Just in time for the new millennium, Canadians have received some encouraging economic news that will undoubtedly boost perceptions of job security. Unemployment in Canada has reached a low of 6.9%, the lowest jobless rate in decades. The Canadian economy has been booming, leading to the creation of almost 400,000 new jobs over the past year. Many employers have begun hiring for new full-time positions after years of cutbacks.

The U.S. economy has been fueling much of this growth. In the U.S., the jobless rate hit 4.1%, a remarkable low. Although these figures are calculated differently in the U.S., the low unemployment rate is quite impressive.

The recent unemployment rates sound promising but they do not provide the complete picture. Even in times of relative prosperity, more than one million Canadians are still without work. For those out of work, fewer are eligible to collect Employment Insurance benefits as a result of the 1997 changes enacted by the federal government.

For those who are working, signs are encouraging. Canadians are far more optimistic about their jobs than they were in the mid-90s. Although some Canadians feel that their skills are underutilized, recent studies show that Canadians have a greater sense of security about their jobs than do their American neighbours.

One of the primary reasons for the higher job morale in Canada is the legal system. Canadians in non-unionized jobs know they will be given reasonable notice of termination unless their employer can show “just cause” for dismissal. Although there is no set formula to calculate the amount of notice required, the law provides some assurance of fair treatment.

U.S. employment law is completely different. In most U.S. States, employees are employed “at will.” They can be let go at any time without notice or pay, for any reason. Although there are many ways around this general rule, the end result is that American employees can usually be dismissed with much less notice or pay than their Canadian counterparts.

While Canadian employment law appears far more compassionate than U.S. law, other countries provide even greater protection for employees. Many Canadians do not realize that, even at the end of the twentieth century, an employer does not need a reason for firing an employee, as long as proper notice is provided. This comes as a great surprise to many who have been terminated. Even though they have been offered a package, and maybe a reference letter, they cannot understand why they must suddenly begin a job search.

Jack Wallace faced this difficult life experience. He worked for the United Grain Growers for 14 years. He was the top sales person in the company. Without any justification, the company fired him and then refused to provide him with a fair settlement. Wallace’s case went all the way to Supreme Court of Canada and has become one of the most important decisions of the 1990s.

The Supreme Court of Canada rejected the idea that Canadians have an unconditional right to be treated fairly by their employers. Companies may make the decision to terminate for any reason. As long as there has been no discrimination, the decision cannot be questioned. The only requirement is that the company pays the employee the proper amount and treats the employee fairly during the dismissal process.

Canadians can take some comfort in having a greater sense of job security than Americans but many still feel that the system falls short. For example, the United Nation’s Universal Declaration of Human Rights includes the right to work and the right to protection against unemployment.

Some Canadians have legal protection that approaches this U.N. standard. Unionized workers can only be fired for just cause. Otherwise, job security increases over time with seniority. Although Unionized employees face difficulties such as strikes and labour disputes, a unionized job includes a higher measure of protection.

Canadians who work in federally regulated industries such as banks or airlines also have special protection. They can file an unjust dismissal complaint under the Canada Labour Code. After a hearing, they can even be returned to their old positions. In some ways, this also approaches the U.N. standard.

For the majority of Canadians, there is no right to a job. Job security depends on many factors such as performance, the economy and the good faith of the employer. Canadians are still vulnerable. After years of loyal service, employees may still be dismissed suddenly for no reason other than “reorganization.” This uncertainty leads to ever increasing workplace stress.

The level of legal protection we enjoy greatly affects our sense of job security and our stress levels. As we move into the new millennium, legal protection of job security will evolve. Fairness and good faith must become part of every employment relationship. This dramatic change will enhance our job security and elevate our overall sense of self-worth.

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.

But although some of us would love to do what Greg Smith did on March 14, 2012 (NY Times Op Ed “Why I am Leaving Goldman Sachs”), is this useful from a Canadian employment law perspective?  Usually, the answer is no.

For starters, many departing employees leave as a result of a restructuring, downsizing or lay-off.  Others leave with a reasonable case for constructive dismissal and are hoping to get a decent severance package.   In either of these situations, the severance negotiations have often not yet been completed by the date of departure.  Not surprisingly, angry and upset employers often become less interested in providing generous financial compensation.   A departing employee who sends this type of letter or memo only to a handful of very senior company officials may well have significant leverage.  Particularly if the complaints are perceived as meritorious.  But once the letter has been publicized, the leverage is often diminished.

This type of action is also not likely to ingratiate many potential employers.  If an 11 year, senior employee, is willing to attack his former employer so vigorously and so publicly, what will he do to us, might be the line of thinking.  The world is often smaller than we might have thought.  Many employers are not interested in hiring a perceived trouble maker who is so willing to attack his or her former teammates.

Of course there may well be competitors interested in someone who is so willing to help damage a rival organization.  That new organization may even be willing to indemnify the new hire against any potential lawsuits whether for defamation, slander or other tortuous conduct.  Maybe they will also pay a signing bonus to make up for lost severance.  But in my experience, very few departing employees are so sought after that this type of letter would assist their post-employment career.

Perhaps, for Greg Smith, his self-described lofty integrity may well facilitate the success of his next position, if it is perceived as believable.  But in Canada, far too often, widespread attacks on employers by departing employees tend to harm the employee as much, if not more, than the employer.

There are clearly circumstances in which people should act and might even have a responsibility to do so. For example, if a person has been the victim of harassing or discriminatory conduct; or has witnessed or been asked to participate in illegal or inappropriate conduct; or is being subjected to treatment that would constitute constructive dismissal.  In all of these cases, it would make sense to make vigorous legal demands, which could even lead to a public lawsuit and other legal proceedings.  But complaints about a company’s leadership, direction and culture are of a different nature and might lead readers to question the real motives for the complaint.

For Canadians who are financially independent and are not at all concerned about what they might do next or whether they even need to work, this kind of letter can be fun to write and very cathartic.  But for the vast majority who are not in that position, the downside of this type of approach will often outweigh the fleeting sense of satisfaction.  As an employment lawyer, I would have to suggest that departing employees think very carefully and perhaps even get legal advice before hitting the send button on that scathing email, memo or letter.

Linda Fraser had worked for UBS for more than 20 years.  She became ill after a holiday and was off work for six months on short term disability leave.  She tried to return to work but was unable to do so due to her illness, which had become more severe.  She went off again on short term disability leave for another six months.  After her second leave, Ms Fraser was off for a two year period on long term disability leave.

Most LTD policies change after two years.  For the first two years, Ms Fraser was required to show that she could not perform the duties of her employment, meaning the specific job that she had with UBS.  After two years, she was required to show that she could not perform the duties of any gainful occupation.  The insurer cut Ms Fraser off benefits when the definition changed and Ms Fraser sued the insurer to challenge that decision.  The lawsuit was totally separate from her wrongful dismissal case.

From UBS’ perspective, Ms Fraser’s disability coverage ended even though she was suing the insurer.  She was off work and no longer in receipt of benefits for a period of five months.  She did not keep UBS informed about her status.  After five months, UBS wrote to Ms Fraser and stated that her employment was being terminated.  It paid her out 8 weeks’ notice pay and 22 weeks’ severance pay under the Ontario Employment Standards Act and continued her extended health benefits for three more months.  Ms Fraser did not accept this decision and sued for wrongful dismissal.

At trial Justice Wein of the Ontario Superior Court reviewed the law of “frustration” and concluded that it applied in this case.  Ms Fraser was found to be “permanently disabled.”  The Court held that she is “totally disabled and her disability is permanent such that she will never be able to work again.”  As a result, the employment contract had ended and UBS was not required to provide any further payments.  The wrongful dismissal lawsuit was dismissed.

For employees in Ontario, the case is a reminder that employees have an obligation to keep their employers updated as to their status when they are off on a sick leave.  If disability benefits are cut off, they must provide information to their employers about their proposed actions.  If it becomes clear that the employee will not be able to return to work again, the employer may be able to conclude that the employment relationship has ended.  This will not necessarily lead to a viable wrongful dismissal lawsuit.

For employers, this type of decision is rare.  If the employee can show that he or she simply required more time to recover and kept the employer informed, the employer will not necessarily be able to rely on “frustration.”  The situation may also be different where the employee continues to receive LTD benefits.  Employers looking to rely on “frustration” will need to be reasonably sure that the employee will not be able to return to work for the foreseeable future.

This questions was answered recently by the Ontario Court of Appeal in the case of Bowes v. Goss Power Products Ltd., a decision issues on June 21, 2012.

Peter Bowes had a written employment agreement with his employer.  The contract stated that he would receive six months’ notice or pay in lieu of notice if his employment was terminated without cause “prior to the completion of forty-eight (48) months from commencement.”  The contract said nothing about mitigation or about timing of the payment.

Mr. Bowes was dismissed without cause and he was able to find new employment after only two weeks.  His employer paid him out three weeks’ notice as required under the Ontario Employment Standards Act, but then refused to pay out the rest of the amount specified in the employment agreement.  Mr. Bowes was forced to file a lawsuit.  He was unsuccessful initially and then appealed his case to the Ontario Court of Appeal.

The Court of Appeal reviewed the case law dealing with mitigation of damages in these circumstances.  It emphasized that an employer and employee can fix an enforceable notice period which provides some certainty to both parties.  It may well be a lower amount than the employee would have otherwise been entitled to receive under common law.  However, by doing so, the employer gives up the right to the benefit of mitigation if the employee successfully mitigates damages.

In particular, the Court of Appeal stated the following, quite emphatically:

1.  “A fixed term of notice or payment in lieu is not equivalent to common law damages for reasonable notice.” and

2.  Payment in lieu of a fixed term of notice, being liquidated damages or a contractual amount is not subject to a duty to mitigate;

The Court of Appeal stated that it is unfair of an employer to draft an employment agreement with a set severance term, that is less than the employee might have had under the common law, and then try to get out of it at the point of dismissal by informing the employee “that future earnings will be deducted from the fixed amount.”

The Court decision, written by Chief Justice Winkler, on behalf of a unanimous Court of Appeal, concludes:

“Where an agreement provides for a stipulated sum upon termination without cause and is silent as to the obligation to mitigate, the employee will not be required to mitigate.”

In the present case, Mr. Bowes was awarded the full six months’ pay, as specified in employment contract, despite the fact that he found other work quickly.

This is a very important decision for Ontario employees as it clarifies an area in which there had been mixed case law.  The Ontario Court of Appeal has stated very clearly that employers must pay out fixed contractual severance amounts, even if the dismissed employee finds new employment quickly – unless the employment agreement very clearly states otherwise.

Employers can still use contracts that include mitigation provisions but these provisions must be included in the original employment agreement and must meet all of the other normal conditions of enforceability.

The Ontario Court of Appeal released its decision on August 17, 2012 in the case of Bennett v. Cunningham, as the third (and maybe final) of a series of progressively higher Court judgments in this crazy dispute between two family lawyers.  In doing so, the Court of Appeal upheld a Superior Court decision from 2006 in which Ms Bennett’s wrongful dismissal law suit had been dismissed.  After such a long, protracted dispute over a relatively small amount, it appears that the lawyers for both sides are the big winners.

The plaintiff, Dawn Bennett, was a junior family lawyer with limited experience. She began working with the defendant, Karen Cunningham, as an associate lawyer in a small law firm in Mississauga in the summer of 2002.  The arrangement was a commission based arrangement where Ms Bennett would be paid a percentage of amounts that were billed and collected.  Ms Bennett would work regular hours, in an office provided by Ms Cunningham and would have minimal expenses to look after even though she would be treated as an independent contractor.

Shortly after joining the firm, Ms Bennett had a number of complaints about the way the office was run.  According to the Trial Court Judge, some of these issues were addressed.  However, Ms Bennett was not actually getting paid for fees that she was docketing and billing, which was causing her financial difficulties and she became quite concerned about this.

Ms Bennett decided to write a four page letter which she handed to Ms Cunningham on December 21, 2002, just as Ms Cunningham was leaving for a vacation.  She also sent a copy by registered mail, even though she knew that Ms Cunningham would be away.  The letter included a litany of complaints, including a suggestion that Ms Cunningham was “dishonest and negligent” in her docketing practices.

Ms Cunningham returned from vacation and fired Ms Bennett for “just cause.”  Ms Bennett sued for wrongful dismissal.

The parties could not resolve the dispute and conducted a six day trial.  They fought over whether or not Ms Bennett was an employee or an independent contractor.  The Trial Court had little difficulty concluding that the relationship was an employment relationship, or at least an “intermediate” relationship and that Ms Bennett would be entitled to reasonable notice if she was dismissed without cause.

They also fought over unpaid commissions owing, although Ms Cunningham eventually conceded that she owed Ms Bennett about $18,000 in billings that had not yet been paid to Ms Bennett.

Neither of these findings was disturbed by the higher Courts.

But the major issue in dispute was wrongful dismissal.  The Trial Court judge held that the relationship had been irreparably damaged by Ms Bennett’s “insolence” and that there was just cause for dismissal.  On appeal, the Ontario Divisional Court, in 2011, overturned that ruling and held that Ms Bennett’s conduct did not amount to just cause.  On further appeal, in the decision released in August 2012, the Ontario Court of Appeal restored the original Trial Court ruling.  It held that the decision of the Trial Court judge was mainly a finding of fact and that the judge was best situated to make that decision.   It held that the Trial Court judge had reviewed the evidence fully and was entitled to draw the conclusion that Ms Bennett’s conduct was sufficiently inappropriate to warrant a “just cause” finding.

It is noteworthy that even if Ms Bennett had won, she would have only been awarded about $17,000 in wrongful dismissal damages because she had found new employment within a few months.  This is what makes it even more bizarre that the parties spent so much time, energy and money fighting over this case.

So after 9 years of this heated dispute, Ms Bennett wound up with an award for about $18,000 in billings owing to her (plus interest on that amount) and some of her legal costs paid for the trial.  On the other hand, she lost her wrongful dismissal case and wound up owing legal costs to Ms Cunningham for the Appeal.  She also wound up with a harsh public decision about her conduct as an Associate lawyer.

The case is really an example of how parties can become involved in a legal dispute in which legal fees amount to far more than the value of what either side can achieve.

More importantly, the case is a very serious warning message to employees who are thinking of writing complaint letters to their employers.  Employees should be very careful not to use incendiary, harsh or accusatory language, especially if they cannot support the allegations they are making.  Employees should be particularly careful not to accuse their employers of “dishonesty,” “negligence” or other forms of inappropriate conduct unless they can really back up these accusations.  Even then, this type of letter should only be a last resort after other ways of addressing problems have been exhausted.

Perhaps, most importantly, employees should run this type of complaint letter by a lawyer first before sending out an ill conceived letter that could very well result in a just cause dismissal.

On Friday October 19, 2012, the Supreme Court issues its long awaited decision in R. v. Cole, a case involving the possession of child pornography by a teacher on a work issued computer.  While this is primarily a criminal law case rather than an employment case, the Supreme Court made some key pronouncements about workplace privacy and, particularly, the privacy of computer data.

First, citing R. v. Morelli, a 2010 decision, the Supreme Court reinforced the notion that Canadians have a high expectation of privacy in their own personal computers.  The Court also noted that computers contain information that is “meaningful, intimate and touching on the user’s biographical core.”  It concluded that “vis-a-vis the state, everyone in Canada is constitutionally entitled to expect privacy in personal information of this kind.”  However, the Court also concluded that workplace policies and practices can “diminish an individual’s expectation of privacy in a work computer.”  Here, Mr. Cole only had a “diminished expectation of privacy” of his personal computer.  The school had an “acceptable use policy” and Mr. Cole was aware of this policy.  Although the Supreme Court stated that it would “leave for another day” the issue of “the finer points of an employer’s rights to monitor computers issued to employees,”  here it concluded that the school principal had the right to seize and search a school issued computer if the principal had reasonable grounds for believing  that the hard drive contained compromising photos of a student.

The Court went on to distinguish between the school’s conduct and that of the police.  With respect to the police, the Supreme Court found that there had been a violation of the Canadian Charter of Rights and Freedoms in that Mr. Cole had been subject to an search that violated section 8 of the Charter.  However, a 6-1 majority of the Court held that the evidence should still be allowed, even though it had been gathered in circumstances that violated Mr. Cole’s rights, because of section 24(1) of the Charter which allows Courts to weigh the seriousness of the rights’ violation.  Only Madame Justice Abella would have excluded the evidence that was found to have been gathered in a way that violated Mr. Cole’s rights.

In a workplace privacy context, this decision contains some helpful language describing the importance of computer data for Canadian employees.  However, the ultimate result here is a diminished expectation of privacy for many Canadian employees.

Another recent case, in an entirely different context, is the case of Jones v. Tsige, a decision of the Ontario Court of Appeal.  This was a case addressing the right of an employee in Ontario to sue for “invasion of personal property.”  Here, in the context of a family dispute, an employee of the Bank of Montreal accessed another employee’s personal bank records illegally, numerous times.  The Court of Appeal held that there is a tort of invasion of privacy in Canada and focused on the tort of “intrusion upon seclusion,” which the Court of Appeal affirmed as an existing tort in Canada.

The Court referred to this developing tort as an “incremental step” in the common law.  The key features of the law are:

1.  The actions by the defendant must have been intentional or reckless;

2.  The defendant must have invaded the plaintiff’s private affairs or concerns;

3.  A reasonably person would regard the invasion as “highly offensive causing distress, humiliation or anguish.”

But, unless actual harm is demonstrated, the Court award will be a “modest conventional sum” with a randomly fixed “upper range” of $20,000, other than in exceptional cases where punitive damages should be awarded.  In this case, the Court of Appeal fixed the damages at $10,000.

How do we reconcile these two types of cases in the context of employee expectations of privacy?

If an employer searches an employee’s personal computer or other personal effects that happen to have been brought to the workplace,or otherwise, that will clearly violate the employee’s right to privacy and may fit within the tort of “intrusion upon seclusion.” Context will be important.

If, on the other hand,  the computer is a workplace computer, the employer may have the right to search the computer based on the overall context.  Some key considerations will be:

Was there a workplace policy in place giving the employer the right to search the computer? 

Was the employee aware of the policy?

Was the search reasonable in all of the circumstances?

Obviously, if the employer can demonstrate that it had the right to access the company issued computer, there would be no basis for a claim for “intrusion upon seclusion.”  If the answer to some or all of these questions is “no,” there may be a basis for an employee claim.

As the law continues to develop, Canadian employees should still be extremely cautious about using their workplace computers for any non-work related matters.  Employees are best off to try to keep their personal business to their own personal computers – whether used at home during non-work hours or on a break at the workplace.  Alternatively, employees can use their own personal devices such as smart phones or tablets.  Personal data that is on a workplace computer may well wind up being discovered and used by the employer for disciplinary or other purposes.

Although the law may eventually wind up developing greater legal protection in these circumstances, as of these two recent decisions, employees in Canada still have a diminished expectation of privacy for data contained on their workplace computers.

In a recent case of the Ontario Superior Court, Chevalier v. Active Tire & Auto Centre, a wrongful dismissal case brought by a 33 year employee was dismissed for failure to return to work.

The plaintiff, Earl Chevalier, a service centre manager with Active Tire, was placed on a lay-off with minimal notice and no compensation.  Mr. Chevalier wasted no time in suing Active Tire for wrongful dismissal two weeks after being dismissed.  He claimed that he could not be “laid-off” with no pay  and that this was a constructive dismissal.  In response to the lawsuit, Active Tire wrote to Mr. Chevalier, apologized and asked him to come back to work.  Mr. Chevalier elected not to return to work and instead proceeded with his law suit.

At trial, the Court agreed that Mr. Chevalier had been constructively dismissed.  Active Tire could not just lay him off with no notice after 33 years.  However, the main issue was whether Mr. Chevalier should have been required to return to work in these circumstances.  He argued that Active Tire had tried to “make his life miserable” in the period leading up to his dismissal and he therefore would have had to return to work in an atmosphere of “hostility, embarrassment or humiliation.”

After reviewing the evidence, the Court rejected Mr. Chevalier’s claims.  It held that a “reasonable person” would have returned to work in all of the circumstances.  Mr. Chevalier was not able to demonstrate to the Court that his workplace had become intolerable and he was therefore required to return.

If Active Tire had not called Mr. Chevalier back to work, the Court ruled that he would have been entitled to 16 months’ compensation – the time period it took Mr. Chevalier to find new employment.  However, the result in this case was that he was not entitled to anything and was required to pay legal fees to Active Tire, as well as his own.

This case is an example of the risky nature of wrongful dismissal litigation.  It illustrates the importance of obtaining proper legal advice and following it.  Under current Canadian case law, employees who are dismissed or laid off off must seriously consider an employer’s offer to return to work, if it is an offer made in good faith.  Important points to consider may be:

• Is the offer to return an offer for the same position that the employee held?
• Will the pay and working condition remain the same?
• Is there significant evidence of conduct that is embarrassing or humiliating?
• Does the employee have other employment possibilities?

Dismissed employees should carefully review all of these issues, as well as other related matters, with competent employment law counsel.  Making the wrong decision can be costly and harsh.

The dismissed employee, Derek Martin,  was a twenty year employee with a minority share in his employer’s business. When the assets of  the business, Concreate USL were sold, Martin received significant compensation.  However, he was required to sign a far-reaching non-competition and non-solicitation agreement.  After later being dismissed, Martin asked the Ontario Superior Court to rule that the restrictive covenants were unreasonable and therefore unenforceable.  The Ontario Superior Court held that the restrictions were reasonable and enforceable in the circumstances.

On appeal, one of the key issues was whether the duration of the agreements was uncertain.  Martin would be bound to certain restrictive covenants as long has he continued to hold shares in the company.  He could not dispose of these shares without the consent of third parties, including lenders and bonding companies with whom he had no connection.  It was therefore, arguably, unclear how long these agreements might remain in place.

A second issue on appeal related to the overly broad scope of the prohibited activities.  If the restrictions were enforceable, Martin would be prohibited from dealing with numerous potential customers, dealers and agents with whom he had not even had contact while working for Concreate.

Martin was successful with both of these arguments.  The Court of Appeal held that the scope of the restrictions went “far beyond what was properly required to adequately protect the goodwill of the purchased business…”  The unanimous decision of the Court references and relies on its prior decision from 2011 in Mason v. Chem-Trend Limited Partnership, in which it had held that it would not enforce an overly broad non-solicitation restriction.

The Court of Appeal noted that Martin had received independent legal advice about the restrictive covenant and he had signed a clause indicating that he agreed it was reasonable.  However, the Court held that it must still scrutinize these types of agreements to determine whether they are in the public interest, even where the situation involves more of a business transaction than an employment contract.

In light of these decisions, employers seeking to impose and enforce restrictive covenants must be extremely careful.  They must ensure that they are only restricting the employee from activities that would affect proprietary interests that they are entitled to protect and nothing more.  As the Ontario Court of Appeal has indicated, employers who overreach will be left with little or no protection from post-employment activities, other than their continued ability to enforce restrictions on the use of their confidential information.

One employer that used this latter strategy, seemingly to the extreme, was Canac Kitchens, a Division of Kohler Ltd.  After closing its manufacturing operations in Canada in 2008, it fought with its former employees  tooth and nail over appropriate severance awards in a number of wrongful dismissal cases.  It took many of these cases all the way to trial and wound up with numerous reported court decisions, most, if not all of them, ruling against Canac’s position.

One of the wrongful dismissal cases from 2012 involved Washington Olivares, a shipping supervisor, who had been with Canac for 24 years.  At the time of his dismissal he was 48 years old, earning approximately $93,000.  When he could not resolve his dispute with Canac, he brought a summary judgment motion and was awarded 20 months’ compensation.  A few issues were decided in this case that could be helpful to other dismissed employees:

1.  Notice:  Justice Lederman of the Ontario Superior Court held that a long service employee is entitled to a lengthy notice period, even if he was not in an upper management role.  In coming to this conclusion, he relied on the decision of the Ontario Court of Appeal in DiTomaso v. Crown Metal Packaging, which I wrote about last year.

2.  Overtime Pay: The Court held that if an employee was routinely earning overtime pay before being dismissed, the employee will be entitled to common law severance pay on the basis of average overall earnings, including overtime pay, even if the employer can show that overtime pay was declining or that it may not have paid overtime pay in the future.

3. Mitigation:  The Court also clarified that any money earned by a dismissed employee during the statutory notice period (the first 8 weeks, for an employee with at least 8 years of service) and the statutory severance period (the next period of up to 26 weeks, depending on length of service) will NOT be deducted from the employee’s overall settlement.

4. Benefits:  The Court also held that, in assessing wrongful dismissal damages, employees are entitled to the full value of an employer’s monthly cost of employee benefits, even if the employee did not use them all while employed.

Essentially, it appears that Mr. Olivares won each of these disputes with Canac.  As well, he was awarded legal costs of $10,500.  The amount is not huge since the litigation was conducted as a summary judgment motion with no cross examinations or other procedural steps.

I was not involved in this wrongful dismissal case and I am not aware of what kinds of offers the parties may have exchanged before the hearing.

However, in many of these wrongful dismissal cases, employers can achieve a much better result by settling out of court and minimizing the legal fees that they may have had to pay.  The flip side is that if employers make reasonable offers to settle before trials or hearings, it will become much riskier for dismissed employees to proceed with litigation since they may face an award of legal costs if the employer does better than its settlement position in court.

Very few wrongful dismissal cases actually wind up going to trial, which is probably a good thing for most employers and their dismissed employees.  The fact that Canac now has so many reported decisions, most of them decided against Canac, suggests that this strategy of fighting every single case vigorously is not necessarily the best strategy to employ.