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In 2016, the Ontario Court of Appeal confirmed that dependent contractors are entitled to reasonable notice of termination. In a recent decision, Cormier v 1772887 Ontario Limited cob as St. Joseph Communications, (“Cormier“) the Ontario Superior Court of Justice extended this principle – commenting that service as an independent contractor should be considered in calculating the reasonable notice period in certain circumstances.
In rendering this decision, the Court decided that the plaintiff was a dependent contractor and determined her notice period entitlement on this basis. The discussion concerning the notice entitlement of independent contractors was made in passing only and did nor form a basis for the decision that was ultimately made.
Cormier serves to remind employers that dependent contractor service needs to be taken into account when determining the notice period for termination “without cause”. The decision also highlights that the distinction between an employee and an independent contractor is not always a clear one and that a service relationship is defined by how the parties actually conduct themselves and not by the titles given to a role (e.g., freelancer, independent contractor, dependent contractor, etc.).
It remains to be seen whether the courts will follow the commentary in Cormier when rendering subsequent decisions. In any case, it is advisable that employers consider including termination provisions in contracts with independent contractors, as well as in contracts with employees.
Kelly Cormier worked for St. Joseph Communications as a “freelance wardrobe stylist” between 1996 and 2004. In 2004, she was hired as a “wardrobe stylist” pursuant to a written employment agreement. Ms. Cormier continued to work for the employer in various roles until 2017, when her employment was terminated on a without cause basis.
The employer had offered Ms. Cormier a combination of working notice and pay in lieu of notice, totaling 34 weeks. The employer took the position that Ms. Cormier was an independent contractor for 10 years of the relationship and an employee for 13 years, thereby justifying the offer that had been made. The employer also argued that the termination clauses in the employment agreements between the parties rebutted the presumption that Ms. Cormier was entitled to reasonable notice.
Ms. Cormier argued that she was a dependent contractor between 1996 and 2004 and that she was entitled to 24 months of reasonable notice.
The Court agreed with Ms. Cormier: she was a dependent contractor between 1996 and 2004 and those years of service should be included in calculating her notice period. In coming to this decision, the Court relied on the factors differentiating dependent and independent contractors in McKee v Reid’s Heritage Homes Ltd., including:
(1) the extent to which the worker was economically dependent on the particular working relationship;
(2) the permanency of the working relationship; and
(3) the exclusivity or high level of exclusivity of the worker’s relationship with the employer.
In Ms. Cormier’s case, the Court emphasized that the nature of her job did not change between the period she was working as a freelance wardrobe stylist and when she was hired as an employee.
However, the Court went a step further and stated that even if Ms. Cormier was an independent contractor between 1996 and 2004, those years of service should still be included in calculating the notice period because “it would be wrong in principle to ignore these years of their relationship in determining the reasonable notice period. The court should take all of the circumstances into account.”
The Court determined that the termination provision in the parties’ most recent employment agreement was unenforceable. Given this, and the determination that dependent contactors are entitled to reasonable notice of termination, the Court awarded Ms. Cormier reasonable notice at common law, which in this case was determined to be 21 months.
In a recent decision, Modern Cleaning Concept Inc. v. Comité paritaire de l’entretien d’édifices publics de la région de Québec, the majority of the Supreme Court of Canada (“SCC”) held that a cleaner who had a franchise agreement with a cleaning company was actually an employee, not an independent contractor. This “employee” determination, however, was in the context of a very particular legislative regime, which applied to the specific franchise relationship. Since the cleaner offered his cleaning services in public buildings, he was covered by a collective agreement, the Decree respecting building service employees in the Quebec region (“Decree”), which sets out minimum standards in the workplace (wages, hours of work, overtime, etc.) and is governed by the Act respecting collective agreement decrees (“Act”). With the scope of its provisions being “public order”, the Decree can apply to any contract where an individual is in a relationship determined to be that of “employee” within the meaning of the Act.
Franchisors should take note that the courts will always look beyond what is written in an agreement to ascertain the true nature of the relationship between franchisee and franchisor. However, this decision must be assessed in context: it was statute-specific and fact-specific, and revolved largely around a “triparty” contractual business relationship between client, franchisor and franchisee, which is not the norm in Canada. Additionally, given that the Decree was applicable to this case, the statutory definition of “employee” was broader than that set out in civil or common law. That said, franchisors should assess the particular circumstances of their relationship with franchisees and customers or clients to ensure that all possible steps are taken to avoid a similar determination.
The Facts and Appeal History
In 2014, Mr. Bourque entered into a franchise agreement with Modern. Under Modern’s business model, it negotiates a master cleaning contract with its clients, which permits assignment of the performance of cleaning services to a franchisee, such as Mr. Bourque, but ultimately holds Modern responsible for the quality and performance of services. The business relationship was thus tripartite: the client requests cleaning services, Modern guarantees the quality and provision of services, and Mr. Bourque performs the services.
After approximately five months of working with Modern, Mr. Bourque terminated the franchise agreement due to his frustration at his lack of profits and inability to develop his business. After the franchise agreement was terminated, the Committee responsible for overseeing the Act investigated the relationship between Mr. Bourque and Modern. The Committee subsequently commenced proceedings against Modern for unpaid wages and other benefits, which the Committee claimed Mr. Bourque was entitled to.
The trial judge found that Mr. Bourque was an independent contractor and was therefore not entitled to the amounts claimed by the Committee. However, the Quebec Court of Appeal overturned this decision, holding that Mr. Bourque was in fact an “employee” within the meaning of the Act.
The majority of the SCC upheld the Court of Appeal’s finding that the trial judge made a palpable and overriding error by failing to consider: 1) the nature of the “imperfect” assignment of the cleaning contracts from Modern to Mr. Bourque, and 2) the effect of this tripartite relationship. The majority found that the fact Modern remained contractually liable to clients for quality and performance of services meant that Modern, and not Mr. Bourque, ultimately bore the business risk (i.e. the risk of profit and loss).
The SCC also looked closely at the remedial purposes of the Act and its definition of “employee”. Since “employee” also included an artisan (who generally has more autonomy), the definition of employee under the Act was broader than under the Civil Code of Quebec.
Other factors that supported the finding that Mr. Bourque was an employee included: his inability to negotiate the terms of the franchise agreement, Modern’s ongoing supervision of his work, and the fact that Mr. Bourque’s clients paid Modern who then paid Mr. Bourque. Importantly, the SCC held that Mr. Bourque’s status as a franchisee was not determinative.
The dissenting members of the SCC held Mr. Bourque was in fact an independent contractor. In coming to this conclusion, the dissent noted the following:
The fact that the assignment of service contracts between Modern and Mr. Bourque was “imperfect” (i.e., that Modern still had some liability) did not significantly affect the business risk assumed by Mr. Bourque: it was sufficient that Mr. Bourque assumed a business risk, even though it was not “the” business risk in its entirety. As such, there was no palpable and overriding error warranting interference with the trial judge’s assessment of the evidence and analysis;
Mr. Bourque genuinely intended to “pursue a cleaning services business venture” and to “do business” with Modern; and
The franchise agreement included an indemnity clause to the effect that Modern could recover from Mr. Bourque and so the latter retained ultimate liability for breach of the service contracts.
– Many thanks to Shereen Aly for her assistance with this article.
We’re pleased to share a timely client alert from our colleagues in Mexico on a significant labour reform approved earlier this week by the Mexican Senate. The reform adds new legislative provisions to secure the rights of freedom of organization, freedom of association and collective bargaining, as well as introducing a new labour justice system to expedite all procedures under the Federal Labor Law of Mexico. As such, the reform is likely to have a profound effect on employers in Mexico.
On April 3, 2019, Restoring Ontario’s Competitiveness Act, 2019 (Bill 66) received Royal Assent. Bill 66 amends several pieces of legislation in Ontario. The government has stated that the changes are intended to “lower business costs to make Ontario more competitive” and to “harmonize regulatory requirements with other jurisdictions, end duplication and reduce barriers to investment.”
Changes to the Employment Standards Act (ESA)
As we reported in our earlier post, Bill 66 amends the ESA as follows:
No Approvals Needed for Excess Hours/Overtime Averaging: Employers are no longer obliged to obtain the Director of Employment Standards’ approval to make agreements to either: (1) permit employees to exceed 48 hours of work in a work week, or (2) allow averaging of an employee’s hours of work for the purpose of determining entitlement to overtime pay.
Changes to Averaging Agreements: Employers may average the employee’s hours of work in accordance with the terms of an averaging agreement between the parties over a period that does not exceed four weeks. Existing overtime averaging agreements in unionized workplaces would continue to be effective until a subsequent collective agreement comes into effect.
No Posting of Posters: Employers would no longer be required to post a poster in their workplaces to provide information to employees about the ESA and its regulations. Copies of the most recent poster still need to be provided to employees.
These amendments are in force as of April 3, 2019.
Changes to the Labour Relations Act (LRA)
As we explained previously, the LRA has a unique set of rules for construction industry employers that can entail province-wide, multi-employer collective agreements. Employers subject to this regime whose primary business is not construction may apply to the Ontario Labour Relations Board to be declared a “non-construction employer” under the LRA, relieving them of their obligation to comply with the “construction provisions” of the LRA.
Deemed non-construction employers
Bill 66 amends the definition of “non-construction employer” in the LRA and provides that designated employers will be deemed to be “non-construction employers”, thereby releasing them from labour relations law applicable to the construction sector, including collective agreements negotiated on a sector-wide basis. In some cases, this will enable designated employers to tender construction projects to non-union contractors and/or negotiate agreements specific to the circumstances of their organization.
Designated employers will include municipalities, school boards, hospitals, colleges and universities, as well as the following entities:
local boards under the Municipal Act, 2001 or the City of Toronto Act, 2006;
local housing corporations under the Housing Services Act, 2011;
corporations under the Municipal Act, 2001 or the City of Toronto Act, 2006;
district social services administration boards under the District Social Services Administration Boards Act; and
public bodies under the Public Service of Ontario Act, 2006.
The government has not yet set the date on which these amendments will come into force.
Bill 66 also provides that employers that fall within the aforementioned categories are able to “opt-out” of these new rules by filing an election with the Minister. The following conditions must be met for the “opt-out” election to apply:
A trade union must represent employees of the employer who are employed/may be employed in the construction industry on April 3, 2019;
The election must be made by a person with authority to bind the entity, and the election must be made in writing; and
The election must be filed with the Minister within three (3) months of April 3, 2019.
Once an “opt-out” election is made, it is irrevocable. However, this does not preclude an employer from subsequently making an application under section 127.2 of the LRA to declare that a trade union no longer represents those employees of the “non-construction employer” that are employed in the construction industry.
The opt-out election provisions are in force as of April 3, 2019.
We will monitor and report on the timing for the amendments that are still due to come into force.
The Supreme Court of Canada will decide if an employee is entitled to payments owed in the event of a corporate acquisition despite the fact that the employee resigned over a year before the triggering event. On January 31, 2019, the SCC granted leave to appeal in Matthews v. Ocean Nutrition Canada Limited. The employee asserts that he is entitled to over $1 million in profits following the acquisition of his former employer – even though he had resigned 13 months before the transaction. If the SCC decides in the employee’s favour, employers may face more challenges (and increased litigation) when seeking to enforce limiting clauses in employment agreements.
Impact of the SCC Appeal
Employers are expected to act in good faith when carrying out their obligations under an employment agreement. In particular, employers must not act in bad faith when terminating the employment relationship. If an employer breaches these duties, the employee may be entitled to aggravated damages, in addition to reasonable notice of termination.
However, Mr. Matthews’ appeal goes one step further. Seizing on recent SCC decisions about the principle of good faith in contractual performance, Mr. Matthews has asked the SCC to expand the remedies available under the common law such that an employer would be unable to rely on a limiting or exclusion clause if the employer had acted in bad faith or constructively dismissed the employee.
Given the prevalence of limiting or exclusion clauses in incentive compensation arrangements, and in termination provisions more generally, if the SCC agrees with Mr. Matthews, it is likely that employees will more readily challenge such clauses under existing agreements, resulting in more litigation and uncertainty. For future compensation arrangements, employers may decide to rethink extending the same incentive options. Further, a favourable decision for Mr. Matthews could limit the instances in which employers could rely on termination provisions at all.
David Matthews worked for Ocean Nutrition and its predecessors from January 1997 to June 2011, when he resigned. He was a vice-president at the time of his resignation. In July 2012, Royal DSM N.V. acquired Ocean Nutrition for $540 million. Mr. Matthews did not receive any profits from the sale because of the terms of Ocean Nutrition’s Long Term Incentive Plan. Specifically, the LTIP required participants to be full-time employees on the date of a “realization event” (i.e., a corporate acquisition) in order to receive any payment. The LTIP stated that it was of “no force and effect if the employee ceases to be an employee … regardless of whether the Employee resigns or is terminated, with or without cause.” Based on this wording, Ocean Nutrition took the position that it was not required to provide Mr. Matthews with any profits.
Following the sale, Mr. Matthews sued Ocean Nutrition for wrongful dismissal and claimed that Ocean Nutrition’s Chief Operating Officer had constructively dismissed him. As part of his claim, Mr. Matthews sought payments under the LTIP.
Lower Court Decisions
The lower court judge agreed that Ocean Nutrition constructively dismissed Mr. Matthews and that 15 months’ notice of termination would have been appropriate. The judge also concluded that the LTIP did not clearly limit Mr. Matthews’ rights upon a “realization” event. Since the sale occurred during the 15-month notice period, the judge awarded Mr. Matthews over $1 million in damages as compensation for his loss under the LTIP.
On appeal, the Nova Scotia Court of Appeal unanimously agreed that Ocean Nutrition constructively dismissed Mr. Matthews and that 15 months’ notice was reasonable. However, the majority of the Court believed that Mr. Matthews was not entitled to payments under the LTIP, because the contractual language was clear. Justice Farrar, writing for the majority, noted that the decision might have been different if Ocean Nutrition had orchestrated Mr. Matthews’ departure to avoid liability under the LTIP; however, Justice Farrar refused to overturn the lower court’s finding that no such conspiracy occurred.
The single dissenting judge on the Court of Appeal, Justice Scanlan, concluded that there was an implied agreement that the LTIP and the employment contract would be performed with honesty and integrity. Justice Scanlan believed that the Chief Operating Officer’s “lies and deception” breached that implied agreement and, therefore, Mr. Matthews was entitled to damages under the LTIP.
We will report on the SCC’s decision as soon as it is released.
The range of potential sanctions under Ontario’s Occupational Health and Safety Act are vast and, on its surface, potentially ominous for even the most minor of OHSA infractions. Companies in non-compliance with a health or safety requirement are seemingly at the mercy of the Ministry as to whether they prosecute (in addition to orders and penalties) and, if so, whether they pursue fines or even (gulp) incarceration.
Whereas the range of fines for various types of breaches and resulting harms are somewhat predictable, the circumstances where a Court will take the extraordinary step of ordering jail time has been somewhat of a black box. The recent decision from the Ontario Court of Appeal, Ontario (Labour) v. New Mex Canada Inc., may have changed this.
Vulnerable Worker Falls to Death
A worker fell to his death at a warehouse at New Mex Canada Inc. but under a number of aggravating circumstances:
the deceased worker had epilepsy, known to the employer, and was working on an elevated open-ended platform as an order picker;
he had a history of workplace fainting spells;
the platform was polished steel and the worker wore dress shoes and had no fall protection equipment; and
he had never received health or safety training.
It was found that a seizure likely caused his death, which may have been prevented by just basic compliance with the OHSA Industrial Regulations requirements. In short, it was the type of case likely to attract the high range of available OHSA sanctions. So, what happened?
Directors Each Sentenced to 25 Days’ Incarceration
A slew of OHSA charges were brought against the company and its directors. In the prosecution, the Court effectively found that the company directors had an active role in the operation of the warehouse, which implicitly included OHSA compliance.
Without relying upon past OHSA non-compliance and in the face of remorseful Defendants, the sentencing Court was not satisfied in sanctioning the company alone (the typical outcome) and, instead, held all parties guilty of numerous charges and imposed a total fine of $250,000 on the company and issued matching 25-day intermittent prison sentences plus 12 months’ probation for the two directors. A result that should have sent Ontario directors and officers scrambling to ensure they were protected from such sanctions.
Willful as Opposed to Merely Negligent?
New Mex Canada appealed and succeeded in reducing the fines, with the company’s obligation lessened to $50,000, and $15,000 in total fines for the directors. More importantly, the Court affirmed prison sentences are unusual and, in a moment of potential clarity in the law, incarceration was imposed, “for conduct that was willful as opposed to merely negligent.” A tangible and instructive distinction had just been set.
Proportionality, Parity and Deterrence – But Not Willfulness
It didn’t last. The Court of Appeal ultimately affirmed the reduced fines (and the freedom of the directors) but would not accept that willfulness was the fulcrum upon which justice might tip towards incarceration. Instead, the Court of Appeal declared, with more words yet perhaps less clarity, the test was:
“What amount of fine is required to achieve general and specific deterrence, and would otherwise be appropriate bearing in mind the principles of sentencing, including proportionality, and parity?”
In other words, sufficient deterrence did not require imprisoning the contrite directors.
Willfulness in All But Name?
What are we left with? We know in looking at imposing potential incarceration, the Court will certainly look at the usual suspects, such as corporate and personal blameworthiness, contrition, a preference of fines over incarceration, the ability to pay, and corrective measures such as compliance with orders issued after an accident. But maybe we have also learned that the absence of willfulness in causing harm to a worker makes jail time remote, even if assessed, instead, in the name of proportionality, parity, and deterrence.
It’s important to note that Ontario (Labour) v. New Mex Canada Inc. was a proceeding under the OHSA, not a criminal negligence proceeding under s. 217.1 of the Criminal Code. As we wrote about in relation to the Metron Construction decision, s. 217.1 of the Criminal Code was introduced in 2004, following the Westray Mine disaster, and encompasses criminal liability for organizations and corporate officers who fail to take reasonable steps to prevent death or bodily harm. Mr. Kazenelson, a senior officer of Metron Construction, was the first individual to be convicted and sentenced to a prison term under s. 217.1.
After-acquired cause, by definition, arises when an employer discovers just cause for termination after the employee has been dismissed on a without cause basis. This begs the question: Can an employer assert after-acquired cause when it has reason to suspect just cause prior to the termination, but proceeds on a without cause basis due to the employee’s representations of innocence? The Ontario Court of Appeal has answered affirmatively.
As a best practice, employers should fully investigate the possible misconduct before proceeding to terminate employment – the employer can then make an informed decision as to whether to assert cause or not.
As a general rule, in order to rely upon the doctrine of after-acquired cause, the employer cannot have known about the misconduct at the time of the termination. This is because employers are expected to act promptly upon discovering just cause. Otherwise, the employer risks a finding that it condoned, or waived its right to discipline the employee for, the misconduct.
However, employers who exercise due diligence in responding to misconduct may preserve their right to rely on after-acquired cause in circumstances where they suspect just cause, but proceed with termination on a without cause basis due to the employee’s representations of innocence. Exercising due diligence can include advising the employee, in writing, that the conduct is being investigated, investigating the misconduct, and acting promptly to assert cause once it has been established. In circumstances where a without cause settlement package has already been accepted and paid out, employers who have exercised due diligence can move to have the settlement set aside.
From 2007 to 2010, Mr. Markicevic served as Assistant Vice President of Campus Services and Building Operations at York University. Over the course of his employment, Mr. Markicevic misappropriated nearly one million dollars from the University through false invoicing and inflated quotations. Mr. Markicevic used a portion of the fraudulent funds to renovate his personal residence. He also used University employees to perform the renovations, at the University’s expense.
In late January 2010, a whistleblower came forward with allegations that Mr. Markicevic had misappropriated University resources. Mr. Markicevic sent a letter to the President of the University and the University’s General Counsel actively denying the allegations. The University firmly believed in Mr. Markicevic’s integrity, but was of the view that his employment had become untenable because the University had to conduct an investigation into the allegations of financial impropriety.
On February 1, 2010, before the University was aware of the extent of Mr. Markicevic’s dishonesty, it terminated Mr. Markicevic’s employment without cause and negotiated a severance agreement with him. The severance agreement provided 36 months’ gross salary, amounting to $696,166 and contained mutual releases.
In May 2011, the University concluded its investigation into the allegations of financial impropriety. The investigation revealed that Mr. Markicevic devised and carried out numerous fraudulent schemes. In January 2012, the University brought a claim against Mr. Markicevic seeking to rescind the severance agreement, including the mutual releases.
The Ontario Superior Court of Justice set aside the severance agreement, including the release. The court made the following findings:
Mr. Markicevic engaged in fraudulent activities, and in so doing, breached his fiduciary duties as a senior employee of the University;
as a fiduciary, Mr. Markicevic had a positive obligation to disclose the full extent of his fraudulent activity before he entered into the severance agreement. The intentional and material non-disclosure in and of itself entitled the University to set aside the severance agreement;
where one party has induced another party to enter into an agreement by making a material misrepresentation, the principal remedy is rescission. Mr. Markicevic made a material representation to both the President of the University and the University’s General Counsel when he denied any wrongdoing; and
the University would not have paid any severance to Mr. Markicevic, and would not have granted him a Release, had he not made material misrepresentations.
Mr. Markicevic appealed the decision, arguing in part that the court erred in concluding that his misrepresentations of innocence induced the University to enter into the severance agreement and release.
In York University v Markicevic, 2018 ONCA 893, the Ontario Court of Appeal upheld the lower court’s decision and confirmed that a contracting party who is induced to enter into a contract as a result of a fraudulent misrepresentation is entitled to rescission. The Court of Appeal agreed with the lower court’s finding that the University was induced to enter into the agreement by Mr. Markicevic’s fraudulent misrepresentation, stating “it is difficult to imagine circumstances in which an employer acting responsibly would pay three years severance pay to an employee it knew had misappropriated large sums of money from it“.
Surprisingly, evidently not. Briefly the facts in Plate v. Atlas Copco Canada Inc., 2019 ONCA 196: an Executive in the role of Vice President Global Strategic Customers was terminated for just cause grounded in a decades-long defrauding of the company and its benefits provider in conspiracy with the latter’s consultant, to the extent of over $20,000,000, over a million of which resulted to the Executive personally. His argument that he was a bystander incidentally enriched to the knowledge of the employer failed, conviction entered, no appeal pursued.
In the course of the criminal process the Court readily found that the Executive was a “fiduciary”, a formidable position of trust: the duty of replete fidelity, selfless devotion to the “beneficiary” (here the employer), compelling so-called “righteousness” behaviour.
Sure we jealously guard against a knee-jerk finding of “fiduciary”. But to be fair, it is not rocket-science: as a default individuals in a senior management role (like this guy) are fiduciaries. One would not criticize the Criminal Court’s view that “beyond a reasonable doubt” this executive owed and breached that duty of “utmost good faith” by participating in and benefiting from the fraud regardless if a “passive” recipient.
We are reminded of two things: “beyond a reasonable doubt” is a very high onus. Equally, fiduciary compliance requires “righteous” behaviour— an extremely high standard. Any departure whatsoever from that pristine behaviour is a breach of duty, known as “civil fraud”.
The twist? Notwithstanding criminal conviction he elected to pursue wrongful dismissal damages, reframing his conduct in the civil process as something akin to non-participatory ‘innocent bystander’ incidental enrichment.
Creative perhaps, but against the requirement that a fiduciary act “selflessly”, one would anticipate little judicial appetite for such remedial pursuit from a convicted felon. One might also predict intolerance for re-adjudicating the issue of fiduciary status in a forum which compels a much less stringent onus “on a balance of probabilities”.
But this particular proceeding provides some further twists. Unsurprisingly the employer attempted to cauterize this wound by promulgating the Criminal Court’s finding of fiduciary status (and the conviction for fraud) as a complete answer to upstart litigation of that which was already judicially considered— what lawyers call res judicata: “already been decided”.
The Judge hearing the peremptory application— the Summary Judgement— agreed: ‘been there done that’: another Court on a much higher onus found that he was a fiduciary and was guilty of fraud, rulings from which he did not appeal. Regardless, one would not anticipate any contrary ruling undermining a ‘safe’ — arguably trite—conclusion that as a Senior Executive he owed a fiduciary duty: “the highest duty known to law”.
Done. Okay: not done. On appeal from the Summary Judgement Order dismissing the civil claim, the Court of Appeal ‘drilled down’ on both process and disposition, providing insight into the interaction of criminal versus civil, and between summary judgement versus trial.
Lessons learned? Well, don’t be so fast to assume that a criminal finding of status migrates seamlessly into parallel civil proceedings. Secondly, don’t be so fast to dispose of such matters by way of summary judgement application when there may be “substantial issues requiring a trial”, therefore ordering that the civil matter go to trial. In other words, quixotically the “criminal fiduciary” may not be the “civil fiduciary” or at least that status requires a fulsome trial to adjudicate.
Easy to get into the weeds on this. Staying above them, the Appeal Court likely wished to emphasis that the Rule of Law requires that res judicata not prohibit a fulsome inquiry in a civil trial on “a finding of fact and law”, as is the case of fiduciary standing. Correspondingly, while the Supreme Court has tasked all levels of Court to default to Summary Judgement versus long, expensive, Court-consuming trials, not all square pegs fit into the proverbial round holes.
From 10,000 feet it is available to question not the logic of adherence to first principals of jurisprudence, but certainly the result: this senior executive would conventionally be easily found to owe a fiduciary obligation to his employer, and certainly not to insinuate himself in practices that result in clandestine personal benefit, known as a “secret profit”. It is also available to question the purpose of revisiting such status in a protracted wrongful dismissal action against the backdrop of criminal conviction. One would argue that the end result is inevitable regardless of the granularity of the process by which to get there.
One should not question the oversight Court’s emphasis on due process. But certainly into the tangled weeds we go as the matter now proceeds to a protracted trial on a point already well argued and compellingly disposed of elsewhere.
Not that long ago the Supreme Court installed “good faith” as core to the fabric of contractual relations in Canada whether commercial or employment, whether ostensibly arms-length as “independent contractor” or employment per se. Implying a duty to act fairly in contract is not foreign to other jurisdictions— it is foundational to EU legal principals and long-since present in the Restatements of US law.
Here, not so much. In the 60s Ontario Justice Goodman enthused about incorporation of “good faith” as a distinct implied term of contract; alas conservative sentiment rendered that distillation jurisprudential ‘moonshine’. Some 50 years on Bhasin v. Hrynew (2014) refined that elixir into single malt: the SCC aspirationally confirmed that we all gotta have ‘faith’.
While it remains difficult to be ‘sort-of pregnant’, good faith became operational but not as an independent “cause of action”. But as an influencer of import in contractual relations, it has certainly come of age: Mohamed v. Information Systems Architects Inc., 2018 ONCA 428.
Mohamed had a somewhat ancient minor criminal conviction. Prior to engagement with ISA under an employee-like independent consulting contract he disclosed this youthful indiscretion. His ‘hiring’ was to provide services through ISA to Major Canadian retailer, a corporation which is compellingly risk-adverse, therefore reserving as an express prohibition of individuals with a record from the provision of services to it. One month after commencing services, Mohamed’s criminal record check belatedly arrived confirming the conviction previously disclosed to ISA but not to the retailer, which required ISA to honour its terms of engagement by Mohamed’s immediate removal. In so doing, ISA terminated its fixed term contract with Mohamed barely one month into a multi-year term.
While the trial decision confirms that the express provisions of the agreement between the company and Mohamed allowed it to terminate him, the Judge insinuated an implied duty to do so “in good faith”. In acting on the third party retailer’s insistence that he be removed from its premises as a vendor, the Court determined that to do so was in bad faith, leveraging the significant fact that the indiscretion had been previously disclosed and vetted, albeit not shared with the retailer.
There are lessons here. Firstly, parties would be foolhardy not to anticipate an increasing appetite on the part of the Judiciary to install good faith considerations into both the negotiations and performance of contractual relations. Secondly, Courts will not visit impossibility in performance upon the individual where as here the individual was transparent before being engaged.
And the lessons don’t stop there: the Court followed precedent that if a fixed term contract is breached during its term, it is a “liquidated” damage and the usual overarching duty to mitigate (reduce loss to the degree reasonable) does not apply. Here the individual was entitled to an unrefined pay out of the entire term of contract despite its termination only one month into it: from a remedial perspective, here the mountain of damages came to Mohamed.
In affirming the propriety of insinuating this implied term, the Court of Appeal advances the notion that “you gotta have faith”… good faith, that is.
Employers commonly receive calls from Employment Insurance (EI) Officers seeking clarification of the information provided by the employer in a Record of Employment (ROE). The clarification or confirmation typically relates to the employee’s first / last day worked, insurable hours, insurable earnings and / or the reason for issuing the ROE (Block 16).
Employers who are asked to speak to their reason for issuing the ROE should pause and consider what, if any, information to share with the EI Officer. Employers should also carefully consider what steps to take upon receipt of correspondence from the EI Officer or the Canada Employment Insurance Commission (Commission).
A recent preliminary ruling in a complaint under the Canada Labour Code held that an employer would not be permitted to assert dismissal for misconduct because, according to the adjudicator, the issue had already been determined in an EI Officer’s decision to award EI benefits. Though troubling for employers, the Alexander v Huron Commodities Inc., 2019 CanLII 11915, ruling is not surprising given the facts in the case.
Huron Commodities terminated Mr. Alexander’s employment in January 2018. The termination documentation did not set out a reason for termination, but, in the ROE, the employer indicated “dismissal” as the reason for issuing the ROE. Mr. Alexander applied for EI benefits.
In March 2018, after two “fact-finding” telephone conversations, the first with Huron (in which Huron stated it dismissed Mr. Alexander “for several things”, one being “missing fuel”, but that it had never looked into nor pursued this issue) and the second with Mr. Alexander, the EI Officer concluded that the employee had not engaged in any misconduct and awarded him EI benefits. In a letter to Huron, the Commission communicated the award of benefits, its determination that the reason for loss of employment did not constitute misconduct, and that if Huron disagreed with the decision, it could make a request for reconsideration. Huron did not take any action to challenge the decision.
However, in the unjust dismissal proceeding, Huron submitted that Mr. Alexander’s misconduct or, alternatively, his inability to adequately perform his duties, was the reason for his dismissal.
The adjudicator applied the three-part test for issue estoppel and concluded that the employer was estopped from arguing that Mr. Alexander was dismissed for cause:
The question of misconduct before the adjudicator was the same question before the EI Officer and was fundamental to her decision—Mr. Alexander would not have been entitled to EI benefits if his dismissal was for misconduct.
The EI Officer’s decision was a final, judicial decision—the Officer had authority to decide on EI benefits and on whether dismissal was for misconduct.
The parties were the same in both instances.
Most importantly, in exercising his discretion to apply issue estoppel, the adjudicator found no basis for concluding that doing so would result in an injustice to the employer: the termination letter did not mention any misconduct; the EI Officer’s notes suggested Huron had neither looked into nor pursued the missing fuel issue, which was the only point that could be considered misconduct; and Huron did not take steps to challenge the Commission’s decision.
When indicating the reason for issuing a ROE, employers should consider not only the impact on the individual’s application for EI benefits, but also the potential implications for the employer in an unjust or wrongful dismissal complaint. This holistic approach should also be taken when drafting the termination documentation.
Employers should be cautious about liberal discussions with EI Officers, since such discussions may have implications on ancillary matters as in Alexander v Huron Commodities Inc. If an EI Officer calls, consider taking down his or her questions and asking for time to gather information and provide an informed response. This approach allows the employer to take time to properly review the matter, and to seek assistance from counsel in assessing the legal implications of proposed responses to those questions. As always, any correspondence relating to EI benefits should not go unattended and should receive prompt attention.