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Court Refuses to Enjoin Dance Teacher from Competing Against Her Former Employer

Friday, October 7th, 2011

The Plaintiff Ginette Laplante had operated Pascalina’s Dance Studio in Cornwall Ontario since 1992.  The Defendant Jane Hennessy-Craibe had been a student at Pascalina’s from 1993 to 1995.  She became a teacher’s aide with the studio in 1996 and an instructor in 1998.  Her duties as an instructor included choreography, costumes, and selecting hairstyles and make-up for recitals and competitions.

The parties entered into an “employment agreement” in 2008.  This agreement provided that Ms. Hennessy-Craibe was to be paid an hourly wage, and that she was to indemnify Pascalina’s for any actions arising out of her negligence.  It did not include a restrictive covenant or a non-compete clause.

In 2010, the parties had some discussions about the possibility that Ms. Hennessy-Craibe would purchase Ms. Laplante’s studio, but no agreement was reached and in 2011 Ms. Hennessy-Craibe set up her own dance school business in competition with the Plaintiff.

Ms. Laplante sued Ms. Hennessy-Craibe, alleging breach of fiduciary duty, and brought a motion for an interlocutory injunction prohibiting the Defendant from contacting or soliciting any current or former students, instructors, or dance team members from Pascalina’s Dance Studio.

According to the court, key employees such as managers, officers, or directors typically owe a fiduciary duty to their employer.  They may not make unfair use of confidential information acquired during the course of employment in order to solicit clients or misappropriate corporate opportunities.  A key employee is someone who is responsible for guiding the business affairs of the employer.  Key employees are involved in the decision-making process, or have access to confidential information that could impair the employer’s competitiveness if it were disclosed.

In the absence of a restrictive covenant or non-competition clause in an employment agreement, or a fiduciary duty arising from the fact that the employee qualifies as a key employee, a former employee has the right to compete with the employer.  She can use the skills and knowledge acquired in the employer’s service in her new business.

The court concluded that Ms. Hennessy-Craibe’s responsibilities in Ms. Laplante’s business “did not come close to the necessary elements required for a key employee”.  The fact that several students and instructors had followed her to her new business did not of itself constitute proof that the Defendant was a key employee.

Furthermore, the court stated that the contract between the parties, under which the Defendant was paid by the hour and responsible to indemnify the Plaintiff for actions arising out of her activities, would more properly be described as an agreement with an independent contractor, rather than an employment agreement.  The court therefore concluded that the Defendant had failed to meet the first stage of the three-part test for an interlocutory injunction, in that the Plaintiff had not established that there was a serious issue to be tried with respect to liability.

The court also found that the Plaintiff had not established irreparable harm, the second part of the three-part test for an injunction.  If the Plaintiff were to succeed at trial, her losses could be compensated in damages.

With respect to the third part of the three-part test, the balance of convenience, the court was satisfied that the balance of convenience favored the Defendant.  If the injunction was granted, it would prevent the Defendant from operating her business and teaching students who had already registered at her studio.

Finally, the court took note of the fact that the Plaintiff had failed to request a permanent junction in her Statement of Claim.  A claim for a permanent injunction in the Statement of Claim is a prerequisite for granting an interlocutory injunction.  This provided an additional reason for the dismissal of the Plaintiff’s motion.

Link: Laplante v.Hennessy-Craibe, CanLII – 2011 ONSC 5601 (CanLII)

Richard Hayles, B.A., J.D.

Insurance and commercial litigation lawyer

 

Brief informational summaries about commercial and other litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

 

Posted in Civil Litigation, Contract Disputes, Employment Law, Injunction & Specific Performance, Litigation Law | Add Comment »

Low Level Employee given 22-months Notice in Wrongful Dismissal Action

Friday, September 23rd, 2011

The Ontario Court of Appeal in Di Tomaso v. Crown Metal Packaging Canada LP held that the motion judge did not err in granting Antonio Di Tomaso with 22 months’ reasonable notice on a motion for summary judgment.

Mr. Di Tomaso was employed with Crown Metal Packaging Canada LP for over 33 years as a two-piece mechanic and press maintainer (unskilled labourer) and was 62 years of age at the time his employment was terminated.  The Company took the position that since Mr. Di Tomaso was an unskilled and low level worker, he was entitled, at most, to 12 months’ notice.  The Court of Appeal dismissed the Company’s position and held that there was not a 12-month cap on the notice period of clerical and unskilled workers or any class of worker and that the character of the employee’s employment cannot be used to minimize the notice period to which the employee is entitled.

The Court of Appeal also held that disproportionate weight should not be given to any of the Bardal factors when determining the appropriate notice period.  The Court of Appeal held that the motion judge did not err in ordering 22-months’ notice when you take into consideration all of the Bardal factors, which include the character of employment, the employee’s length of service, the employee’s age, and the availability of comparable employment in the market.

Olanyi Parsons B.A. (Hons.), LL.B.

 

Brief informational summaries about commercial and other litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Employment Law, Summary Judgment, Wrongful Dismissal | Add Comment »

Restrictive Covenant in Employment Contract Unreasonable and Unenforceable

Wednesday, August 17th, 2011

The Ontario Court of Appeal in Mason v. Chem-Trend Limited Partnership held that the restrictive covenant in the employment contract between Tom Mason and Chem-Trend Limited Partnership (“Chem-Trend”) was unenforceable because it was unreasonable.

Mr. Mason was dismissed from his employment with Chem-Trend after 17 years off employment.  The restrictive covenant clause prohibited Mr. Mason for a period of one year following termination of his employment from engaging in any business or activity in competition with Chem-Trend, or by providing services or products to, or soliciting business from, any business which was a customer of the Chem-Trend during the period Mr. Mason was an employed with Chem-Trend.

In determining whether the restrictive covenant clause was enforceable or unenforceable the Court of Appeal considered the governing principles that are applicable when considering whether a restrictive covenant in a contract of employment is unreasonable.  In doing so, it conducted a balance process between the rights of the Employer to protect trade secrets and confidential information and the public interest in free and open competition in relation to the employment contract as a whole and in relation to the employee.

The court concluded that the complete prohibition on competition for one is overly broad and unworkable in practice thus making the restrictive covenant unreasonable and unenforceable.

Olanyi Parsons B.A. (Hons.), LL.B.

 

Brief informational summaries about commercial and other litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Employment Law | 1 Comment »

Court Grants Summary Judgment on Wrongful Dismissal Claim

Friday, August 12th, 2011

In a recent decision of the Ontario Superior Court of Justice (Poole v. Whirlpool Corporation), the Court awarded summary judgment to a senior executive of Whirlpool Corporation who was employed with the company for about 17 years and two months at the time his employment terminated.  The court held that the employee was entitled to 19 months reasonable notice; compensation for monthly bonuses throughout the entire notice period; and compensation for benefits lost during the notice period.

Olanyi Parsons, H.B.A, LL.B

 

Brief informational summaries about commercial and other litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Employment Law, Summary Judgment | Add Comment »

Short-Term Employee Gets Two and a Half Months’ Severance

Tuesday, May 31st, 2011

It is often difficult for employment lawyers to assess the severance entitlement of someone who has been dismissed after only a few months of service.  Is the individual limited to his statutory entitlement under the Employment Standards Act, or does the common law call for a longer notice period? The “rule of thumb” that allows between one and two months’ severance per year of service, depending on the seniority and responsibilities of the job, is of no real assistance in a case in which the employee has less than one year of service.  There are very few reported cases to provide guidance on this question. 

A recent decision of Mr. Justice Stinson in the Ontario Superior Court of Justice may shed some light on the issue.  The plaintiff Daniel Harvey had more than 20 years experience in the hospitality industry. He lived in Québec, where he was employed as president of a food services company that was in bankruptcy protection. 

The defendant Shoeless Joe’s Limited is the franchisor of a chain of restaurants in Ontario.  It is a small company, employing only 20 people.  In late 2008, Shoeless Joe’s was looking for someone to fill the role of Vice-President, Operations.  It was introduced to Daniel Harvey by an executive recruiting firm.  Shoeless Joe’s offered Mr. Harvey the Vice-President’s job at an annual salary of $130,000, with a car allowance, health benefits, and a bonus of up to 15% of base salary depending on the number of store openings he achieved. 

Both the offer and Mr. Harvey’s acceptance were by e-mail.  Mr. Harvey relocated to Toronto and started his new job at the beginning of February, 2009.  He was never asked to sign a formal employment contract.  Shoeless Joe’s dismissed him without cause five and half months after his job began. 

The case came before Mr. Justice Stinson by means of a motion for summary judgment.  The plaintiff claimed six months’ severance based on his income level, the responsibilities of his job, and his performance.  According to the defendant, the plaintiff was employed for such a short period of time that his Employment Standards Act entitlement of one week was equivalent to his common-law entitlement. 

Stinson, J. referred to the well-established principle that in determining the length of notice required, the court is to consider the character of the employment, the length of service, the employee’s age, and the availability of similar employment given the experience, training, and qualifications of the employee.  He noted that fixing an appropriate severance period is not a mathematical exercise, but rather involves weighing numerous factors.  It is “more art than science”.  It is not appropriate to apply a “rule of thumb” that would award one month of notice for every year of work as the process of determining notice has to be flexible. 

Mr. Justice Stinson agreed with the defendant that, given the relatively short length of service, a relatively short notice period was appropriate.  He was referred to a couple of cases in which a notice period of roughly one month was awarded to employees who had served less than a year, but found those cases distinguishable in that the employees in question were working in lower echelon positions at lesser salaries. 

The judge referred to the fact that the plaintiff’s employment was at a senior level, that he reported to the president, that his managerial responsibilities were considerable, and that he was paid a salary of $130,000 a year with a potential 15% bonus.  These factors supported a longer notice period.  Mr. Harvey was 41 years old at the time he was hired, something that the judge categorized as “a neutral factor”.  It took Mr. Harvey 10 months to obtain similar employment, indicating that such employment was not readily available, and this was a factor militating in favour of longer notice.  The plaintiff’s relocation to Toronto from Québec to take up employment with the defendant was another factor favouring a longer notice period. 

After weighing all of these factors, Mr. Justice Stinson concluded that a notice period of two and half months was reasonable and appropriate.  The case indicates that, at least for a senior, highly paid executive, a fairly substantial severance will be required even in a case involving less than one year of service. 

Link: Harvey v. Shoeless Joe’s, CanLII – 2011 ONSC 3242 (CanLII) 

Richard Hayles, B.A., J.D.

 

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Employment & Wrongful Dismissal, Employment Law, Litigation Law, Wrongful Dismissal | Add Comment »

Employer Beware: the Dangers of Reporting Employee Theft to the Police

Friday, April 29th, 2011

The Ontario Court of Appeal has ordered a new trial of a malicious prosecution claim where an employer reported groundless allegations of employee theft to the police. 

After he had served as Chief Building Official for the Township of Galway-Cavendish and Harvey for about nine years, John Pate was dismissed without notice in March of 1999.  John Beaven, Mr. Pate’s immediate supervisor, called Mr. Pate to his office to tell him that discrepancies had been discovered regarding building fee permits.  As a result, Mr. Pate was to be terminated, but if he agreed to resign the Township would not contact the police. 

Mr. Pate did not resign, and Mr. Beaven eventually went to the OPP to report six allegations of the theft of building permit fees.  Although Mr. Beaven was himself a retired police officer with nearly 30 years service, it appears that he was extremely casual in the conduct of his investigation, and failed to disclose exculpatory information in his report to the OPP even though that information was known to him. 

In one of the alleged incidents, for instance, Mr. Pate had recorded the receipt of the fees under the name of the property owner’s son-in-law because the fees were paid by the son-in-law on the owner’s behalf.  Another set of allegations involved property owners who paid their building permit fees at a satellite office operated by the Township, but their files were lost when that office was moved following a municipal amalgamation.  In each instance, Mr. Pate had a reasonable explanation as to why the Township had no record of fees that had been paid, but Mr. Beaven had not given him a chance to respond to the allegations. 

These facts emerged at Mr. Pate’s criminal trial, and he was acquitted of all charges.  At the trial, the OPP officer who investigated the case testified that if he had known the true facts, the charges would not have been laid.

Mr. Pate sued the Township for wrongful dismissal and malicious prosecution.  At the commencement of trial, the Township conceded that he had been wrongfully dismissed and was entitled to 12 months notice.

On the wrongful dismissal claims, the trial judge ordered the following damages in addition to the agreed-upon twelve-month severance: 

  1. a four-month “bump up” of the notice period for Wallace damages based on the manner in which Mr. Pate was terminated; 
  2. $75,000 in aggravated damages for intentional infliction of mental distress and social and economic damage;
  3. $7,500 for special damages; and 
  4. $25,000 in punitive damages. 

The trial judge dismissed the malicious prosecution claim on the grounds that Mr. Pate had failed to establish that the Township initiated the prosecution, and that Mr. Pate had also failed to show malice on the Township’s part (in the sense of an intent to subvert or abuse the criminal justice system).  According to the trial judge, these two elements were central components in the four-part test for a malicious prosecution claim. 

Mr. Pate appealed the dismissal of his malicious prosecution claim and the assessment of punitive damages at $25,000.  He succeeded on both grounds of appeal. 

According to the Court of Appeal, the trial judge erred in relying on a series of cases that sets a very high bar for plaintiffs who seek to prove malice on the part of a crown lawyer or public prosecutor.  For constitutional reasons, the courts are reluctant to second-guess decisions by crown attorneys in the prosecution of a case.  The case law states that a plaintiff suing the crown law office for malicious prosecution has to show “the deliberate and malicious misuse of the office for ends that are improper and inconsistent with the traditional prosecutorial function”. 

This is because crown lawyers have an obligation to the public to pursue criminal cases, so it is possible for a prosecutor to pursue groundless criminal charges out of a misguided sense of duty, as a result of simple negligence or an error of judgment rather than malice. 

In cases in which it is alleged that a private individual has committed the tort of malicious prosecution, these constitutional concerns have no application.  The Court of Appeal in the Pate case referred to authorities in which the courts have asked the common sense question: in the absence of malice, “…why else would a private person initiate a prosecution based entirely on facts not believed to be true, or worse still, known to be false”?  In these cases, it is possible for the court to infer malice from the surrounding circumstances, including the relationship between the parties, and from the absence of reasonable and probable grounds for the allegations of criminal conduct. 

The conclusion that the plaintiff had failed to show malice was also inconsistent with other findings by the trial judge.  He held that the Township’s deliberate withholding of exculpatory evidence was an arbitrary decision that amounted to reprehensible conduct.  There were also findings that this conduct was a departure from ordinary standards of decent behaviour, and that the Township had terminated the plaintiff and then mounted an investigation in order to build a case to justify the termination.  The trial judge characterized this conduct as unfair, insensitive, high-handed, and oppressive.  Although these findings provided support for the awards of aggravated and punitive damages, they also seemed to contradict the trial judge’s conclusion that there was no proof of ill will on the part of the Township. 

On the question of whether or not the Township could be found to have initiated the prosecution, even though the charges were actually laid by the police and prosecuted by the crown law office, the Court of Appeal pointed out that it is well-established that a defendant can be found to have initiated a prosecution in these circumstances.  As the evidence adduced at trial did not contain enough detail as to what Mr. Beaven actually told the police and what information he deliberately withheld, a new trial was needed in order to determine whether or not this element of the tort of malicious prosecution could be established.

The new trial might very well result in a finding of liability for malicious prosecution.  As this could provide additional support for the award of punitive damages, a new trial on the punitive damages assessment was also justified.  The trial judge had stated that although he would like to award a higher amount of punitive damages, he had to be mindful of “principles of proportionality”.  The Court of Appeal questioned this application of proportionality principles in light of the significant misconduct of the Township over a lengthy period and the devastating impact that this conduct had on the plaintiff’s life.  This provided further justification for ordering a new trial on the punitive damages question.

The case illustrates the danger that an employer faces when an employee is dismissed on the grounds of theft or other criminal misconduct.  If the employer has failed to conduct a thorough investigation into these allegations, and lacks strong evidence to support the charges if they are later challenged in court, the employer can be hit with damages for wrongful dismissal, including increased severance under Wallace, plus substantial aggravated and punitive damages. 

Although defamation was not claimed in Pate, if the allegations are made public outside the context of a criminal prosecution, the employee might also have a claim for libel or slander. 

The Pate case shows that an employer who chooses to report these kinds of allegations to the authorities faces additional hazards.  It is not enough to simply turn whatever information the employer has over to the police and to rely on them to conduct an investigation.  If the employer makes a police report without first conducting a thorough investigation itself, and especially where the employer withholds exculpatory information from the authorities, the employer is exposed to an action for malicious prosecution.

Richard Hayles, B.A., J.D.

Link: Pate v. Galway-Cavendish (Township), 2011 ONCA 329

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Employment Law, Wrongful Dismissal | Add Comment »

Court Sets a High Bar for the Issuance of a Worldwide Mareva Injunction

Friday, April 15th, 2011

Atlas Copco Canada Inc. is the Canadian division of a multinational corporation that supplies mining and construction equipment.  Dirk Johannes Plate worked for Atlas for nearly 40 years, starting in his home country of the Netherlands.  In 1993 he transferred to Atlas Canada, where he served as general manager. 

As an expatriate employee, Mr. Plate was entitled to various benefits that were not available to Canadian employees, including an annual housing allowance of $60,000, plus fully paid trips to his home in the Netherlands.  Under company rules, however, he could not enrol in Atlas’s Canadian pension plan.  He remained a member of the Dutch pension plan, the terms of which were not as favourable as the provisions of the Canadian plan. 

Mr. Plate was unhappy with the benefits provided by the Dutch pension plan, and began to complain about this as early as one year after he started work with the Canadian subsidiary.  According to Atlas, this dissatisfaction led Mr. Plate to conspire with the company’s controller, its director of human resources, and it’s outside pension benefits insurer to divert company funds to purchase annuities and other assets for himself and other executives.  Atlas dismissed Mr. Plate and the others, then commenced legal proceedings seeking a Mareva injunction to freeze the conspirators’ assets until the dispute could be determined at trial. 

Although Atlas Canada claimed that the executives had defrauded it of over $20 million, the Mareva motion focused on some $1.44 million in annuities registered in the names of Mr. Plate and his wife Maria Plate. 

Atlas Canada obtained an interim order freezing the assets of Mr. Plate and his wife, and of the defendant Leo Caron, the Atlas Canada director of human resources, as well as Mr. Caron’s former wife Jeannette Bourque, pending a hearing of the Mareva motion on a full evidentiary record.  After various adjournments and amendments to the timetable for the motion, the motion came on for a determination before Madam Justice Mesbur, who delivered her decision on April 11, 2011. 

Neither Mr. Caron on nor his ex-wife Jeannette Bourque filed any material on the motion, nor did Maria Plate.  In the end, only Dirk Plate opposed the Mareva injunction.  He took the position that Atlas Canada had failed to meet the test for granting a Mareva against him, and asked that the existing order be dissolved.  The plaintiff Atlas Copco asked the court to continue that order, and to extend the asset freeze so that it would cover all of Mr. Plate’s assets anywhere in the world. 

Mesbur, J. granted an order freezing Mr. Plate’s Ontario assets (including the annuities) until trial, but declined the request for a worldwide Mareva.  She stated that injunctions are an extraordinary remedy, meaning that they are granted when the moving party can satisfy the following requirements: 

  1. has the moving party established that there is a serious case to be tried? 
  2. if the injunction is denied, would damages be an adequate remedy in the event that the plaintiff later succeeds at trial?
  3. is the plaintiff’s undertaking to pay damages in the event that an injunction is granted and the plaintiff loses at trial adequate compensation for the defendants?
  4. does the balance of convenience favour an injunction? 
  5. is an injunction justified after consideration of the strength of the plaintiff’s case? 

She took notice of the principle that execution is not available prior to judgment, and that the term “execution” includes orders impounding assets or otherwise restricting the defendant’s right to make use of his property.  Since the Mareva injunction is an exception to this general rule, the test on a Mareva motion is more stringent than the test that applies on an ordinary injunction motion. 

In order to obtain a Mareva injunction, the plaintiff must show that it has a strong prima facie case on liability and that there is a real risk that the defendant will remove assets from the jurisdiction or dissipate them in order to prevent the plaintiff from recovering damages after judgment.  In addition, the balance of convenience must be in the plaintiff’s favour. 

The outcome of the motion turned primarily on the question of whether or not the plaintiff had made out a strong prima facie case of fraud as against the defendant Dirk Plate. 

Mr. Plate took the position that the annuities were purchased with the approval of the director of human resources (the defendant Leo Caron), as part of an agreement to top up his pension so as to make it equivalent to the Canadian plan.  He claimed that this was done with the knowledge of the Atlas Copco pension committee, as well as the company’s outside pension plan actuary.  As evidence to support his position, he pointed to a February 2001 e-mail from Mr. Caron to himself confirming an agreement to include Mr. Plate in the Canadian pension system, retroactive to January of 1983.  He claimed that this e-mail was copied to the secretary of the pension committee, who forwarded it to the outside actuaries. 

Mr. Plate also relied on a July, 2001 e-mail from Mr. Caron to the company’s actuary confirming that Mr. Plate was enrolled in the Canadian plan.  In addition, the actuary sent a letter in March of 2002 providing Mr. Caron with an estimate of Mr. Plate’s retirement income from “the two registered Company pensions [sic] plans”. 

Mr. Plate’s position was undermined by evidence provided by the company showing that Mr. Plate’s contract always classified him as an expatriate employee, and thus not entitled to participate in the Canadian pension plan.  The minutes of the company’s pension committee and of the Board of Directors contained no reference to enrolling Mr. Plate in the Canadian plan, or to buying annuities to compensate him for the supposed pension plan shortfall.  This course of action was never authorized in writing by Mr. Plate’s superiors, but only in the e-mail from Mr. Caron to Mr. Plate.  No copy of that e-mail could be found in any Atlas file. 

In addition, there was a discrepancy between the actuarial calculation of the cost of an annuity to top up Mr. Plate’s Dutch pension, which came in at just over $450,000, and the actual annuities purchased for a total of $1.44 million.  Further, Mr. Plate began to draw on the annuities in 2007, four years prior to his planned retirement date. 

The most damning evidence against Mr. Plate, however, was the fact that Mr. Caron confessed to participating in the fraudulent scheme, and gave sworn testimony that it was Mr. Plate himself who told him to buy the annuities.  In addition, the defendant David Hillier, the company controller, had confessed to participating in the scheme and had paid back some of the stolen funds to the company. 

When Atlas Copco Canada learned of the fraudulent scheme, it terminated Mr. Plate’s employment.  Some two weeks following termination, Mr. Plate transferred ownership of a jointly owned Dutch property into his wife’s name alone.  Not long after that, he did the same thing with two jointly held Québec properties.  He also tried to dispose of the annuities after his dismissal. 

Based on this evidence, Madam Justice Mesbur concluded that the plaintiff had made out a strong prima facie case of fraud. 

The judge concluded that Mr. Plate’s dealings with his properties immediately after his termination were highly suspicious, and led to an inference that he was attempting to insulate himself against judgment.  Mr. and Mrs. Plate provided inconsistent explanations for the property transfers, leading to the conclusion that a Mareva injunction was an appropriate remedy as against Mr. Plate. 

Since Atlas Copco had produced evidence from a bookkeeper with the company’s pension benefits insurer establishing that the Plates’ annuities had been purchased with company funds, the annuities constituted assets forming the subject matter of the litigation, and they could be preserved pending trial under rule 45 of the Rules of Civil Procedure.  The Québec assets were now in Maria Plate’s name, and she had not opposed the plaintiff’s motion to continue the injunction freezing those assets until trial.  The question to be determined, then, was whether a Mareva injunction could be issued restraining Mr. Plate from dealing with assets located outside of Canada. 

Mesbur, J. described the Mareva injunction as an “order in personam.”  Since Ontario was the proper forum for the case, the Ontario court had personal jurisdiction over Mr. Plate and was thus in a position to issue a Mareva injunction with worldwide application.  The judge concluded, however, that the injunction should not be expanded beyond the property in Ontario. 

Although the company alleged that the defendants were responsible for defalcations totalling as much as $20 million, as of the date of the motion they had put forward a compelling case with respect to some $1.8 million, most of which could be traced to the annuities preserved under Rule 45.  There was thus no evidentiary basis for issuing a Mareva injunction to cover all of Mr. Plate’s assets, wherever situated. 

The decision imposes a very high evidentiary standard on a plaintiff seeking to restrain the disposal of assets by means of a Mareva injunction.  The evidence indicating that Mr. Plate had defrauded the company was extremely strong.  There was also evidence indicating that further monies had gone missing during Mr. Plate’s tenure with the company.  Even so, it appears that the court was not prepared to expand the scope of the Mareva in the absence of evidence showing that Mr. Plate himself was responsible for the disappearance of the additional funds, or that those funds could be traced to a specific asset under his ownership.  

Richard Hayles, B.A., J.D. 

Link: Atlas Copco Canada Inc. v. Hillier, Plate, et al., CanLII – 2011 ONSC 2277 (CanLII)

 

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Employment & Wrongful Dismissal, Employment Law, Fraud, Injunction & Specific Performance, Litigation Law, Wrongful Dismissal | 1 Comment »

“Dependent Contractor” Gets Six Months Notice of Termination

Wednesday, April 13th, 2011

When an employer terminates an employment contract without cause, the employee is entitled to reasonable notice.  Where the worker is an independent contractor rather than an employee, however, the work relationship can be terminated without notice once the work of the independent contractor has been completed.

The law also recognizes an intermediate category of work relationships which falls short of the degree of direction and control needed to establish an employment contract, but which involves a level of exclusivity that is inconsistent with an independent contractor relationship.  In this situation, the worker is called a “dependent” contractor because his livelihood depends on the company that provides the work.  A dependent contractor, like an employee, is entitled to reasonable notice of termination.

Carmen Sarnelli was a locksmith for 17 years.  He trained with his father, and then took over his father’s business in the year 2000.  About two thirds of Sarnelli’s business came from the defendant Effort Trust Company.  When Effort terminated the relationship at the end of August, 2005, the plaintiff’s business was no longer viable.  He continued to work for a short period of time, but in 2006 he closed his business and sold the inventory.

In a recently released trial decision, Mr. Justice Matheson referred to a series of Canadian cases that recognize the existence of an intermediate situation where an employment relationship does not exist, but where an agreement to terminate the relationship on reasonable notice is nevertheless implied. The permanency of the working relationship between the parties is an important factor in establishing this intermediate category.  A finding of a dependent contractor relationship is more likely where the contractor works exclusively, or with a high level of exclusivity, for a single company.  This element of exclusivity tends to make the contractor economically dependent on the company that provides the work.

Mr. Justice Matheson also referred to five principles that the courts can look to in determining whether or not a dependent contractor relationship exists:

  1. Does the contractor work exclusively for one organization?
  2. Is the contractor subject to the control of a single employer, not only as to the product or services supplied, but also as to when, where, and how products and services are supplied?
  3. Does the contractor have an investment or interest in the tools or equipment required in order to provide his work?
  4. Does the contractor undertake any risk in association with his business, and does he have a corresponding expectation of profit associated with the delivery of his work (as opposed to working for a fixed hourly rate or commission)?
  5. Is the activity of the contractor an integral part of the business organization for which he primarily works?

The judge concluded that Mr. Sarnelli was a dependent contractor.  In making this determination, the judge took note of the fact that Sarnelli was on call at all times, day or night.  Two thirds of his annual billings were for the defendant, so the plaintiff was highly reliant on the defendant.

Another factor that influenced the decision was the fact that Sarnelli had an exclusive distribution contract with the supplier of a particular “high security” lock that Effort Trust preferred to use in some of its buildings.  The witnesses called at trial established that the defendant had no complaints about the plaintiff’s work.  The defendant had seven telephone numbers with which it could reach Sarnelli, indicating a high degree of reliance on him.  Other locksmiths that worked for Effort Trust provided only one or two numbers.

There was also an Effort Trust tradesman list, in which Sarnelli was the only locksmith listed.

The plaintiff had asked for nine months notice.  Since the plaintiff did not seek other customers after the termination, the court concluded that there had been a failure to mitigate, and that six months notice was sufficient.

Under the “dependent contractor” concept, workers who are not employees can still claim compensation if an ongoing contract is terminated without notice or cause.

Richard Hayles, B.A., J.D.

Link: Sarnelli v. Effort Trust Company, CanLII – 2011 ONSC 1080 (CanLII)

 

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Construction Disputes, Contract Disputes, Employment & Wrongful Dismissal, Employment Law, Litigation Law, Wrongful Dismissal | Add Comment »

Senior Executive Gets More Than Three Months Severance Per Year of Service

Friday, March 4th, 2011

In Love v. Acuity Investment Management Inc., the Ontario Court of Appeal elaborated on the principles that apply to the determination of an appropriate severance package when a high-level executive is dismissed without cause.

The plaintiff Paul Love is a chartered accountant.  He resigned his position as a partner in a major accounting firm in 2002 in order to seek employment in the investment management field.  His goal was to work for a company in which he could acquire an equity interest.

Mr. Love became one of two senior vice-presidents with the defendant Acuity Investment Management Inc.  He reported directly to the founder and chief executive officer.  Although the company had about 90 employees, Mr. Love did not supervise others.  At the time of his dismissal he had sole responsibility for managing the investments of Acuity’s institutional clients.

The position did enable Mr. Love to achieve his goal of equity ownership.  As of the dismissal date, he was one of nine shareholders, and held 2% of the issued shares in the defendant corporation.  He acquired his ownership stake in August of 2004, paying approximately $360,000.

Acuity dismissed the plaintiff without cause some 10 months after he had established his equity position.  He was then 50 years old, with just over two and half years of service with the defendant.  His average annual compensation during the period of his employment was in excess of $600,000, including salary, commissions, profit distribution, and the value of shares allotted to him.

The trial judge awarded the plaintiff five months pay in lieu of notice.  Mr. Justice Goudge, delivering reasons for the Court of Appeal, substituted a notice period of nine months.

The trial judge had observed that “relatively speaking Mr. Love was a short service employee”.  The judge took note of the fact that this was not a case where the employee was lured away from secure employment.  He also emphasized that although the plaintiff was a senior vice president, his position involved primarily sales responsibilities, and he did not manage or supervise other employees.

Goudge, J.A. said that the trial judge’s determination of reasonable notice was based on three errors in principle.  First, too much emphasis was placed by the trial judge on the plaintiff’s relatively short length of service.  The determination of appropriate notice requires the court to balance a number of different factors, only one of which is length of service.  Mr. Justice Goudge observed that there is a risk of placing too much weight on length of service, since this is the one factor that can be determined with mathematical precision, and therefore lends itself to comparison with the results in other cases.  According to Mr. Justice Goudge, “Dissimilar cases may be treated as requiring similar notice periods just because the lengths of the service are similar.  The risk is that length of service will take on a disproportionate weight.”

The trial judge also committed an error in principle in failing to accord appropriate weight to the character of the plaintiff’s employment.  He was one of only two senior vice-presidents.  He reported directly to the CEO, and was responsible for an important aspect of Acuity’s business.  He received significant annual compensation, and was one of the owners of the company.  He was a high level executive, and this favours a longer notice period.

Finally, Mr Justice Goudge noted that the trial judge had failed to give any consideration at all to one of the factors that is applied to determine reasonable notice: the availability of comparable employment.  The rather high average annual compensation for Mr. Love’s position, together with the availability of equity ownership, were both factors suggesting that it would be difficult to obtain similar employment.  This was another factor clearly pointing to a longer period of notice.

The appellate court concluded that Mr. Love was entitled to nine months notice of termination, an award which is in excess of three years severance for each year of service.

Richard Hayles, B.A., J.D.

Link: Love v. Acuity Investment Management Inc., 2011 ONCA 130

 

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Employment Law, Severance, Wrongful Dismissal | Add Comment »

How Do I Know If My Severance Package Is Good Enough?

Monday, December 6th, 2010

You’ve been working for the same company for more than 10 years.  Although management is always saying “We’re a family”, you never bought into that.  Still, you get along with everyone, you’ve worked hard, and your manager has let you know that they appreciate your efforts.  The pay’s not that great.  Working conditions could be better.  Anyway, it’s only a job, but you’ve spent most of your waking hours there, five days a week, for a long time, and it’s an important part of your life.

For the last year or so, however, it’s been obvious to everyone that there are problems.  It’s not as busy as it used to be.  There are rumours of layoffs.  It’s a stressful time for everybody.  Then the boss calls you into his office.  Times are tough, he says.  You’ve always done a great job, but business is slow, and we’re going to have to let you go.  Here’s a letter outlining your terms of severance.  I’m really sorry.

Okay, it’s not really a family, but you did feel a part of the organization, and even if you’re not the only one who’s being let go that day, it’s really tough to be shown the door.  What will you do without that paycheck? How will you spend your day, now that you no longer have a 9 to 5? You know you’re going to miss seeing the same people every day.  How long will it take to get a new job? And will you really be able to get a job in your field at the same level, after you’ve been so long with the same company?

You’re a bit surprised at how emotional you feel.  In the middle of all this, you have to decide whether or not the severance package that your employer is offering is reasonable and fair.

First of all, there’s no rush. Your employer wants you to accept the terms you’ve been offered.  Otherwise, why would they offer you a severance package at all?

Employers often set a deadline for acceptance of the proposed severance package. That’s usually just a tactic to put pressure on you to accept their terms.   Remember, these are the terms they want you to accept.  Chances are they will be willing to settle on the same terms or better even after their artificial deadline expires.

If you are a member of a union, the employer’s right to let you go or to eliminate your position depends on the terms of the collective agreement between the union and your employer.  You may have the right to grieve or arbitrate your dismissal, and you should speak to your union representative about this.

If you are not a union member, you really should consult a lawyer who specializes in employment cases before you accept your employer’s severance terms and sign a release.  Once that release is signed it will be difficult, if not impossible, to claim a better severance.

Often, the employer will base its severance proposal on the “Termination and Severance of Employment” provisions in Part XV of the Employment Standards Act, S.O. 2000, c. 41 (the “ESA”).  Under the ESA, the employer has to provide the employee with written notice in advance of termination.  The length of the notice period depends on the length of service of the employee.

In most cases, the employer will want to terminate the employee right away.  The ESA allows employers to do that, but the employer has to provide severance pay that is equivalent to the pay that the employee would have received during the statutory notice period.

Notice periods under the ESA are pretty short.  If you have worked for the company for a full year, but less than three years, you are only entitled to two weeks’ notice under the ESA.  If you’ve been with the same firm for eight years or more, all you get is eight weeks notice of severance; in other words, one week for every year of service.  And there is a cap of 8 weeks’ severance which applies even if you’ve been with your company for 20 years or more.

The good news is that the courts have made it very clear that the severance requirements of the ESA are the minimum.  If you choose to challenge a severance package that is based on the ESA notice periods, you can potentially negotiate a much better severance.

At law, you are entitled to “reasonable notice” of termination, and if your employer fails to provide reasonable notice, you get money damages equal to the salary you would have received during the period of reasonable notice.  Although the minimum notice periods under the ESA are the equivalent of about one week of notice per year of service, court cases have established that reasonable notice amounts to between one and two months’ severance per year of service, depending on the circumstances.

The overriding principle that courts take into consideration in determining whether or not the employer’s severance package is reasonable is the length of time that it would take an employee with the same qualifications and experience, and looking for work in the same job market, to find a new job that was comparable to his former position in terms of the nature of the work, the status of the work, and the compensation earned.  The courts have determined that the assessment of reasonable notice depends on a number of factors:

(1)          The age of the employee. Generally speaking, it takes older individuals longer to find a new position that is equivalent or comparable to their earlier employment.

(2)          The level of your position in the employer’s job hierarchy.  There are a lot of entry-level jobs, but there are very few presidential or vice-presidential level positions.  Courts therefore tend to conclude that the higher your job level, the longer it will take for you to find an equivalent position with another company.

(3)          The salary of your former position.  The more your old job paid, the harder it’s going to be to find another job that pays a comparable salary or wage.

(4)          The nature of the work.  If your job is specialized, and requires a high level of education or a great deal of on-the-job experience, it is unlikely that there will be a lot of other jobs available for someone with your background and education.  On the other hand, if you are highly qualified and there is a shortage of people with your skills, training, and experience, it may be that you can find equivalent work quite quickly.

(5)          Conditions in the job market.  If the overall economy is bad, and employment is low, courts will tend to award longer severance.  If, however, the economy is good, or if demand is high in your particular industry, the court might conclude that it won’t take you that long to find new employment that is comparable to your former position in terms of earnings, responsibilities, and status.

If you have been laid off, you are faced with some tough decisions.  Should you accept the severance your employer has offered, put the whole thing behind you, and hope for the best in terms of whether or not you can get a new job that pays as well and gives you the same satisfaction? Or should you go back to the employer and try to negotiate a more favorable severance? And if you can’t get a better severance, does it make sense to take your case to court?

There aren’t any easy or obvious answers, but an experienced employment lawyer can help you evaluate your options.

Richard Hayles


Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Employment Law | 1 Comment »

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