First Look: Ontario Court Clarifies Securities Act Anti-reprisal Protections

The Ontario Superior Court of Justice recently released the first judicial interpretation of the anti‑reprisal provisions in Part XXI.2 of the Ontario Securities Act (the Act). In McPherson v. Global Growth Assets Inc., the Court held that the termination of the plaintiff's employment was at least in part motivated by the concerns he had expressed about the defendant employer's compliance with Ontario securities law.

The key takeaway from this decision is the Court's confirmation that employers face liability if protected activity is even one motivating factor in an adverse employment decision, even where there may have been other, unobjectionable reasons for termination at play.¹

The whistleblower rules

Ontario's Securities Act includes broad anti‑reprisal protections that make it unlawful for a company (or anyone acting on its behalf) to punish an employee for whistleblowing. These provisions were introduced in 2016 alongside the OSC's Whistleblower Program, which also created monetary incentives for whistleblowers.

Under the anti-reprisal provisions, employees are protected when they share, plan to share or even seek advice about sharing information they reasonably believe shows a breach of Ontario securities law, whether they report it internally to their employer or externally to the OSC, a recognized self‑regulatory organization or law enforcement. The law also shields employees who cooperate with, testify in or otherwise assist (or intend to assist) investigations or proceedings before regulators, the OSC, recognized self-regulatory organizations or the courts.

The Act defines a "reprisal" as any measure taken against an employee that adversely affects their employment, including doing or threatening to do any of the following:

• terminating the employee's employment
• demoting, disciplining or suspending the employee
• penalizing the employee
• intimidating or coercing the employee in any manner related to his or her employment

For a more detailed review of the introduction of whistleblower protections under the Act, please see our previous blog post here.

Background to the decision

The plaintiff, Ian McPherson, was hired as CEO and Ultimate Designated Person (UDP) of Global Growth Assets Inc. and Global RESP Corporation (together, Global). McPherson's mandate was to bring Global into compliance with Ontario securities law following a history of OSC regulatory issues involving Global and individuals associated with it.

After the Global board of directors (the board) removed an executive from McPherson's oversight, McPherson tried (on several occasions) to raise concerns that this change interfered with his statutory UDP responsibilities and could contravene Ontario securities law. McPherson requested in camera meetings with the board and warned that there would be consequences if the board could not explain how and why the executive was no longer reporting to the CEO and UDP. Instead of providing this meeting to McPherson, the board terminated his employment.

McPherson commenced an action alleging that his termination was a reprisal for engaging in protected activity under the Act. Global claimed that McPherson was terminated solely for poor performance, including lack of progress on compliance remediation, unsatisfactory strategic planning and interpersonal conflicts.

Key issues and findings

The Court undertook a detailed statutory interpretation of section 121.5 of the Act and held the following:

• A company might have valid concerns about an employee's performance and may still be found to have engaged in a reprisal if any part of the company's motivation for terminating the employee was the fact that the employee engaged in protected activity — it does not have to be sole reason.
• The employee must have a subjective belief, objectively reasonable in the circumstances, that a violation of Ontario securities law has occurred, is ongoing or is about to occur.
• The burden of proof under section 121.5(5) lies with the employer to demonstrate that no reprisal occurred once the employee establishes engagement in protected activity and an adverse employment action.

Section 121.5(1) provides that "No person or company, or person acting on behalf of a person or company, shall take a reprisal against an employee of the person or company because the employee" (emphasis ours) has engaged in a list of protected activities. A key issue to be decided, as a question of first impression, was the degree of causal connection required by the word "because". Mr. McPherson argued that "because" does not mean "solely because" or "only because" (and, indeed, those phrases are used elsewhere in the Act and in other laws, but not in section 121.5). As such, as long as the protected activity was a reason (among, potentially, others) for termination, the anti-reprisal provisions were engaged.

The company argued that U.S. jurisprudence supports the proposition that anti-reprisal provisions are not engaged where there is a history of poor performance. The company argued that the Court should follow this jurisprudence and defer to the company's good-faith determination that Mr. McPherson was underperforming.

The Court sided with the plaintiff on this issue, holding that the anti-reprisal provisions could be engaged if "any part of the motivation for reprisal" was that Mr. McPherson had engaged in protected activity. Ultimately, the Court found that Global took a reprisal against McPherson in contravention of the Act, because

• McPherson's belief that the board's actions interfered with his UDP responsibilities and violated securities law was both subjectively held and objectively reasonable, given the company's regulatory history and the specific compliance deficiencies under the executive's supervision
• McPherson repeatedly expressed his concerns to the board and sought to provide information about potential breaches
• the Court had no doubt that the board took into account that McPherson provided information and expressed an intention to provide information about Global's acts that he reasonably believed were contrary to Ontario securities law
• as the board's decision to terminate McPherson was motivated, at least in part, by his protected activity, this constituted a prohibited reprisal under the Act

Pursuant to section 121.5(6) of the Act, the Court awarded McPherson two times the amount of remuneration he would have received from the date of termination to the date of judgment, totaling over $5 million plus prejudgment interest. The Court declined to award additional damages for wrongful dismissal, aggravated damages or punitive damages, finding the statutory remedy to be sufficient and determinative.

Implications and takeaways

The Court's guidance in McPherson is welcome, given that it has taken almost 10 years for the anti-reprisal provisions to find their way into a reported decision. The trial ran for 10 days and the decision runs to almost 500 paragraphs, which is ironic since Mr. McPherson only worked at Global for seven months.

The key takeaway is that employers may face liability even where there are mixed motives for termination, so long as protected activity is a motivating factor. The law does not require the protected activity to be the sole, primary or decisive cause — only that it contributed to the decision. This point was extensively argued at trial, was very carefully considered in the decision and is undoubtedly going to be carefully scrutinized going forward. In practice, when combined with the reverse onus in section 121.5, it places employers in the unenviable position of having to prove a negative — that the protected activity played no role whatsoever in the termination.

Ideally, where an employee has documented performance issues, any termination should be supported by clear, contemporaneous documentation demonstrating that the decision was independent of the whistleblowing. However, there is a risk that any such documents created ad hoc will seem self-serving unless the employer can demonstrate that it has a rigorous, and consistently applied, approach to managing terminations that supports the company's assertion that a whistleblower was terminated for reasons that had nothing to do with the protected activity.

Footnote

1 We understand that the decision is under appeal.

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