IN THIS ISSUE
- Non-competition agreements and the duty to mitigate. The Alberta Court of Queen's Bench held that an employee who took personal time off after his dismissal was acting reasonably considering a non-competition agreement kept him from working in his industry.
- Mitigating while in school. The Alberta Court of Queen's Bench held that a dismissed employee need not mitigate by seeking full-time employment when she had previously only worked part-time for her employer due to taking university courses.
- The cost of sexual harassment allegations. The Alberta Court of Appeal held that a jury award for $300,000 in punitive damages was inordinately high for a dismissal based on fabricated sexual harassment allegations. The award was reduced to $75,000.
- Lost "Book of Business" not worthy of additional damages. The Alberta Court of Appeal held that a trial judge's award to the plaintiff of $1.6 million in damages for his "lost book of business" arising from his dismissal as an investment adviser had no basis in law as a separate head of damages.
Angeltvedt v. Flint Field Services Ltd.
Alberta Court of Queen's Bench, 2010
Facts:
The plaintiff Angeltvedt sold his business to Conex Rentals
Corporation ("Conex"), a company related to the defendant
Flint Field Services Ltd. As part of the asset purchase agreement,
the plaintiff contracted to provide consulting services to the
defendant for two years and entered into a non-competition
agreement with Conex for the same period of time. The consulting
agreement provided that the plaintiff would assist with managerial
duties, would be responsible for all means of carrying out the
consulting services, and would mutually determine with the
defendant the locations of said services. The agreement also
provided that the plaintiff would perform all duties reasonably
assigned or delegated by the defendant, and that the defendant
reserved the right to terminate without notice or payment of
compensation if the plaintiff failed to comply with any reasonable
instructions.
After 13 months under the consulting agreement, the plaintiff was
assigned the task of reviewing the defendant's safety and
operations manuals, to be completed at the Lloydminster office
during fixed business hours (the "Manual Review"). The
plaintiff informed the defendant that the Manual Review was outside
the scope of the consulting agreement and that he consequently
declined to perform the assignment.
The plaintiff was not assigned any further work under the
consulting agreement and he did not seek out further employment. He
took a month long vacation at his cabin, devoted more time to
helping his family's ranching operation, and after several
months, pursued an investment opportunity that was concluded in
approximately 2 months. The plaintiff became president of the new
company, approximately 10.5 months after declining to perform the
Manual Review.
Issues:
The issues in this case were whether the Manual Review was a
repudiation of the consulting agreement, and if so, whether the
plaintiff had failed to mitigate his losses in the 10.5 months he
did not seek out alternative employment.
Decision:
The Court acknowledged that repudiation arises in employment law
when there is a unilaterally imposed fundamental or substantial
change to an employee's contract of employment resulting in
termination, entitling the employee to believe he has been
constructively dismissed. The Court held that the plaintiff's
duties were "substantially altered" when he was told to
complete work that would typically be performed by non-managerial
or subordinate employees or consultants. The Court further held
that while the nature of the Manual Review was sufficient to
constitute repudiation, the additional location and scheduling
restrictions for the task clearly indicated repudiation. The Court
held that, viewed objectively, a reasonable person would conclude
that the defendant's actions in assigning the Manual Review and
the related restrictions indicated that the defendant no longer
intended to be bound by the consulting agreement.
The duty to mitigate is a duty to act reasonably in the
circumstances. The innocent party has no obligation to accept a
position of a different character or lower status. The plaintiff
therefore could not be obliged to leave the Provost region, nor to
change career paths. The Court held that given that the
non-competition agreement limited his opportunities, the plaintiff
acted reasonably in seeking out a new business venture, and the two
month negotiation of this transaction was also reasonable.
West Care Pharmacy Ltd. and Shirin Bhimani v. SwiftRx Ltd., Minit Drug Company Ltd., NC Britton Holdings Ltd. and Barney Britton
Court of Queen's Bench of Alberta, 2008
Facts:
West Care Pharmacy Ltd. ("West Care") was created by
the plaintiff Shirin Bhimani ("Bhimani"), who was also
its principal officer. The defendant SwiftRx Ltd.
("SwiftRx") was solely owned and controlled by the
defendant Barney Britton ("Britton"), who was also the
sole owner and controller of the defendants Minit Drug Company Ltd.
("Minit") and NC Britton Holdings Ltd.
("NC").
West Care and SwiftRx entered into an Asset Purchase and Sale
Agreement (the "Agreement") by which the business and
assets of the online pharmaceutical company West Care were
transferred to SwiftRx. In addition to the assets and business
sold, the Agreement provided that SwiftRx would employ Bhimani as a
pharmacist at an annual salary of $100,000 for two years, based on
a four day work week to accommodate her MBA studies. The Agreement
also provided that Bhimani agreed to be employed by SwiftRx for
this two year period. The Agreement also contained a
non-competition agreement stating that Bhimani could not compete in
the mail order pharmaceutical business for two years.
Bhimani began employment with SwiftRx, although the majority of her
work was for Minit. After fourteen months, Bhimani submitted a
written proposal regarding her future with the venture, and her
potential role following the end of her two-year contract. Bhimani
and Britton met to discuss this proposal and some complimentary
concert tickets were received by Bhimani. This meeting culminated
in a decision that the parties no longer wished to work together
and the terms of the separation would be agreed upon at a later
date. The following day, Bhimani received a letter from Britton
asking her to vacate the premises. Bhimani spoke to Britton on the
telephone and agreed to stay off the premises until his return.
Britton said he would contact Bhimani on the following Monday but
never called her again.
Bhimani sought part-time employment that would accommodate her
school schedule and after 3 months of unemployment, found a relief
position as a pharmacist for 2 days per week.
Issues:
The employment issues in this case were whether SwiftRx was in breach of the Agreement for prematurely terminating Bhimani's term of employment, and whether Bhimani failed to mitigate when she chose not to seek full-time employment.
Decision:
Bhimani was constructively dismissed. Although she agreed to
discuss the possibility of terminating her employment contract
following her meeting with the Brittons, no terms were formally
agreed upon and she returned to work the following day with the
expectation of continuing her position until such agreement was
reached. Bhimani stayed off the premises based on Britton's
promise to call her, a promise Britton acknowledged he did not
fulfil. This entitled Bhimani to assume the terms of the Agreement
had been substantially altered and she had been unilaterally
terminated.
The Agreement contained no express provisions regarding severance
payments, obligations to continue payment, or waiver of the duty to
mitigate, and therefore Bhimani had a duty to mitigate despite the
fixed term of the Agreement.
The Agreement, however, provided for a four-day work week, and on reliance on this Agreement, Bhimani enrolled in an MBA program. It was therefore reasonable for Bhimani to seek alternate employment in her field that did not prohibit her from continuing her studies.
Daniel John Elgert v Home Hardware Stores Ltd, Christa Bernier and Diane Stengle
Alberta Court of Appeal, 2011
Facts:
The plaintiff Elgert was employed by the defendant Home Hardware
Stores Ltd. ("Home Hardware") as a supervisor at the
Distribution Centre for 17 years when he was terminated without
notice following allegations of sexual harassment made by
defendants Christa Bernier ("Bernier") and Diane Stengle
("Stengle").
The plaintiff submitted negative comments on Bernier's
performance review and transferred her to a different department.
Witnesses testified to comments by Bernier regarding her desire to
"get even" with the plaintiff. Shortly thereafter,
Bernier told her father, manager of the Distribution Centre, and
her co-worker, Ms. Bowen, of an alleged incident of sexual
harassment by the plaintiff. Bernier also told the story of her
alleged harrassment to other coworkers (including Stengle) after
Stengle had recounted a similar story. However, Stengle later
testified that she never filed a complaint regarding her own
alleged incident because she thought it was all a joke.
Subsequently, Bernier's father informed Head Office of the
alleged incident, and Bernier's co-worker Ms. Bowen informed
the Distribution HR Manager Ms. Borowdawka, who similarly informed
Head Office. Head Office HR Mr. Gingrich sent a Mr. Kirck (who had
no experience of sexual harassment investigations) to conduct an
investigation. Both Mr. Gingrich and Mr. Kirck were close personal
friends of Bernier's father.
The investigation consisted of oral conversations with Ms. Bowen,
Ms. Borowdawka, and Bernier. Immediately following the conversation
with Bernier, Mr. Kirck suspended the plaintiff, accusing him of
sexual harassment but refusing to give any particulars, despite the
pleas and tears of the plaintiff. The plaintiff was then escorted
out of the premises, and was not permitted to collect his
belongings from his workstation. The plaintiff begged Mr. Kirck to
do a thorough investigation as he believed someone may have been
out to get him.
Immediately following the suspension, Mr Kirck told the
plaintiff's son that the plaintiff had been suspended for
sexual harassment. When the son asked if there would be an
investigation, Mr. Kirck told the plaintiff's son that he would
not have suspended the plaintiff if he had not been 100% sure of
his guilt.
Counsel for the plaintiff and defendants agreed on the questions to
be put to the jury at trial. The jury responded that the plaintiff
had not committed the alleged acts of sexual harassment, and
awarded the defendant two years' pay in lieu of notice,
$200,000 aggravated damages, $300,000 punitive damages, interest,
and costs. They further concluded that the defendants, Bernier and
Stengle, defamed the plaintiff and awarded him damages of $50,000
and $10,000, respectively.
Issue:
The issue on appeal was whether the trial judge erred by leaving the issue of aggravated and punitive damages with the jury. The appellants further submitted the damage awards were inordinately high.
Decision:
In order to grant aggravated damages there must be evidence that
the employer acted badly in the course of the dismissal, and
evidence that the employee suffered actual damages as a result of
the manner of the dismissal (versus the fact of dismissal). The
Court of Appeal held that the element of bad faith was clearly met
by the inclusion of Bernier's father in the matter, the
carriage of the investigation by two of his friends, Mr.
Kirck's conduct during the meeting with Bernier, and the
failure to conduct an appropriately broad investigation taking into
account Bernier's motives against the plaintiff. The Court of
Appeal, however, also found that the plaintiff had failed to prove
that his distress arising from termination stemmed from the manner
of termination, and not just the fact of the dismissal. The Court
of Appeal held that aggravated damages should not have been put to
the jury and therefore set aside the $200,000 award.
In the context of wrongful dismissal, punitive damages are awarded
for malicious or high-handed conduct giving rise to an independent
actionable wrong. The Court acknowledged that although an employer
cannot be faulted for honestly believing an allegation of sexual
harassment, and should not be punished due to a clumsy
investigation, the employer is not permitted to conduct an unfair
investigation or behave in vindictive or outrageous ways. The Court
held that there was sufficient evidence to leave punitive damages
with the jury, but found the amount awarded was inordinately high
and reduced the $300,000 award to $75,000.
The Court of Appeal also acknowledged that the $60,000 to be
apportioned for defamation was high, but not unreasonable, and
therefore declined to interfere.
Merrill Lynch Canada Inc v. Soost
Alberta Court of Appeal, 2010
Facts:
The respondent Soost was summarily dismissed from his position
as a financial advisor by the appellant Merrill Lynch Canada Inc.,
who believed it had several grounds for dismissal, including
failure to comply with regulatory authorities. The trial judge held
that most of these grounds existed, but that they were not so
severe to justify dismissal. The respondent found a new job after
three weeks; however many of his former clients did not follow him
to this lesser employer, resulting in a substantially lower income.
The trial judge awarded a year's pay in lieu of notice
($600,000) and $1.6 million in damages for damage to reputation and
book of business or goodwill.
Issue:
The issue on appeal was whether the trial judge can award
significant damages for the fact of an employee's dismissal,
the stigma that dismissal brings, or for the employer later
competing with the ex-employee for the clients before the
ex-employee has obtained a new job.
Decision:
The Court of Appeal held that the second damage award of $1.6
million had no basis in law and attempted to compensate for a
detriment arising as a product of dismissal, rather than for an
absence of reasonable notice.
The Court held that damages due to dismissal with neither
reasonable notice nor pay in lieu cannot exceed what pay in lieu
would have been. The only exception to this is "Honda
damages", which the Supreme Court of Canada granted in
Keays v Honda Can. for methods of dismissal which were
unduly unfair or insensitive. This level of behaviour cannot be due
to sloppiness, but rather must be malicious or show blatant
disregard for the company. The Court of Appeal held that the good
faith of the company and its honest belief of cause were
well-founded, and therefore Honda damages cannot
apply.
The Court of Appeal also held that the compensatory damages stem
from the right to reasonable notice or pay in lieu, and not from
the damages for loss of a job. Although the plaintiff lost
significant income with the loss of his clients upon dismissal, the
dismissal itself was not a wrong, and therefore there can be no
compensation for it.
The valuation of the "book of business" was based on a
calculation of annual commissions. However the annual fee (and
therefore the $600,000 for pay in lieu) is calculated based on the
valuable fees from trades the plaintiff induced his customers to
make, so the compensation of a year's income and compensation
for the book amounted to double counting.
Lastly, the Court of Appeal held that after an employer and
employee part ways they are free at once to compete with each other
for clients absent any confidential information or restrictive
covenant, and that unfair competition therefore could not in law
amount to a separate mode of dismissal and head of damages under
Honda damages.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.