Employment Law - Winter 2008

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[ LEGAL ISSUES OF INTEREST TO EMPLOYERS AND EMPLOYEES ]=
Volume 18, No. 1
Winter 2008
Employer's promise of severance pay
at Town Hall meeting is a contract
Pages 62-66
Plaintiffs argued that the meeting constituted a
unilateral offer that they had accepted by
remaining in the Employer's employ. The terms
of the contract were found in the past practice
establishing that severance was paid to
employees based on one month for each year of
service, payable when they finished working,
and separate and apart of their common law
rights and of any working notice.
Two employees at an aerospace firm attended a
Town Hall meeting organized by the company
to address employee concerns about job security
and severance packages. Because the Employer
feared that various key employees might decide
to leave, it held the meeting to assure the
employees that the company's past practice of
paying one month's salary for each year of
service would continue to apply to employees
who were laid off in the future. The plan in
effect at that time was to pay out severance as
a lump sum, with no working notice beyond a
few days for employees to finish up work. A
company produced summary of the meeting
noted numerous employee questions about the
possibility that the severance policy might
change in the future, and that management
replied that "[w]e have been assured that the
package will not change."
The Court agreed. It held that the Employer had
entered into a binding contract to pay severance
in accordance with past practice and that
this contract applied to the shutdown of the
plant. However only one of the Plaintiffs was
eligible for the payment because the other had
voluntarily left prior to his termination date. The
Court found that:
"In this context it is reasonable to infer
that the Defendant promised the
employees, including the plaintiffs that
the policy of paying severance equal
to one month's salary for each year of
service would continue to apply to any
future layoff as an incentive for them to
continue working for the company”
However, the Employer subsequently announced
that the plant would be closing and that
employees would be provided with
working notice, the length of which would
depend on the projects they were working on.
The employees sued the Employer in the British
Columbia Supreme Court, seeking lump sum
severance payments based on their years of
service in accordance with the assurances given
by the employer at the Town Hall meeting. The
Consequently, the Court stated that the
assurances given at the Town Hall meeting were
intended to create legal relations and were not
merely informational. The employees accepted
the offer by continuing to work for the company
62
Nelligan O’Brien Payne LLP
www.nelligan.ca
[ OTTAWA ] 66 Slater, Suite 1900, Ottawa, ON K1P 5H1, Tel: (613) 238 8080, Fax: (613) 238 2098, TDD/ATS: (613) 563 4960
[ KINGSTON ] The Woolen Mill, 4 Cataraqui, Suite 202, Kingston, ON K7K 1Z7, Tel: (613) 531 7905, Fax: (613) 531 0857
[ VANKLEEK HILL ] 86 High Street, Vankleek Hill, ON K0B 1R0, Tel: (613) 678 2490, Toll Free: (877) 678 2490, Fax: (613) 678 3762
[ ALEXANDRIA ] 139 Main South, Alexandria, ON K0C 1A0, Tel: (613) 525 2396, Fax: (613) 525 2752
Nelligan O'Brien Payne – Employment Law Newsletter
Winter 2008
Cette décision est l’objet de l’appel à la Cour
d’appel fédérale.
and by neither terminating their employment
or accepting voluntary layoffs. As such, so long
as the employees stayed during the working
notice period, they were entitled to receive the
promised severance package. The moral of the
story is beware of what you say at a meeting, it
may just become a contract!
La question en litige devant l’arbitre et la Cour
fédérale était la suivante : Est-ce que
l’employeur, en imposant les mesures
disciplinaires, a commis une faute civile
distincte ouvrant droit à des dommages-intérêts?
Kornerup et al. v. Raytheon Canada Ltd., 2007
B.C.S.C. 584.
Dans sa décision, la Cour d’appel fédérale tire
son appui des principes énoncés par la Cour
suprême du Canada (« CSC ») dans Vorvis c.
Insurance Corp. of British Columbia, [1989] 1
R.C.S. 1085 et Wallace c. United Grain
Growers Ltd., [1997] 3 R.C.S. 701 pour indiquer
que la responsabilité délictuelle d’un employeur
peut être engagée s’il commet une faute donnant
ouverture à un droit d’action. La Cour d’appel
fédérale précise que la CSC a reconnu dans
l’arrêt Wallace l’existence d’une obligation de
bonne foi et de traitement équitable dans le
contexte du congédiement afin de protéger les
employés au moment où ils sont les plus
vulnérables. Toutefois, la CSC ne suggère pas
qu’un manquement à une obligation de bonne
foi et de traitement équitable équivaut à une
faute donnant ouverture à une indemnisation.
Steven Levitt
[email protected]
L’obligation de bonne foi se limite au
contexte du congédiement
Nota : Dans ce document, l’emploi du masculin
pour désigner des personnes n’a d’autres fins
que celles d’alléger le texte.
Le cadre contextuel du litige découle de la
décision du sous-ministre du ministère de la
Justice du Canada d’imposer des mesures
disciplinaires contre Me Henri Bédirian
(« l’intimé »), un avocat au sein de la Fonction
publique fédérale, suite à des allégations de
harcèlement sexuel. L’intimé a déposé un grief
pour contester la décision du sous-ministre,
conformément à l’article 92 de la Loi sur les
relations de travail dans la fonction publique. Il
réclamait, entre autres, des dommages-intérêts
généraux et punitifs de près de 2 millions de
dollars.
Selon la Cour d’appel fédérale, il importe de
déterminer si l’employeur a commis une faute
civile distincte donnant ouverture à
indemnisation et ce, en vertu des principes de la
responsabilité délictuelle, et non pas si
l’employeur a agi de mauvaise foi ou traité
l’employé de façon inéquitable. L’obligation de
bonne foi se limite au contexte du
congédiement. D’autant plus, selon la Cour
d’appel fédérale, en soi, le fait d’agir de
mauvaise foi ou de façon inéquitable ne
constitue pas une faute civile distincte ouvrant
droit à indemnisation. Ainsi, l’intimé n’avait pas
droit aux dommages-intérêts réclamés dans les
circonstances de l’espèce.
La commissaire a accueilli le grief et conclu que
les allégations n’étaient pas fondées, annulant
ainsi la décision du sous-ministre et réintégrant
l’intimé dans ses fonctions. Or, la commissaire a
jugé que les réclamations additionnelles dans le
grief de l’intimé ne se trouvaient pas au chapitre
de sa compétence. L’intimé effectua donc une
demande de contrôle judiciaire de la décision de
la commissaire. Sa demande fut accueillie de
sorte que l’affaire fut renvoyée à l’arbitre afin
qu’elle épuise sa juridiction et rende une
décision sur les réclamations monétaires de
l’intimé. L’arbitre rejeta la réclamation en
dommages-intérêts. La Cour fédérale a accueilli
la demande de contrôle judiciaire de cet arbitre.
Le Procureur général du Canada c. Bédirian,
2007 C.A.F. 221
Julie Skinner
[email protected]
63
Nelligan O’Brien Payne LLP
www.nelligan.ca
[ OTTAWA ] 66 Slater, Suite 1900, Ottawa, ON K1P 5H1, Tel: (613) 238 8080, Fax: (613) 238 2098, TDD/ATS: (613) 563 4960
[ KINGSTON ] The Woolen Mill, 4 Cataraqui, Suite 202, Kingston, ON K7K 1Z7, Tel: (613) 531 7905, Fax: (613) 531 0857
[ VANKLEEK HILL ] 86 High Street, Vankleek Hill, ON K0B 1R0, Tel: (613) 678 2490, Toll Free: (877) 678 2490, Fax: (613) 678 3762
[ ALEXANDRIA ] 139 Main South, Alexandria, ON K0C 1A0, Tel: (613) 525 2396, Fax: (613) 525 2752
Nelligan O'Brien Payne – Employment Law Newsletter
Winter 2008
Court awards damages of almost $2
million for departing employees
breach of restrictive covenant
Ontario Superior Court Justice Taylor upheld
Staebler’s claims for breach of contract and he
upheld the stipulated damages clause.
H.L. Staebler Co., an insurance brokerage
company in the Waterloo region, restructured in
2000. Two of its highly successful producers,
Tim Allan and Jeff Kienapple, who sold and
serviced commercial insurance, were extremely
unhappy with the changes and with being
overlooked for senior management roles.
The trial judge first asked whether Staebler had
a legitimate proprietary interest to protect, and
concluded that it did. Having regard to the
nature of the insurance industry, common
industry practice and the fact that “Staebler's
book of business, namely the clients, is an asset
owned by Staebler, which it is entitled to
protect,” the Court determined that the scope of
the clause was not too broad.
On October 15, 2003, Allan, Kienapple and their
respective assistants all resigned with no notice
to Staebler. That same day, from the offices of
Stevenson & Hunt's new Waterloo office, they
contacted their clients to advise they were no
longer with Staebler. Staebler began receiving
letters of authority from clients directing the
transfer of their business to Stevenson & Hunt
before end of day. Staebler obtained an
interlocutory injunction two weeks later. By that
time 118 clients had already moved their
business.
Relevant to his decision was the fact that
commercial producers have a close and personal
relationship with their clients, having taken one
or two years to gain familiarity with their clients'
businesses. He found, therefore, that a simple
non-solicitation clause would not be effective in
protecting Staebler's proprietary interest because
the "clients would be likely to follow Allan and
Kienapple to their new employer without any
solicitation." Moreover, Taylor noted, the
Staebler covenant was "significantly less
restrictive" than the one contained in the
employment contracts entered into by the
defendants with Stevenson & Hunt, a relevant
consideration when determining industry
practice and an employee's understanding of
what is appropriate.
At trial Staebler sought damages, including
punitive damages, for breach of fiduciary duty,
breach of contract, conspiracy and inducing
breach of contract.
Allan and Kienapple had signed employment
contracts containing restrictive covenants
provisions expressly stating that clients belong
to the company, and that "[i]n the event of
termination of your employment with the
Company, you undertake that you will not, for a
period of two consecutive years following said
termination, conduct business with any
clients/customers of H.L. Staebler Company
Limited that were handled or serviced by you at
the date of your termination."
Looking at the question of the public interest,
Justice Taylor rejected the argument that
Staebler's restrictive covenant prevented these
employees from earning a living in their chosen
field. He noted that the clause did not stop them
from acting as insurance brokers selling
commercial insurance, from accepting
employment with a competing brokerage, or
from contacting other Staebler clients not
serviced by them. The Court rejected as well the
defendants' argument that the covenant was
contrary to the public interest because it
"interfere[d] with purchasers of insurance
obtaining service and advice from the person
most knowledgeable about their insurance
needs."
The contract also provided that damages for a
breach of the undertaking "shall be a sum equal
to 1 1/2 times the commission income received
by you or your subsequent employer on account
of business conducted on behalf of persons or
businesses that were clients/customers of H.L.
Staebler."
64
Nelligan O’Brien Payne LLP
www.nelligan.ca
[ OTTAWA ] 66 Slater, Suite 1900, Ottawa, ON K1P 5H1, Tel: (613) 238 8080, Fax: (613) 238 2098, TDD/ATS: (613) 563 4960
[ KINGSTON ] The Woolen Mill, 4 Cataraqui, Suite 202, Kingston, ON K7K 1Z7, Tel: (613) 531 7905, Fax: (613) 531 0857
[ VANKLEEK HILL ] 86 High Street, Vankleek Hill, ON K0B 1R0, Tel: (613) 678 2490, Toll Free: (877) 678 2490, Fax: (613) 678 3762
[ ALEXANDRIA ] 139 Main South, Alexandria, ON K0C 1A0, Tel: (613) 525 2396, Fax: (613) 525 2752
Nelligan O'Brien Payne – Employment Law Newsletter
Winter 2008
In that case, Ms. Mastrogiuseppe was summarily
dismissed for purportedly failing to abide by a
number of bank policies that had been changed
several years earlier. These policies discouraged
contact between bank managers and mortgage
brokers and indicated that a mortgage cash-back
program was to be directed at the mortgagee and
to no other person.
The Court was not troubled by the two-year
duration of the prohibition. Looking at the
insurance brokerage business generally, these
clauses run between 18 months and three years
said the trial judge.
On the issue whether the damage clause in the
contract was enforceable the judge noted that “a
sum will be held to be a penalty if it is
extravagant and unconscionable in comparison
to the greatest loss that could conceivably be
proved. It is not sufficient that the pre-estimate
of damages is more than the actual damages for
it to be held to be a penalty.”
Ms. Mastrogiuseppe allegedly contravened these
policies when she dealt directly with a mortgage
broker with whom she was suspected of having
an affair. She also directed a number of cashbacks to be made out to him or to solicitors in
trust for him rather than to the mortagee. In
addition, Ms. Mastrogiuseppe had been accused
of taking advantage of a glitch in the system for
an early renewal of her mortgage without
penalty. She also approved loans for family
members in non-arm’s length transactions.
Both sides called expert evidence on the
question of damages and the trial judge reviewed
it and assessed the actual damages sustained by
Staebler from the breach. He concluded actual
damages sustained by Staebler to be about $1.5
million. The stipulated damage clause providing
for 1.5 times gross commissions earned by
Stevenson & Hunt from former Staebler clients
yielded a number of approximately $1.85
million. The trial judge found this was not
extravagant or unconscionable and awarded the
higher amount.
The Bank launched an investigation when it got
wind of these actions. The investigator’s report
came to the conclusion on each of these points
that Ms. Mastrogiuseppe’s explanations were
not satisfactory and that, given her extensive
experience with the bank and her senior
position, she knew, or ought to have known
better. As a result, the investigator
recommended that she be terminated for cause.
This case serves as a useful reminder that
restrictive covenants narrowly drafted to protect
legitimate proprietary interests are enforced by
the Courts if they are reasonable in all the
circumstances.
The Superior Court came to the conclusions that
the policies relied on by the bank were not
unambiguous prohibitions but rather
recommendations. As a result, the bank could
not rely on them to support its decision to
terminate for cause. In addition, the bank’s
conclusion that Ms. Mastrogiuseppe was having
an affair with a mortgage broker was based on
outdated stereotypes that person’s of the
opposite sex could not have friendly relations
exclusive of sexual relationships. The bank had
also overlooked the evidence that indicated that
she had renewed her mortgage the day before
she found out about the glitch in the system, and
the approval of loans to family members,
although perhaps not good practice, were
eventually proven to be legitimate.
H. L. Staebler Company Limited v. Allan, 2007
CanLII 37692 (ON S.C.)
Robert Monti
[email protected]
“Blacklisting” by former employer
against an employee’s family gives
rise to bad faith and punitive
damages award
A recent case of the Ontario Court of Appeal
made the novel decision to award punitive
damages (as well as bad faith damages) because
a Bank blacklisted a former employee’s
relatives.
65
Nelligan O’Brien Payne LLP
www.nelligan.ca
[ OTTAWA ] 66 Slater, Suite 1900, Ottawa, ON K1P 5H1, Tel: (613) 238 8080, Fax: (613) 238 2098, TDD/ATS: (613) 563 4960
[ KINGSTON ] The Woolen Mill, 4 Cataraqui, Suite 202, Kingston, ON K7K 1Z7, Tel: (613) 531 7905, Fax: (613) 531 0857
[ VANKLEEK HILL ] 86 High Street, Vankleek Hill, ON K0B 1R0, Tel: (613) 678 2490, Toll Free: (877) 678 2490, Fax: (613) 678 3762
[ ALEXANDRIA ] 139 Main South, Alexandria, ON K0C 1A0, Tel: (613) 525 2396, Fax: (613) 525 2752
Nelligan O'Brien Payne – Employment Law Newsletter
Winter 2008
doubled her interest rate on her personal loans
and unlawfully used a direction signed by the
plaintiff to deduct mortgage payments from a
different bank, under protest of Ms.
Mastrogiuseppe. As a result, her personal
cheques were returned as NSF and her credit
was adversely affected.
The judge states, given the circumstances, that
“[w]arnings, setting out the performance
problem, the actions required to improve to an
acceptable level and the consequences of failing
to improve, were required.” Given her age (47),
her 30 years of service and her role as a mid-tosenior manager, the judge awarded her 22
months in lieu of notice. In addition the judge
awarded 8 additional months in Wallace
damages as a result of the accusation of
dishonest conduct and improper personal
relations with the mortgage broker, the fact that
the dismissal letter did not cite reasons, the Bank
had written her a letter whose intent was found
to devastate her prospects of getting
employment insurance, the Bank refused to
provide her with a letter of reference despite her
years of exemplary service and finally because
the Bank had refused to allow her to retrieve her
personal effects and had instead couriered them
to her. The Court also awarded an additional
$25,000 in punitive damages for having
blacklisted Ms. Mastrogiuseppe’s family
members who were customers. The bank also
The Court of Appeal deferred to the Superior
Court on its conclusions because they were all
findings of fact. The Court of Appeal, however,
reduced Wallace damages to 4 months because
the Bank was not acting in bad faith in pursuing
the allegations of dishonesty, even though they
were ultimately not proved or refusing to
provide a letter of reference in those
circumstances. However, the Court of Appeal
upheld the punitive damages and bad faith award
due to the Bank’s vendetta against Ms.
Mastrogiuseppe and her family.
Mastroguiseppe v. Bank of Nova Scotia, [2007]
O.J. No. 4052 (Ont. C.A.)
Adrian Ishak
[email protected]
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© Copyright 2007 Nelligan O’Brien Payne LLP
66
Nelligan O’Brien Payne LLP
www.nelligan.ca
[ OTTAWA ] 66 Slater, Suite 1900, Ottawa, ON K1P 5H1, Tel: (613) 238 8080, Fax: (613) 238 2098, TDD/ATS: (613) 563 4960
[ KINGSTON ] The Woolen Mill, 4 Cataraqui, Suite 202, Kingston, ON K7K 1Z7, Tel: (613) 531 7905, Fax: (613) 531 0857
[ VANKLEEK HILL ] 86 High Street, Vankleek Hill, ON K0B 1R0, Tel: (613) 678 2490, Toll Free: (877) 678 2490, Fax: (613) 678 3762
[ ALEXANDRIA ] 139 Main South, Alexandria, ON K0C 1A0, Tel: (613) 525 2396, Fax: (613) 525 2752