Supreme Court of Canada Extends Human Rights Protection from Employment Discrimination to Co-Workers

In British Columbia Human Rights Tribunal v. Schrenk 2017 SCC62, a majority of the Supreme Court of Canada found that the British Columbia Human Rights Code’s (“Code”) prohibition against discrimination “regarding employment” prohibits discrimination against employees even where the discriminatory conduct was carried out by a co-worker and not the employer.  The court held that the Code applies whenever the discrimination has a “sufficient nexus” with employment. 

In this case the complainant Sheikhzadeh-Mashgoul (the “Complainant”) filed a complaint with the British Columbia Human Rights Tribunal (“Tribunal”) against the respondent Schrenk (the “Respondent”) alleging employment discrimination based on religion, place of origin and sexual orientation. 

The Complainant worked for an engineering company as a civil engineer on a road improvement project.  The engineering company had certain supervisory powers over employees of a construction company, the primary contractor on the project.  The construction company employed the Respondent as a site foreman and superintendent.  When the Respondent made racist and homophobic statements to the Complainant, he was initially removed from the site but when the harassment continued, the construction company terminated his employment.

The Complainant immigrated to Canada from Iran and identified as Muslim.  When the Respondent learned of the Complainant’s origin and religion he made jokes about being blown up by a suicide bomb, called the Complainant a “fucking Muslim piece of shit”, and asked him whether he was going to call  his gay friend.  After the Complainant complained the Respondent persisted and shouted “go back to your mosque where you came from”.  Such behaviour resulted in the Respondent being removed from the work site.  However, subsequently he sent unsolicited emails to the Complainant in which he made derogatory insinuations about his sexual orientation. 

The Respondent brought an application to dismiss the complaint in which he argued that his alleged conduct was not discrimination “regarding employment” and was consequently beyond the jurisdiction of the Tribunal.  The Respondent’s argument was simple:  he was not in a position of economic authority over the Complainant.  He was neither the Complainant’s employer nor his superior in the workplace.  His conduct, however egregious, could not be considered discrimination “regarding employment” within the meaning of the Code.  

The Tribunal held that it had jurisdiction to deal with the complaint and denied the Respondent’s application to dismiss the complaint.  The British Columbia Supreme Court dismissed the Respondent’s application for judicial review, but the Court of Appeal allowed his appeal and found that the Tribunal had erred in law by concluding that it had jurisdiction over the complaint.

A 6 – 3 majority of the Supreme Court (Moldaver, Karakatsanis, Wagner, Gascon, Rowe and Abella) disagreed with the Court of Appeal and allowed the appeal (Justice Moldaver wrote the majority decision with a separate concurring decision written by Justice Abella).  Justices McLachlin, Cote and Brown dissented. 

The majority held as follows. 

The case involved the interpretation of the meaning of the words “employment” and “person” in the Code.   Reading the Code in line with the modern principle of statutory interpretation and the particular rules that apply to the interpretation of human rights legislation the prohibition against discrimination against employees prohibits discrimination whenever that discrimination has a sufficient nexus with the employment context.  This may include discrimination by their co-workers even when those co-workers have a different employer.   The discrimination in the case had sufficient nexus to the Complainant’s employment because the Respondent was integral to the Complainant’s workplace, the impugned conduct had occurred in the Complainant’s workplace and the Complainant’s work environment was negatively affected.   This contextual interpretation furthers the purposes of the Code by recognizing how employee vulnerability stems not only from economic subordination to their employers but also from being a captive audience to other perpetrators of discrimination such as a harassing co-worker. 

In separate reasons, Justice Abella found that the analysis requires that the meaning of employment discrimination be considered in a way that is consistent with the Supreme Court’s well settled human rights principles and not just the particular words of the Code.  Applying these principles leads to the conclusion that an employee is protected from discrimination related to or associated with his or her employment, whether or not he or she occupies a position of authority.  As a result, the Tribunal had jurisdiction to hear the complaint.

The dissenting three judges held that the prohibition against workplace discrimination in the relevant section of the Code applied only to employer-employee or similar relationships and authorized claims against those responsible for ensuring that workplaces are free of discrimination.  If the section were interpreted to allow claims against anyone in the workplace most of the next section which provides a separate protection against discrimination by unions and associates would be redundant.  The Code required the Complainant to focus on the employer, i.e. the people responsible for maintaining a discrimination free workplace.  Where the employer fails to intervene or prevent or correct discrimination the section is engaged.   

Importantly in this case, the court expanded human rights code protection against employment discrimination to encompass discrimination outside of the confines of the traditional employer-employee relationship. 

Regards,

Blair

Court of Appeal: No Duty to Mitigate if Employment for Fixed Term

On April 8, 2016, the Ontario Court of Appeal affirmed that an employee whose employment is subject to a fixed term, is upon early termination of his employment, entitled to payment of an amount equal to his salary and benefits for the unexpired term of the contract, with no duty to mitigate.

 

In the case of Howard v. Benson Group Inc. 2016 ONCA 256 the Ontario Court of Appeal overturned the summary judgment decision of Justice Donald MacKenzie of the Superior Court of Justice.  Benson had employed Howard pursuant to the terms of a written employment agreement.  The agreement provided for a fixed five year term but also provided that Benson could terminate Howard’s employment at any time “in accordance with the terms and conditions of this agreement”.  Specifically, a paragraph of the agreement provided that upon termination, Howard would only be entitled to receive  amounts in accordance with the Employment Standards Act of Ontario. 

 

Accordingly, when Benson terminated Howard’s employment almost two years into the contract, it argued that its liability was limited to two weeks salary in lieu of notice.  The motion judge found that the clause was unenforceable due to ambiguity and awarded Benson common law damages for wrongful dismissal, subject to a duty to mitigate.

 

The Ontario Court of Appeal (Justices Cronk, Pepall and Miller) disagreed with the motion judge.  Justice Miller wrote the decision of the court.  Justice Miller held that the applicable standard of review in this case was one of correctness.  In other words, where the motion judge’s decision contained an "extricable question of law" it was reviewable on the correctness standard. 

 

Justice Miller held that where an employment agreement states unambiguously that the employment is for a fixed term it will oust the implied term of an agreement that reasonable notice must be given for termination without cause.  If the parties to such a fixed term contract do not specify a pre-determined notice period, the employee is entitled, on early termination, to the wages he would have received to the end of the term.  Justice Miller cited an Ontario Court of Appeal case called Bowes v. Goss Power Products Ltd. 2012 ONCA 425  for such authority. 

 

Because the impugned clause was void for uncertainty, Howard’s employment agreement unambiguously remained a fixed term contract. 

 

With respect to Howard’s duty to mitigate his damages, Justice Miller found that the leading case from the Ontario Court of Appeal was Bowes.  Bowes held that a contractually fixed term of notice is distinguishable from common law reasonable notice.  Where the agreement stipulates a fixed term of notice or payment in lieu, it should be treated as fixing liquidated damages or a contractual amount.  In such cases, there was no obligation on the employee to mitigate his damages.  Thus, the duty to mitigate does not apply to liquidated damages or contractual amounts.

 

The Court of Appeal allowed the appeal and remitted the matter to the motion judge for determination of the quantum of damages to which Howard was entitled.

Regards,

Blair

Supreme Court Set to Rule Upon Dismissal Provisions of Canada Labour Code

On January 19, 2016 the Supreme Court of Canada will hear arguments in the case of Joseph Wilson v. Atomic Energy of Canada Limited (“AECL”) (2015 FCA 17).  The case involves the proper interpretation of certain provisions of the Canada Labour Code (“Code”) and whether an employee whose employment is subject to the Code, if dismissed without cause, has automatically been unjustly dismissed. 

 

In this case, AECL had employed Mr. Wilson for four and a half years.  Starting out as a Senior Buyer/Order Administrator, Mr. Wilson had received many promotions.  His last position was Procurement Supervisor, Tooling.  That position was not managerial.  On November 16, 2009, AECL terminated Mr. Wilson’s employment without cause.  AECL offered Mr. Wilson a severance package equal to roughly six months’ pay in exchange for a full and final release.  Had his severance package been determined in accordance with the minimum statutory notice and severance requirements under the Code, he would have been entitled to only 18 days’ pay.

 

Mr. Wilson did not sign the release.  Instead he filed a complaint under Part III of the Code alleging that he had been unjustly dismissed.  At the request of his counsel, Mr. Wilson remained on AECL’s payroll for roughly six months, continuing his access to AECL’s employee benefit programs.  In the end he received the full amount of the severance package AECL had originally offered to him. 

 

An adjudicator was appointed to hear Mr. Wilson’s complaint under the Code.  In the agreed statement of facts placed before the adjudicator, the parties identified two “preliminary questions”:  1.  Whether as a matter of statutory interpretation AECL could lawfully terminate Mr. Wilson’s employment on a without cause basis; and 2.  If so, whether the severance package gave rise to a "just dismissal".

 

The adjudicator accepted Mr. Wilson's submission that dismissal without cause is, by that reason alone, unjust dismissal within the meaning of the Code and that he was therefore entitled to a remedy.

 

Having made that decision, the adjudicator adjourned the hearing, directing the parties to discuss the appropriate remedy in the hopes that it might settle.   Absent settlement, he intended to conduct a hearing to determine whether a remedy was warranted and if so what it should be. 

 

AECL applied to the Federal Court for judicial review of the adjudicator’s decision.  The Federal Court dismissed the appellant’s objection that the judicial review was preliminary and found that the adjudicator’s statutory interpretation decision was unreasonable.  The Federal Court quashed the adjudicator’s decision and remitted the matter back to the adjudicator for decision. 

 

On further appeal to the Federal Court of Appeal, the court dismissed Mr. Wilson’s appeal. 

 

The Federal Court of Appeal found that the proper interpretation  of the Code had created two schools of thought which have persisted for decades.  The key consideration by the court was whether Part III of the Code ousted the common law of dismissal or whether it accepts the common law as given, supplementing and building upon it.  At common law, an employer could dismiss a non-unionized employee without cause, but is liable to provide reasonable notice or compensation in lieu of notice.  If the employee is given such notice, he or she is not wrongfully dismissed.

 

The Federal Court found that the provisions found in Part III of the Code do not represent a sea-change in the law of dismissal but rather enhance the remedies that may be available in appropriate cases of dismissal.   It will always be for the adjudicator to assess the circumstances and determine whether the dismissal, whether or not for cause, was unjust.  The dismissal of an employee without cause is not automatically unjust.

 

Part III of the Code sets out a complaints mechanism and remedies for “unjust” dismissal.  Specifically, a subsection of the Code empowers an adjudicator to “consider whether the dismissal of the person who made the complaint was unjust”.   The Code does not define unjust.  The Federal Court of Appeal examined whether Part III ousted the common law of employment or supplemented and built upon it as set out in that subsection.  

 

In reaching its decision, the Federal Court of Appeal held that the legislator is presumed not to depart from prevailing common law.   Such prevailing common law can be ousted only by way of explicit language or necessary implication.  An example of necessary implication is where the legislator has provided for something that conflicts with the common law so that the two can no longer live together.  The common law is not ousted unless Parliament has expressed its intentions to do so with “irresistible clearness”.  The Code does not contain text or necessary implication that can be taken to oust the aspects of the common law of employment.  The Code was enacted against the backdrop of the common law and does not explicitly oust it in this respect.   

Wilson has obtained leave to appeal from this decision to the Supreme Court of Canada.

AECL's case at the FCA was argued by my partner Ron Snyder.  I will keep you posted.

Regards,

Blair

Ontario Appeal Court Reduces 70 Year Old's Dismissal Notice Period By Six Months

In a recent ruling, the Ontario Court of Appeal reduced the wrongful dismissal award of a 70 year old employee by 6 months.

 

In the case of Kotecha v Affinia Canada ULC (2014 ONCA 411).  The Court reduced the motion judge’s award of a 24 and one-half months to 18 months on the basis that "there were no exceptional circumstances that would justify" the longer award.

 

Affinia is a manufacturer of auto parts.  Kotecha was 70 years old and had worked for Affinia for 20 years as a machine operator.  He installed rivets on brake pads.  At the time of his dismissal, Kotecha was earning $18.23/hour.  Based on a 40 hour work week, this wage equated to approximately $38,000.00 per year. 

 

Affinia admitted that Kotecha was dismissed without cause.  Kotecha brought a motion for a summary judgment to fix the length of the notice requirement and his damages. 

 

At the motion, the judge considered the factors in Bardal v. Globe and Mail Ltd  as set out by the Supreme Court of Canada i.e. the character of the employment, length of service, age of the employee and the availability of similar employment having regard to the experience training and qualifications of the employee.  The judge concluded that this was a simple case of wrongful dismissal and having regard to other cases with similar facts, fixed the notice period at 22 months.  Her ruling did not include the 11 weeks of working notice that Affinia had given Kotecha. 

 

Affinia appealed to the Court of Appeal.  Before the appeal court, Affinia argued that the motion judge had erred in disregarding an unreported judgment of another judge in a case against it (Sharma v Affinia Canada) and that on almost identical facts, that judge in that case had awarded 13 months as reasonable notice.  Affinia argued that the motion judge was bound by the doctrine of stare decisis to award a similar period of reasonable notice in this case.

 

The Court of Appeal rejected that argument.  It reiterated that the principle of stare decisis required that courts render decisions that are consistent with the previous decisions of higher courts.  While other decisions of the Superior Court are persuasive, they are not binding.  Moreover, the Court held that the determination of the appropriate notice period is a very fact-specific exercise and is calculated in accordance with numerous factors set out in Bardal.

 

However, the Court held that judges should strive to ensure that notice periods, which are inherently individual, are consistent with the case law.  The Court found that was not done in this case.  Taking into account the period of working notice that Affinia had given Mr. Kotecha, the total notice period awarded to him was 24 and ½ months.  The Court held that this was excessive and that there were no exceptional circumstances that would justify the award.  It did not accept Affinia’s position that a 13 month notice period was appropriate but rather “adjusted” the notice period to 18 months, less the working notice of 11 weeks. 

The decision seems harsh given that, at 70 years old,  Mr. Kotecha has virtually no chance of getting another job.  One would have thought that his advanced age was an "exceptional circumstance" that would have persuaded the court to award a period of notice in the 20 to 24 month range. 

Regards,

Blair

 

Mandatory Retirement for Law Firm Partners Not Discriminatory

John Michael McCormick became an equity partner at Fasken Martineau DuMoulin LLP (“Faskens”) in 1979.  In the 1980s the equity partners of Faskens voted to adopt a provision in their partnership agreement whereby equity partners were required to retire and divest their ownership shares in the partnership at the end of the year in which they turn 65.  In 2009, when he was 64, Mr. McCormick brought a claim before the British Columbia Human Rights Tribunal (“Tribunal”) alleging that the provision in the partnership agreement constituted age discrimination contrary to the British Columbia Human Rights Code (“Code”).

Faskens applied to have the claim dismissed on the grounds that the complaint was not within the jurisdiction of the Tribunal and that there was no reasonable prospect that that it would succeed.  Faskens argued that McCormick, as an equity partner, was not in the type of workplace relationship covered by the Code. 

The Tribunal  concluded that there was an employment relationship and concluded that Faskens had discriminated against McCormick.  Faskens' application for judicial review was dismissed by the British Columbia Supreme Court.  However, the British Columbia Court of Appeal allowed Faskens’ appeal, concluding that McCormick, as a partner, was not in an employment relationship with Faskens pursuant to the provisions of the Code. 

McCormick ‘s further appeal to the Supreme Court of Canada was dismissed.

The Supreme Court, with reasons written by Justice Abella, unanimously held that the Code was a quasi-constitutional legislation which should be “generously” interpreted to permit it to achieve its broad public purposes.  Those purposes include the prevention of arbitrary disadvantage or exclusion based on enumerated grounds so that individuals deemed to be vulnerable by virtue of a group characteristic can be protected from discrimination.  The Code achieves these purposes by prohibiting discrimination in a context such as employment. 

Deciding who is in an employment relationship for the purposes of the Code means examining the “two synergetic” aspects in the relationship:    control exercised by an employer over working conditions and remuneration, and corresponding dependency on the part of the worker.  The test is who is responsible for determining working conditions and financial benefits and to what extent does a worker have an influential say in those determinations.  The more the work life of individuals is controlled, the greater their dependency and, consequently their economic, social and psychological vulnerability in the workplace. 

Control and dependency are a function of whether the worker receives immediate direction from or is effected by the decision of others and also whether he or she has the ability to influence decisions which critically affect his or her working life.    Ultimately, the key is the degree of control and the extent to which the worker is subject and subordinate to someone else’s decision-making over working conditions and remuneration. 

Applying the control/dependency test to this case, Justice Abella found that in addition to the right to participate in the management of the partnership, McCormick benefited from other control mechanisms, including the right to vote for and stand for election to the firm's board; the duty that the other partners owed him to render accounts; the right not to be subject to discipline or dismissal; the right on leaving the firm to his share of Faskens' capital account; and the protection that he could only be expelled from the partnership by a special resolution passed by a meeting of all equity partners and a regional resolution in his region.     

The court found that as an equity partner and based on his ownership sharing of profits and losses and the right to participate in management, McCormick was part of the group that controlled the partnership, not a person vulnerable to its control and for over 30 years had benefited financially from the retirement of other partners.  McCormick was not ever in a subordinate relationship with the other equity partners.

Interestingly, the court held that it is not to say that a partner in a firm can never be an employee under the Code but in the absence of any genuine control of McCormick in the significant decisions effecting the workplace, in this case there was no employment relationship between him and Faskens under the provisions of the Code.  Accordingly, the court found that the Tribunal had no jurisdiction over McCormic’s relationship with Faskens.  

Regards,

Blair

Fired Employee Entitled to Both Damages and Full Pension Benefits

Richard Waterman had worked for IBM for 42 years when the company fired him without cause.  IBM provided him with 2 months notice of the termination of his employment.  He was 65 years old.  Waterman sued IBM to enforce his contractual right to be given reasonable notice of termination.  The trial judge set the appropriate period of notice at 20 months.  When he was fired, Waterman had a vested interest in IBM's defined benefit pension plan.  Under the terms of the plan, IBM had contributed a percentage of Waterman's salary to the plan on his behalf.  Upon termination, Waterman was entitled to a full pension and his termination had no effect on the amount of his pension benefits.  The trial judge declined to deduct the pension benefits paid to Waterman during the notice period in calculating his damages.  IBM's appeal was dismissed by the British Columbia Court of Appeal.  

 

The Supreme Court of Canada, Justice Cromwell writing for the majority, dismissed IBM's further appeal.  Chief Justice McLachlin and Justice Rothstein dissented.

 

Justice Cromwell held that the rule that damages are measured by the plaintiff's actual loss does not cover all cases.  He ruled that pension benefits are a form of deferred compensation for an employee's service and constitute a type of retirement savings.  They are not intended to be an indemnity for wage loss due to unemployment.  

 

In this case, it was clear to the court that a "compensating advantage" had arisen:  Waterman received both his full pension benefits and the salary he would have earned had he worked during the period of reasonable notice.  Had IBM given him working notice, he would have received only his salary during that period.  A compensating advantage arises if a source other than the damages payable by the defendant ameliorates the loss suffered by the plaintiff as a result of the defendant's breach of a legal duty.  A problem only arises with a compensating advantage when the advantage is one that: (a) would not have accrued to the plaintiff but for the breach; or

(b) was intended to indemnify the plaintiff for the sort of loss that resulted from the breach.

 

Justice Cromwell saw this case as akin to the "private insurance exception" - in general a benefit will not be deducted if it is not an indemnity for the loss caused by the breach and if the plaintiff has contributed in order to obtain entitlement to it.  In addition, the deduction issue was subject to broader policy considerations. 

 

Justice Cromwell held that in this case the factors clearly supported not deducting Waterman's retirement pension benefits from his wrongful dismissal damages.  Waterman's contract of employment was silent on the issue but it did not have any general bar against receiving full pension entitlement and employment income.  Waterman's retirement pension was not an indemnity for wage loss, but rather a form of retirement savings.  While IBM had made all of the contributions to fund the plan, Waterman had earned his entitlement to benefits through his years of service.  Therefore, as in the private insurance exemption, the pension benefits were not an indemnity and Waterman had contributed to the benefits.

 

Finally, the broader policy concerns in this case supported not deducting the pension benefits.  Justice Cromwell held that the law should not provide an economic incentive to dismiss pensionable employees rather than other employees.

 

In his dissenting opinion, Justice Rothstein wrote that the private insurance exception has no application to this case.  The case required an assessment of Waterman's loss under the terms of a single contract which gave rise to both the right to reasonable notice and a right to pension benefits.  Waterman's entitlement therefore turned on the ordinary governing principle that he should be put in a position that he would have been in had the contract been performed.  If his pension benefits were not deducted, he would have been given more than he bargained for and IBM would have been charged more than it had agreed to pay. 

 

Justice Rothstein wrote that employer-provided benefits are an integral component of the employment contract so deductibility of such benefits turns on the terms of the employment contract and the intention of the parties.  Under the terms of Waterman's employment contract he would have been eligible to receive pension benefits only upon being terminated or retiring.  Therefore, his contractual right to wrongful dismissal damages and his contractual right to his pension benefits were based on opposite assumptions about his availability to work.  Damages could not be paid on the assumption that he could have earned both. 

 

Unlike a defined contribution plan, a defined benefit plan guarantees the employee fixed predetermined payments upon retirement for life.  Deducting the benefits would provide the wrongfully terminated employee with exactly what he would have received had the employment contract been performed:  an amount equal to his salary during the reasonable notice period and thereafter defined benefits for the rest of his life.

 

In this case, Waterman's wrongful dismissal had no impact on his pension entitlement and he could not have received both his salary and his pension benefits had he continued to work for IBM through the reasonable notice period.

 

Regards,

 

Blair

Supreme Court of Canada: Restrictive Employment Covenants in Quebec are Enforceable When Linked to an Asset Sale

The Supreme Court of Canada has released a decision (Payette vs. Guay Inc. 2013, SCC 45),  upholding a decision of the Quebec Court of Appeal which granted a permanent injunction to enforce a restrictive employment covenant.

Guay Inc. acquired assets belonging to corporations controlled by Mr. Payette. The agreement for the sale of the assets contain non-competition and non-solicitation clauses. To ensure a smooth transition after the sale, the parties agreed that Mr. Payette would work full-time for Guay as a consultant. At the end of the transition period the parties entered into a contract of employment originally for a fixed term and then for an indefinite term. A few years later Guay fired Mr. Payette without a "serious reason".  Mr. Payette then started a new job with a company that was a competitor of Guay.

The Quebec Superior Court dismissed Guay's motion for an injunction compelling Mr. Payette to comply with the restrictive covenants in the agreement for the sale of assets. The Quebec Court of Appeal set aside that judgment and ordered a permanent injunction (for the duration of the period of the non-competition).

Mr. Justice Wagner wrote the decision for the Supreme Court.  He held that the permanent injunction should be enforced. The rules applicable to restrictive covenants related to an employment differ depending on whether the covenants were linked to a contract for the sale of a business or to a contract of employment. The employer-employee rules have no equivalent in the commercial context since those rules were a response to the imbalance of power that generally characterizes the employment relationship. In the commercial context an imbalance of power is not presumed to exist.

Parties negotiating the sale of assets have greater freedom of contract than do parties negotiating contracts of employment, both at common law and in the civil law of Quebec. To ameliorate the imbalance that often characterizes the employer-employee relationship, the Quebec legislature enacted rules that apply only to contracts of employment and are intended to protect employees. Accordingly where an employer has fired the employee without a serious reason, the employer may not avail himself of a non-competition covenant.

To determine whether a restrictive covenant is linked to a contract for the sale of assets or a contract of employment it is important to clearly identify the reason why the covenant was entered into. In this case, the non-competition and non-solicitation clauses could not be disassociated from the contract for the sale of assets. As a result, the scope of these clauses had to be interpreted on the basis of commercial law rules and the protection provided the employees by the Civil Code of Quebec did not apply.

In the commercial context a restrictive covenant is lawful unless it can be established on a balance of probabilities that its scope is unreasonable having regard to the context in which it was negotiated. A non-competition covenant will be reasonable and lawful provided that it is limited as to its term and to the territory and activities to which it applies to whatever is necessary to the protection of the legitimate interests of the party in whose favour it was granted. In this case, there was no evidence that the five year period was unreasonable having regard to the highly specialized nature of the business activities involved.

In addition, Justice Wagner found that, while in the case of non-competition covenants, the territory to which the covenant applies must be identified, a determination that a non-solicitation covenant is reasonable and lawful does not generally require a territorial limitation. In this case, the parties' failure to include a territorial limitation in the non-solicitation clause did not make it unreasonable and therefore unenforceable

Regards,

Blair

Supreme Court Restricts Random Drug and Alcohol Testing of Unionized Employees

Irving Pulp & Paper Limited operates a craft paper mill in Saint John, New Brunswick. In the 15 year period between 1991 and 2006, Irving had no formal policy with respect to alcohol and drug use at the mill. In 2006, it unilaterally adopted a "Policy On Alcohol And Other Drug Use" under the management rights clause of the collective agreement with its workers' union  (Communications, Energy and Paperworkers Union of Canada, Local 30) but without any negotiations with the union. The policy imposed drug or alcohol testing for employees holding positions designated by Irving as "safety sensitive".

The policy contained a random alcohol testing component, whereby 10 per cent of the employees in safety sensitive positions were to be randomly selected for unannounced breathalyser testing over the course of a year. A positive test for alcohol attracted significant disciplinary action, including dismissal. Failure to submit to testing was grounds for immediate dismissal.

One of the employees randomly tested was Perley Day, a member of the Union. Mr. Day was a teetotaler who had not had a drink since 1979. His breathalyser test revealed a blood alcohol level of zero. The Union filed a grievance on his behalf challenging only the random alcohol testing aspect of the policy. The Union did not challenge the rest of the policy which required employees to be subject to mandatory testing if there was reasonable cause to suspect alcohol or other drug use in the workplace.

There were only 8 documented incidents of alcohol consumption or impairment at the workplace over a 15 year period, from April 1991 to January 2006. By December of 2008 (when the arbitration was heard), the testing policy had been in effect for 22 months and not a single employee had tested positively in either a random test or a test for reasonable cause.

The absence of evidence of any real risk related to alcohol led a majority of a labour arbitration board to conclude that there was little benefit to Irving in maintaining the random testing policy. The board measured the employer's interest in random alcohol testing as a workplace safety measure against the harm to the privacy interest of the employees.  The board allowed the grievance and concluded that random testing was unjustified.

On judicial review, a New Brunswick court set aside the board's award as unreasonable because of the dangerousness of the workplace. The New Brunswick Court of Appeal dismissed the union's appeal.

By a 6 - 3 majority, the Supreme Court of Canada allowed the union's appeal. Justice Abella, writing for the majority, held as follows:

The scope of management's unilateral rule-making authority under a collective agreement is that any rule or policy unilaterally imposed by an employer, and not subsequently agreed to by the union, must be consistent with the collective agreement and be reasonable. Under a balancing of interests and the collective bargaining tenet that an employee can only be disciplined for reasonable cause, an employer can impose a rule with disciplinary consequences only if the need for the rule outweighs the harmful impact on the employee's privacy rights. For example, an employer can test an individual employee if there is reasonable cause to believe that the employee was impaired while on duty. However, a unilaterally imposed policy of mandatory random testing is an unjustified affront to the dignity and privacy of employees unless there is evidence of enhanced safety risks such as evidence of a general problem with substance abuse in the workplace.

In this case, the expected safety gains to the employer ranged from uncertain to minimal while the impact on employee privacy was severe. The number of alcohol related incidents in the 15 year period did not reflect the requisite problem with workplace alcohol use. Consequently, the employer had not demonstrated the requisite safety concerns that would justify universal, random testing. As a result, the employer exceeded the scope of its rights under the collective agreement.

Justice Abella held that the applicable standard for reviewing the decision of the labour arbitrator is reasonableness. She held that the board's decision "must be approached as an organic whole, not as a line by line treasure hunt for error". In this case, based on the findings of fact and the relevant jurisprudence, the decision was a reasonable one.

Regards,

Blair

No Duty to Mitigate Where Notice Period Fixed

In Bowes v. Goss Power Products Ltd., a unanimous panel of five judges of the Ontario Court of Appeal confirmed that an employee has no duty to mitigate damages (unless the employment agreement stipulates such obligation) when the employment agreement fixes the notice period or termination pay in lieu of notice.

In this case, the employee signed an employment agreement for the position of executive vice president of sales and marketing for the employer. The agreement fixed his entitlement to six months’ notice or pay in lieu of notice if the employee’s employment was terminated. The agreement was silent on mitigation.

On April 13, 2011, the employer terminated the employee’s employment without cause and advised that he was entitled to salary continuance for the contractually fixed six month period. Shortly after termination, the employee secured a new job with an equivalent salary. The employer took the position that the employee had mitigated his damages and was only entitled to receive the minimum statutory entitlement under the Employment Standards Act.  The  employee disagreed and commenced an application in the Ontario Superior Court of Justice seeking a declaration that he was entitled to the full six months base salary in accordance with the agreement and that such payment was not subject to a duty to mitigate.

The applications judge held that simply because the parties agreed on the period of reasonable notice did not mean that the obligation to mitigate is ousted by agreement.

The Court of Appeal allowed the appeal. The Court held that by contracting for a fixed sum of termination/severance pay, the parties displaced the common law regime thereby contracting out of the Bardal “reasonable notice” approach or damages in lieu of notice.

The Court of Appeal gave the following reasons to support its conclusion:

a)  the duty to mitigate is not applicable if the damages are either liquidated or a contractual sum;

b)  It would be unfair to permit an employer to opt for certainty by specifying a fixed amount of damages and then allow the employer to later seek to obtain a lower amount at the expense of the employee by raising an issue of mitigation that was not mentioned in the employment agreement;

c)  It is counter-intuitive for the parties to contract for certainty and finality, and yet leave mitigation as a live issue with the uncertainty, risk and litigation that would ensue as a consequence; and

d)  A broad release in an employment agreement demonstrates an intention to avoid resort to the courts, confirms a desire for finality, and bolsters a finding that the parties intended that mitigation would not be required unless the agreement expressly stipulates to the contrary.

Bowes v. Goss Power Products Ltd., 2012 ONCA 425

Regards,

Blair

Departing Employees owe duties to Employers

The Supreme Court of Canada has sent a strong message to a group of employees who orchestrated their departure from their employer, resulting in serious harm to the employer's economic interests.

A recent decision released by the Court involved RBC Dominion Securities and Merrill Lynch Canada, competitors in the investment brokerage business. In a move coordinated by RBC's branch manager, virtually all of the investment advisers at RBC left their jobs and went to work for Merrill Lynch. As a result of the departure, only two very junior investment advisors , who Merrill Lynch had not sought to recruit, and two administrative staff members remained at the RBC branch. The employees gave RBC no advance notice and in the weeks preceding their departure they copied RBC's client records and transferred them to Merrill Lynch. The Court found that RBC's office was effectively hollowed out and all but collapsed.

In a 6 to 1 ruling, the Supreme Court restored a trial award of $225,000 against Merrill Lynch, and its manager which were held jointly and severally liable for inducing the breach of the employees' contracts and for unfair competition, as well as $250,000 in punitive damages against Merrill Lynch. The Merrill Lynch manager was individually found liable for punitive damages in the sum of $10,000.

The court awarded $40,000 total damages to RBC against its former employees for failing to give RBC adequate notice of their departure as well as punitive damages of $5,000 each. It awarded over $1.4 million against the former RBC branch manager who had orchestrated the operation for breaching his duty of good faith and $5,000 in punitive damages. The damage award represented five years of lost profits for RBC.

The Court found that damages arising in respect of a breach of contract should arise either naturally, or as reasonably contemplated by both parties at the time they made the contract. In organizing the mass exit, RBC's manager breached his contractual duty of good faith, as an implied term of his employment contract was the retention of RBC employees who were under his supervision. The damages for that breach were the amount of loss it caused to RBC.

Generally individual employees who terminated employment are not prevented from competing with the employer during the notice period. The employer is confined to damages for failure to give reasonable notice. However, a departing employee might be liable for specific wrongs, such as improper use of confidential information during the notice period.

This case is an important one for employees who are concerned about whether they may really be found liable for damages for failing to provide reasonable notice of their departure and the fiduciary obligations of managerial employees and employers who consider hiring employees away from their competitors.

Regards,

Blair

Employers must be clear in restrictive covenants

The Supreme Court of Canada has held that employers should not draft overly broad restrictive covenants in the hope that a court will sever any part of it that is unreasonable or "rewrite" the covenant to what the courts may consider reasonable. The Court held that doing this would change the risks assumed by the parties and unduly increase the risk that an employee will be forced to abide by an unreasonable covenant. The Court held that restrictive covenants contained in employment contracts should be scrutinized more carefully than restrictive covenants in the sale of a business because there is often an imbalance in power between employers and employees and because the sale of a business often involves a payment for goodwill, whereas no similar payment is made to an employee who leaves his or her employment.

In the recent case of Shafron v. KRG Insurance Brokers, the Court held that a restrictive covenant prohibiting an employee of an insurance brokerage firm from working within "the Metropolitan City of Vancouver" was unenforceable because the term "Metropolitan City of Vancouver" was uncertain and ambiguous.

There was nothing contained in the evidence of the case that demonstrated a mutual understanding of the parties at the time they entered into the employment contract as to what geographic area the restrictive covenant covered. Accordingly, it was inappropriate for the British Columbia Court of Appeal to rewrite the covenant.

The Court held that restrictive covenants generally are restraints of trade and therefore contrary to public policy. Freedom to contract, however, requires an exception for reasonable restrictive covenants. Normally, the reasonableness of a covenant will be determined by its geographic and temporal scope as well as the extent of the activities sought to be prohibited. Reasonableness cannot be determined if a covenant is ambiguous in the sense that what is prohibited is not clear as to activity, time or geography.

The court held that an ambiguous restrictive covenant is by definition on its face unreasonable and unenforceable. The onus is on the party seeking to enforce the covenant to show that it is reasonable. A party seeking to enforce an ambiguous covenant will be unable to demonstrate reasonableness.

If you have any questions, please don't hesitate to email me.

Regards,

Blair