at trial that the agreement was “valid and in force.”  (This is really a legal conclusion rather than a factual matter).   Instead of arguing that he was owed more notice – and that the employment agreement was not valid, the plaintiff alleged the defendant had dismissed him for improper reasons, relating to his record of offences.

The trial judge concluded that since the plaintiff was dismissed on a “without cause” basis, he was only entitled to the minimum amount provided for in the employment agreement.  The reason for his dismissal was held to be irrelevant.  The lawsuit was dismissed and the plaintiff was ordered to pay the defendant’s costs in the sum of $5,012.

The plaintiff appealed to the Court of Appeal and represented himself once again.  The Court of Appeal upheld the employment contract and dismissed the case, ordering the plaintiff to pay another $3,500.

The striking aspect of this case is the arguments that do not appear to have been put before the trial judge or the Court of Appeal or considered by one of the two levels of court.

Firstly, the employment agreement  that the defendant relied upon was provided to the plaintiff six months after he commenced employment.  There is no suggestion in the trial decision that any new consideration was provided to the plaintiff.  Based on a number of cases that have previously been decided by the Ontario Court of Appeal, the employment agreement should have been thrown out for lack of consideration (See for example Hobbs v. TDI Canada Ltd.) Interestingly, one of the Court of Appeal judges who sat on the panel that decided Hobbs v. TDI Canada Ltd., Justice MacPherson, was on the panel in this case of Musoni v. Logitek Technology Ltd.  Yet there is no mention of any consideration argument.

Secondly, even if the employment agreement had been provided to the plaintiff in exchange for some new consideration, it contained a clause that provided for only 15 days notice.  If the plaintiff had been working for the defendant for three years, this 15 days would have been less than the minimum notice required under the Ontario Employment Standards Act, 2000 (21 days rather than 15).  At four years, it would have been significantly less, no matter what type of calculation is used.  These types of clauses that will eventually amount to less than the minimum amount required by statutory provision have been held to be void by Canadian courts.  (See, for example Shore v. Ladner Downs, a decision of the B.C. Court of Appeal).

It seems likely that if this case had been argued properly, the plaintiff should have been entitled to between 3 and 6 months’ notice, based on his annual income of $47,000.  Instead, he wound up with 15 days’ notice and a bill for the defendant’s costs of more than $8,500.  The case is an illustration of a situation in which the courts will not come up with the proper arguments for the unrepresented plaintiff.  So the plaintiff is ultimately left with a brutal result and only himself to sue for professional negligence – for not having raised some key legal arguments that any competent employment lawyer would have put forward.

A final note: Given that the case was probably only worth three or four months’ compensation, the proper place for this case would have been Ontario Small Claims Court, which has a monetary limit of $25,000, rather than the Ontario Superior Court.  Ouch!

 

Breach of Fiduciary Duty and Non-Competition: Two Ontario Court of Appeal Decisions: Two Very Different Results.

The Ontario Court of Appeal has issued two recent decisions dealing with breach of fiduciary duty in an employment context.  In one case, GasTOPS Ltd. v. Forsyth (2012) ONCA 134, issued on March 1, 2012, the Court of Appeal upheld an award of almost $20M against a group of four former employees of GasTops.  In the second case, Veolia ES Industrial Services Inc. v. Brulé (2012) ONCA 173, issued on March 20, 2012, the Court of Appeal overturned a trial award of $465,000 that had been issued against Mr. Brulé, a former employee of Veolia.  Both cases provide some useful information about the nature of fiduciary duties in employment relationships and the potential costs of breaching these duties.

The GasTOPS case took seven years until it was completed.  There were 295 days of evidence spread over 3 years, with 70,000 pages of exhibits and 3,000 pages of written submissions.  It took the Court two years to produce the trial reasons, which were 668 pages in length.  The Court of Appeal heard the appeal in the matter over a period of four days and issued a 32 page decision.  One aspect of breach of fiduciary duty cases is that they can be very expensive and time consuming, regardless of who eventually wins.

The Trial Court had held that the four defendants were the designers of the core program of the GasTOPs products.  They were part of the senior management.  They all left to start up a new competing business together and took additional employees with them.  They then pursued “virtually every existing and potential GasTOPS’ customer, used the confidential information that they had obtained while at GasTOPS and also used GasTOPS’ technical information.  In short, they took virtually the whole of the business from GasTOPS and used it in their new venture.  In their first three years of business, nearly 80% of their business came from GasTOPS’ clients.  The Court ordered 10 years of lost profits against these four defendants and their new company.   The Court of Appeal had little difficulty upholding the finding that all four employees were fiduciaries, that 10 years was a reasonable time period for measuring damages and that the four defendants were jointly and severally liable.

The other decision issued by the Court of Appeal very different.  Mr. Brulé had been the acting CEO of Veolia ES Industrial Services Inc., a company that he had originally founded and then later sold.  He had an employment contract with Veolia that contained a non-competition provision.  The clause was poorly designed and did not wind up providing the protection that Veolia thought it had.  Mr. Brulé resigned from Veolia and provided notice of resignation as he was required to do.  On his way out the door, he made copies of company binders which contained various tenders and bids for public projects.  A few months later, he successfully bid on a project with the City of Ottawa with his new company.  Veolia sued for breach of fiduciary duty.

At trial, Veolia was awarded $465,000 plus costs against Mr. Brulé.  The Trial Court held that the poorly worded employment contract should be “blue-penciled” and fixed in a way that seemed to reflect the parties’ intention.  It ruled that Mr. Brulé was subject to a two year non-competition agreement and that he had breached it.  On appeal of this issue, the Ontario Court of Appeal overturned this finding.  It referred to the Supreme Court of Canada decision in KRG Insurance v. Shafron and underscored the fact that Canadian courts will rarely “blue-pencil” non-competition agreements.  Since the agreement could not be “fixed,” Mr. Brulé had not breached any agreement.

The Trial Court also held that Mr. Brulé breached his fiduciary duties.  Since he took the binder and since he bid on the City of Ottawa project without telling his former employer, the Trial Court found him liable.  The Court of Appeal overturned both of these findings.  It held that the binders were filled with public documents and there was no proof that Mr. Brulé had taken or used anything that was confidential.  Moreover, it emphatically stated that he had no duty to his former employer to tell them that he was bidding on a project against them.  In short. unlike in the GasTOPS case, Mr. Brulé did not take a big chunk of his former employer’s business.  He entered into a bidding competition and won it fairly, without breaching any duties.  The Court of Appeal fully overturned the award of damages and ordered that Veolia pay Mr. Brulé’s legal costs.

Either or both of these cases may yet be appealed to the Supreme Court of Canada.  But they each provide different information about the nature of fiduciary duty claims and non-competition issues.  Where an employee or group of employees takes confidential information, uses it and competes unfairly against a former employee, significant damages may be awarded.  But where an employee, even a very senior employee, leaves and winds up competing against his or her former employer, that is not a breach of fiduciary duty on its own.  There must be some proof that the employee has misused confidential information that belonged to the former employer.

Vulnerable Employees Need Protection

This Article appeared in The Lawyers Weekly on December 24, 2004

The Ontario Court of Appeal has emphatically confirmed that an employment contract signed without new consideration is invalid.  In doing so, the Court has produced another addition to a growing line of strongly worded decisions that emphasizes the need to protect vulnerable employees.

In Hobbs v. TDI Canada Ltd., released on December 1, 2004, the Court limited the application of Techform v. Wolda (2001), 56 O.R. (3d) 1 (C.A.) and reaffirmed its decision in Francis v. CIBC (1994), 21 O.R. (3d) 75, which held that an employment contract that is presented to an employee and signed after the employee begins new employment is unenforceable unless some new consideration is provided.

The successful appellant in the most recent decision, Alan Hobbs, was a salesperson, selling transit advertising.  When his old company lost its major source of revenue, the successful bidder – the respondents – offered him a position to work with his old clients.  Hobbs had oral discussions with the respondents – who agreed to pay Hobbs certain negotiated commission rates.  Shortly afterwards, the respondents provided an offer letter that offered a draw of $60,000 against commission, with details on the rates to follow.  On the basis of that letter, Hobbs quit his old job and agreed to join TDI.

A few days after he started working for TDI, Hobbs was presented with a new document, an employment contract, which he was told was “non-negotiable.”  The document set out a range of terms relating to calculation of commissions including terms that limited TDI’s obligation to pay commissions in the event that Hobbs resigned or was dismissed.  Having already left his old employer and having started work for his new employer, Hobbs signed the new document.

After a number of months, Hobbs began asking TDI when he would be paid commissions owing.  He was only being paid a draw and a monthly car allowance and was growing impatient waiting for a reconciliation.  Hobbs quit his employment with TDI and asked for a reconciliation of commissions against draw.

Relying on the new document, the “employment contract,” TDI maintained that Hobbs was only entitled to be paid commissions if his full annual draw was exceeded – even though he had only worked for 5 months.  TDI refused to pay Hobbs commissions on his actual billings weighed against the draw that was actually paid to him.  Hobbs sued for commissions owing on the $3.1 million worth of sales that he had sold for TDI, which all agreed was subject to commission of 6%.

At trial, Justice Peter Jarvis of the Ontario Superior Court dismissed the action. ([2003] O.J. No. 2646])  Justice Jarvis held that the new document that Hobbs signed after starting work with TDI was a “second installment” of the contract.  He held that since Hobbs had read and signed the contract, he was bound by it even though it was only provided to him after he started work and even though it contained “onerous” terms.

In his reasons, Justice Jarvis also held that the Court was bound by Techform v. Wolda and that forbearance from dismissal is adequate consideration in this type of situation.  The Court also relied on a 1935 Supreme Court of Canada decision, Maguire v. Northland Drug Co. [1935] S.C.R. 312, which arrived at the same conclusion.

In overturning the trial Court decision, the Ontario Court of Appeal rejected the two installment analysis.  It held that Hobbs had not been shown the “second installment” and had no way of anticipating its onerous terms.  The second document was only provided to Hobbs after he started working and therefore required some new consideration if it were to be enforceable.

The Court of Appeal then considered whether Hobbs was provided with any such new consideration.  In distinguishing Techform v. Wolda, the Court noted that there was no evidence in Hobbs’ case that the respondent TDI wanted or intended to terminate Hobbs’ employment prior to having him sign the second document.  Although TDI may have told him that he had to sign the document to keep his job, there was no explicit or tacit promise of forbearance from dismissal.  The Court therefore ruled that there was no consideration and the agreement was unenforceable.  The Court held that Hobbs was entitled to $52,779, the amount billed and collected up to the effective date of his resignation.

Finally, the Court of Appeal reiterated the proper procedure for having employees sign standard form employment contracts – which had been set out by Madam Justice Weiler in Francis v. CIBC:

Employers should state “in the original offer of employment that the offer is conditional upon the prospective employee agreeing to accept the terms of the employer’s standard form of agreement, a copy of which could be enclosed with the offering letter.”

In light of the Court’s most recent decision, anything short of this procedure will jeopardize the enforceability of any newly imposed employment contract in the absence of fresh consideration.

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