A whirlwind review: Appellate employment cases 2019 - 2020

As litigators are no doubt aware, the impact of COVID-19 made it extremely difficult to get into a courtroom for most of 2020. Appellate courts throughout Canada were no exception, and therefore the volume of decisions stemming from these courts have been somewhat reduced compared with previous years. That being said, a number of significant decisions nonetheless emerged from appellate courts through 2020. The following review highlights the decisions that have emphasized or even shifted key principles of employment law during the past year, and may signal what can be expected for 2021.

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Table of content

1. Termination clauses are getting harder to enforce
2. An employee can unilaterally rescind notice of retirement sometimes
3. Clarification of appropriate notice period for employee terminated subsequent to an asset purchase
4. Questions arise about unilateral changes to the terms of employment
5. Clarity on the definition of "dependent contractor"
6. British Columbia's Court of Appeal considers consideration
7. Newfoundland's Court of Appeal weighs in on accommodation of cannabis use
8. Corporate context is unhelpful in avoiding common-law obligations based on full service of selling shareholder/principal
9. SCC confirms that employee entitled to damages for loss of LTIP during reasonable notice period.
10. Conclusion

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1. Termination clauses are getting harder to enforce

a. An unenforceable "for cause" provision in an employment agreement will invalidate an otherwise enforceable "without cause" provision.

Waksdale v. Swegon North America Inc., 2020 ONCA 391 ("Waksdale")

The Court of Appeal's most noteworthy case of the year was not welcome news to Ontario employers, especially in light of the potential need for many to reduce workforce size in a mid- or post-COVID world.

Waksdale involved a short service employee who was terminated on a without cause basis and provided the entitlements specified under the "without cause" termination provision in his employment agreement (i.e. two (2) weeks' severance). The employment agreement in question also contained a "cause" termination provision. Waksdale sued for wrongful dismissal and sought common law notice of termination.

Although he acknowledged the "without cause" provision in his employment agreement was lawful in and of itself, Waksdale argued that the "cause" provision was unenforceable for violating the Employment Standards Act, 2000 ("ESA"). Moreover, he argued that the unenforceability of the "cause" provision necessarily rendered the "without cause" provision unenforceable as well.

The employer conceded that the "cause" provision was void for violating the ESA, but stated that this was irrelevant since Waksdale was terminated on a without cause basis. Notwithstanding the above, the employer argued that the "cause" provision was a stand-alone clause and was not relevant to any analysis of the "without cause" provision since there was no contemplation of cause in Waksdale's termination. The employer further argued that, in the event that the "cause" provision could impact the enforceability of the "without cause" provision, the agreement's severability clause would act to sever the two provisions and thereby save the "without cause" provision.

The Superior Court agreed with the employer, finding that the unenforceability of the "cause" provision did not impact the enforceability of the "without cause" provision. As such, the "without cause" provision served to rebut the employee's common law reasonable notice.

In a surprising result, however, the Court of Appeal rejected the lower court's analysis and overturned its ruling, awarding Waksdale reasonable notice of termination. The Court of Appeal held that:

1. it is irrelevant whether termination provisions "are found in one place in an agreement or separated, or whether the provisions are by their terms otherwise linked", and that these provisions "must be interpreted as a whole and not on a piecemeal basis" when determining whether they are void for breaching the ESA;^[1]
2. it does not matter if an employer does not rely on a void "cause" provision at termination and provides all statutory entitlements required for a without cause termination; rather, the enforceability of termination provisions needs to be assessed at the time the agreement was formed;^[2] and
3. the severability clause was of no help to the employer as a "severability clause cannot have any effect on clauses of a contract that have been made void by statute," and since the termination provisions must be read together, the "severability clause cannot apply to sever the offending portion of the termination provisions."^[3]

Historically, employers have paid limited attention to the enforceability of "cause" termination provisions, especially given how infrequently they are relied upon. Post-Waksdale, this reality will change drastically, as numerous "without cause" termination provisions will now be significantly threatened if they exist in the same agreement as "cause" provisions that are arguably unenforceable.

This raises a challenging element of the Waksdale decision - the parties at trial conceded the unenforceability of the "cause" provision, but the actual language of the void provision is not detailed in either court decision. The "cause" termination provision, however, included a lengthy list of grounds that would amount to a "cause" termination, most of which would not have risen to the level of cause as defined under either employment standards or the common law. This makes it more difficult for employers to assess the risk that their own employment agreements may face as a result of questionable "cause" provisions.

In addition to the above considerations, Waksdale also raises the question as to what other clauses in an employment agreement might serve to invalidate "without cause" termination provisions. It is expected that "creative" plaintiff-side counsel will argue for an expansion of the Waksdale principles to include other potentially faulty provisions in an attempt increase employee severance entitlements.

Application for leave to appeal to the Supreme Court of Canada was filed by the employer; however, the Court dismissed the application on January 14, 2021.

b. Even language that provides for "greater of" ESA or formula can be challenged.

Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679

Andros worked for Colliers Macaulay Nicolls for approximately 8 years (2001 to 2004; 2009 to 2017), ending up as Managing Director. His employment was governed by an employment agreement, which purported to limit his rights on termination.

The termination provision is found within clause four of the employment agreement:

4. Term of Employment

The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director's entitlement pursuant to the Ontario Employment Standards Act or , at the Company's sole discretion, either of the following:

a. Two (2) months working notice, in which case the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period.

b. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary.^[4]

The Court of Appeal found that 4(a) and 4(b) contracted out of the ESA.^[5] The Court of Appeal then found that it was impossible to simply void the portion of the termination clause that was void under the ESA. Therefore, the entire clause was invalid. The Court of Appeal rejected the argument that the "greater of" represented a form of "failsafe" agreement that was equivalent to the ESA-saving clause found in its earlier decision in IBM v. Amberber. ^[6]

The Andros case also re-affirms the general proposition that bonuses form an integral part of an employee's compensation package. Language such as "in good standing" or "actively employed" is ineffective to waive the right of an employee to a bonus. Even if the bonus is otherwise payable well after the expiry of the notice period, the court will award compensation in lieu of the bonus, both for the portion of time worked and the notice period.^[7]

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2. An employee can unilaterally rescind notice of retirement sometimes

English v. Manulife Financial Corporation, 2019 ONCA 612 ("English")

This case involved an employee, English, in her early 60s with approximately 9 years of service. In September 2016, her employer announced that it would be implementing a new computer system for employee use. At the time, English was planning to retire from employment at the end of 2017.

Upon hearing about the new computer system, English considered taking early retirement instead of training on a new system at that point of her career. Independently and without a hint of pressure from the employer, she made the decision to retire at the end of 2016. She met with her supervisor to discuss this decision and provided a letter to that effect. The supervisor was not convinced that English was entirely sure about her decision and thereby assured her that she could change her mind.

A few weeks later, the employer announced it would not be implementing the new computer system. Accordingly, English informed her supervisor that she wanted to rescind her retirement notice. The employer, however, refused to accept this rescission as it had already made plans to transfer English's responsibilities to other employee and eliminate her position entirely after her retirement.

English brought a wrongful dismissal claim, arguing that she should have been permitted to rescind her retirement notice. The Superior Court dismissed her claim, finding that she had tendered a clear and unequivocal resignation, and that she could not resile from it unilaterally. The resignation, the lower court noted, created a binding contract between the parties. ^[8]

The Court of Appeal overturned this decision and found in favour of English, holding that the motion judge had erred in concluding that English's retirement notice was clear and unequivocal. The Court found that the notice was equivocal "given the circumstances in which she presented it" to her employer, and she was entitled to withdraw it^[9].

The fact that she had indicated uncertainty about the decision in her initial discussion with the supervisor, and that the supervisor informed her she could change her mind, was taken as further evidence that the notice was equivocal and could not be enforced contractually.^[10]

As a result of these findings, the appeal was granted. English was awarded wrongful dismissal damages of 12 months' salary in lieu of notice.

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3. Clarification of appropriate notice period for employee terminated subsequent to an asset purchase

Manthadi v. ASCO Manufacturing, 2020 ONCA 485 ("Manthadi")

This case involved an employee with 36 years of service at the time that her employer sold its business pursuant to an asset transaction. As a result of this sale, Manthadi was provided notice of termination and a severance package by the original employer in return for a release. She was also informed that she would be provided a new offer of employment by the purchaser, which she accepted.

A month into new employment, Manthadi was laid off and was not subsequently recalled, thus terminating her employment with the purchaser. Manthadi brought a claim for wrongful dismissal, seeking damages based on the entirety of her service time with the vendor and purchaser. Manthadi brought a motion for summary judgment on the matter.

The motion judge found that the matter was appropriate for summary judgement as the material facts were largely admitted or not refuted and any matters in conflict were immaterial to a decision. The motion judge also found that section 9(1) of the ESA required her to consider employment with the vendor in determining reasonable notice. Summary judgment was granted and Manthadi was awarded 20 months' reasonable notice based on her continuous employment with the vendor and purchaser, notwithstanding the prior settlement and release.

The purchaser appealed on multiple grounds, arguing that:

1. summary judgment was inappropriate in the circumstances;
2. the nature of Manthadi's employment (fixed term or indefinite) was relevant to the matter (which the motion judge had determined it was not); and
3. the assessment of the notice period was incorrect as the Court should not simply combine both periods of employment when making such an assessment.

The Court of Appeal agreed with the purchaser on all of the above issues. The Court found that there were factual disputes that could not be resolved on the record alone and that summary judgment was therefore inappropriate in the circumstances. In particular, the Court noted that the question of fixed versus indefinite employment was of significant consequence to a determination of the matter, as was the impact of the prior settlement and release, and the treatment of Manthadi's past service. Without resolving these issues, the Court could not determine the existence and extent of any common law entitlements. As such, the Court held that a trial was necessary and struck out the summary judgement ruling.

The Court also commented on the assessment of the appropriate notice period under these circumstances, stating that a judge "applying the Bardal factors is able to craft an appropriate award in a successor employer case without stitching together the employee's two terms of service"^[11]. Rather, the judge should apply the approach detailed in Addison v. M. Loeb Ltd.^[12], in which the Court recognized the employee's service with the vendor by appropriately weighing the employee's experience and the benefit of that experience to the purchaser.

Manthadi therefore seems to propose a hybrid approach to determining reasonable notice in circumstances such as these, neither ignoring the employee's pre-transaction service nor fully recognizing such service as one continuous period. While we cannot be certain what this new approach will look like in practice, employers acting as asset purchasers will have to consider the possibility of additional common law liabilities when making offers of employment to employees of a vendor. Such purchasers may wish to add extra indemnification language in asset purchase agreements in order to address these issues in advance.

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4. Questions arise about unilateral changes to the terms of employment

a. Being nice doesn't necessarily alter an employment contract.

Peternel v. Custom Granite & Marble Ltd., 2019 ONSC 5064 ("Peternel")

The Ontario Divisional Court considered the issue of whether an employer's flexibility about an employee's start time has the effect of altering a fundamental term of their employment contract.

Peternel was employed as a scheduler under an oral employment agreement which provided her hours were 8:30am to 4:30pm. She had two young children and often had difficulty arriving for her 8:30am start time as a result of child care needs. The employer was lenient about this periodic lateness, discussing the matter with Peternel but never implementing discipline. Peternel was on some occasions specifically asked to ensure she was present at 8:30am for meetings or other work needs, and on those occasions she always attended as scheduled.

About three and half years into her employment, Peternel went on maternity leave. While she was on leave, the employer told her that when she returned to work post-leave, she would be required to consistently arrive at her scheduled 8:30am start time as a result of certain changing business circumstances. Peternel claimed that she was unable to do as asked because she could not secure childcare. The employer refused to budge from its position regarding start time post-leave. Peternel elected not to return to work at the end of her leave, and instead claimed constructive dismissal due to unilateral changes to her fundamental terms of employment.

Peternel brought an action to this effect. In addition to the constructive dismissal claim, she claimed that the employer had breached its obligations under the ESA to reinstate her to her pre-leave position and that it had discriminated against her on the basis of family status in breach of the Human Rights Code.

At trial, the judge found that it was always a requirement of Peternel's employment contract that she had an 8:30am start time. Therefore, notwithstanding the employer's prior leniency about enforcing the rule, the employer was not unilaterally changing a term of employment by insisting that she honour that requirement after returning to work. Rather, it was Peternel who was seeking to institute a unilateral change by stating she should be allowed to start at 10am after her leave^[13].

Further, the employer had offered to return Peternel to her prior employment terms and conditions, and therefore did not breach its reinstatement obligations under the ESA.

The trial judge also found that there was nothing discriminatory in the employer's requirement that the employee start work at 8:30am, particularly as the employee had not provided the necessary information that might have supported an accommodation request.

Based on these findings, the trial judge dismissed Peternel's claims in their entirety and she appealed to the Divisional Court.

The Divisional Court upheld the trial judge's decision, finding there were no palpable or overriding errors in the factual findings nor any errors in law. The Court deferred to the trial judge's findings regarding the terms of Peternel's employment contract.

The Court also upheld the trial judge's finding that she had failed to prove a prima facie case of discrimination as there was no evidence at trial that specifically demonstrated how her right to care for her children was adversely impacted by the requirement that she start at 8:30 am each morning^[14].

The key takeaways from the Divisional Court decision appear to be:

• Neither employers nor employees are entitled to unilaterally make fundamental changes to the employment relationship; and
• An employer's supportive leniency regarding start times/punctuality cannot be transformed into a contractual obligation that can be held against it later.

It should be noted that Peternel's argument might have gained greater traction in a unionized setting. A "past practice" argument regarding employer's permissiveness in work schedules would have some jurisprudential support in the context of a grievance arbitration and therefore a greater chance of success.

b. Employer can change terms of employment, if the right to change is in the contract.

Manastersky v. Royal Bank of Canada, 2019 ONCA 609 ("Manastersky")

Variable compensation plans are often at issue in wrongful dismissal case. This case illustrates how important the actual language of variable compensation plans can be.

Manastersky was employed by RBC Dominion Securities ("RBCDS"), an affiliate of Royal Bank of Canada ("RBC"), in its Capital Partners unit. Manastersky was a director of the funds. His responsibility was to find investment opportunities in companies with "positive cash flow". He was awarded participation or "points" in incentive plans that were based on the performance of specific funds or pools of investments, known as "mezzanine investments". He was awarded approximately 50% of the value of the incentive plan, which, in turn, represented approximately 15% of the profitability of the fund.

In late 2013 or early 2014, a decision was made to pursue these types of investment opportunities directly through the commercial banking arm of the Royal Bank of Canada and not through RBCDS. RBC offered Manastersky an opportunity to join RBC as "Managing Director, Mezzanine Finance, National Client Group", which Manastersky declined. It appears that a major friction point was that RBC did not offer the type of participation-based incentive that he enjoyed at RBCDS^[15]. His earning potential would be significantly reduced.

The trial judge found that the reasonable notice period was 18 months, which was not challenged on appeal.

During the reasonable notice period, new mezzanine investments were funded through RBC and not RBCDS. Secondly, RBCDS started winding up its existing mezzanine investments, both by winding up its existing portfolios and ceasing to make new investments. Manastersky was paid for his allocated "points" in the existing funds, but there was a significant drop in the value of the compensation, as the funds were being wound up and no new mezzanine investments were being funded during the notice period.

Manastersky argued that he should be compensated for his "points" during the notice period, even if RBCDS made the decision to wind up its mezzanine investment activities. The trial judge had allocated compensation based on the average incentive over the life of the various funds.

The Court of Appeal started its analysis with the general principle established in Taggart v. Canada Life Assurance Company, 2006 CanLII 53345 (ONCA); Lin v. Ontario Teachers' Pension Plan Board, 2016 ONCA 619; and Paquette v. TeraGo Networks Inc., 2016 ONCA 618:

The analysis in each of the three decisions proceeded from the general principle that where an employer terminates an employee without cause, the employer is liable for damages for breach of contract, measured by the loss of wages or salary and other benefits that would have been earned during the reasonable notice period^[16].

Nonetheless, the Court of Appeal carefully reviewed what Manastersky would actually have earned during the notice period. It carefully reviewed the terms and conditions surrounding the various mezzanine funds:

1. RBCDS was entitled to "terminate the Plan effective as of the end of any Investment Period with respect to future investment Periods";
2. Points were granted with respect to specific portfolios;
3. Points in specific portfolios or funds were specifically allocated in writing;
4. An employee's status as a participant did not give him "the express or implied right …. to any Points for any future Investment Period"^[17].

In short, RBCDS had the right to terminate the mezzanine fund (and concomitantly, the value of the participation points in the fund).

The Court of Appeal distinguished Taggart, Paquette and Lin on the basis that the underlying basis of compensation (pension plan, bonus plan) in those other cases actually continued during the notice period. In those cases, the employer was trying to distinguish between the rights of a terminated employee and rights of an employee actively employed in a manner that the Court considered impermissible

In the Manastersky case, the underlying investments were wound up and new investments were not being funded. The Court of Appeal found that RBCDS clearly established that it had the contractual right to make these decisions, which would necessarily reduce Manastersky's variable compensation during the notice period.

In short, during the notice period, even if Manastersky had worked out the notice period, he would not have received additional points or compensation in lieu.

The case points out two important factors:

1. The Court will look carefully to whether a contractual term purports to treat a terminated employee differently from an employee who is actively at work; and,
2. The Court will recognize an employer's rights to make business decisions that might impact on an employee's variable compensation, especially if there are clear contractual provisions that preserve this right.

Leave to appeal to the Supreme Court of Canada was sought by Manastersky. On November 12, 2020, the Court remanded the case back to the Court of Appeal to be considered in accordance with the Court's recent decision in Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26.

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5. Clarity on the definition of "dependent contractor"

Thurston v. Ontario (Children's Lawyer), 2019 ONCA 640

Canadian courts and tribunals have for years recognized the existence of an intermediate position between employees and independent contractors into which many workers fell. This middle ground status has been called "dependent contractor".

The difference between a dependent and independent contractor can be quite significant when the engagement between the parties is terminated as dependent contractors are, like employees, entitled to reasonable notice of termination while independent contractors are entitled only to any notice of termination provided for in the agreement between the parties.

Observers have largely understood the general indicia of a dependent contractor but the dividing lines have frequently gotten quite blurry. That uncertainty has proven a challenge for companies and workers alike. In this recent decision, the Court of Appeal attempted to provide some clarity on the circumstances in which someone can be classified as a dependent contractor.

The case involved a sole practitioner lawyer who provided legal services to the Office of the Children's Lawyer ("OCL") for 13 years, signing a fresh fixed term contract each year. The contract made no guarantee of the total value or volume of work that Thurston would receive, and gave the OCL the right to terminate the contract in any circumstances without notice. There was no exclusivity in the contract but the evidence showed that OCL work generated approximately 40% of Thurston's annual income.

In 2015, the OCL decided not to renew Thurston's contract and provided no notice to that effect. Thurston brought an action seeking pay in lieu of reasonable notice, claiming that she was a dependent contractor. The motion judge found in her favour, noting the 13 year continuous work relationship between the parties and the fact that Thurston was seen as an OCL employee by the public. The fact that 40% of Thurston's earnings came from the OCL was seen as sufficient to meet the minimum economic dependency standard needed to create a dependent contractor relationship.

The Court of Appeal reversed the motion judge's decision and dismissed the case. The Court's decision was based on its finding that the relationship lacked the necessary economic dependency to create a dependent contractor relationship. The loss of 40% of Thurston's business was insufficient to meet the minimum economic dependency standard.

The Court stated:

To be sure, that is a significant percentage of the respondent's billing, and the loss of the OCL retainer would have had a substantial impact on the respondent's legal practice and her income. But that is not determinative of her status as a dependent contractor. On no account can 39.9% of billings be said to constitute exclusivity or "near-complete exclusivity", such that economic dependence on the OCL is established.

Exclusivity is a categorical concept – it poses an either/or question, and "near-complete exclusivity" must be understood with this in mind. "Near-complete exclusivity" cannot be reduced to a specific number that determines dependent contractor status; additional factors may be relevant in determining economic dependency. But "near-exclusivity" necessarily requires substantially more than 50% of billings . If it were otherwise, exclusivity – the "hallmark" of dependent contractor status – would be rendered meaningless.^[18]

The Court also noted that, when considering the necessary levels of economic dependency, it must also take into account the dependency was self-induced by the worker or something advanced by the company.

The takeaway from this decision is that while the sudden loss of a major client may drastically impact a contractor's business, even such a significant loss of income may not be enough to imply dependent contractor status with the implied right to "reasonable notice" of termination. The requisite economic dependence must represent "substantially more than a majority" of a contractor's income.

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6. British Columbia's Court of Appeal considers consideration

Quach v. Mitrux Services Ltd., 2020 BCCA 25 ("Quach")

This case involved an employee who signed a one-year fixed term contract in August 2015, leaving secure employment to do so. The contract provided that if the employer terminated Quach's employment prior to the end of the one-year term, it would have to pay him the balance of his salary for the remainder of said term.

After the contract was signed, but before Quach began employment, the employer decided that it would prefer to employ Quach on a month-to-month basis where he would only be entitled to payment until the end of the month in the event of termination. Quach was not comfortable with that arrangement and did not want to sign a new contract to that effect. The employer advised him that if he did not sign the new contract, his employment would not commence. The employer also verbally promised that if he signed the new agreement, it would repay $1,000 in legal costs that Quach had incurred negotiated the original contract after he started employment.

On September 28, 2015, Quach signed the month-to-month agreement with an agreed start date of October 1, 2015. However, on September 30, 2015, the employer terminated the contract. Quach commenced an action for wrongful dismissal.

The key issue at trial was which of the two contracts should apply and thereby what quantum of damages Quach might be entitled to as a result of the termination. The employer argued that the second contract should apply as it was the most recent bargain and that the parties had intended to be held to this bargain. The employer also argued that its promise to repay the $1,000 in legal costs constituted adequate consideration for the second contract.

The trial judge, however, found this repayment promise to be too vague to constitute fresh consideration and therefore held that the first contract applied. As such, the court awarded Quach with his full salary for the one year of the original contract. It also awarded aggravated damages against the employer as a result of the employer's bad faith conduct that resulted in mental distress suffered by Quach. The employer appealed.

The Court of Appeal upheld the majority of the trial judge's findings, namely that the original contract governed the employment relationship as Quach had received no fresh consideration in exchange for executing the second contract.

The second contract did not explicitly reference the $1,000 repayment and it was unclear that it was an intended term of the second contract. In any event, the evidence showed that the $1,000 was never actually paid to Quach. Therefore, as the Court stated, "the Second Contract was premised upon the cancellation of the Fixed‑Term Contract for consideration, but no consideration was provided"^[19].

As such, the Court confirmed that an employer cannot rely on the provisions of an amended employment agreement that are less advantageous to the employee than the original terms of employment unless the employee receives fresh consideration when entering into the amended employment agreement.

The Court did allow the appeal with respect to the aggravated damages awarded at trial, however, finding that Quach's evidence did not demonstrate the sort of mental distress required for an award of aggravated damages. The Court emphasized that "evidence of more than the normal transitory dismay, stress and anxiety is required to satisfy […] the test for aggravated damages"^[20].

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7. Newfoundland's Court of Appeal weighs in on accommodation of cannabis use

International Brotherhood of Electrical Workers, Local 1620 v. Lower Churchill Transmission Construction Employers' Association Inc., 2020 NLCA 20 ("Lower Churchill")

This decision involved an individual who was denied employment working on a safety-sensitive construction project as a result of his regular use of medically-prescribed cannabis. When the applicant came for pre-employment screening, he disclosed his authorized daily cannabis use for pain management and indicated that he would therefore probably fail any drug screening. The company declined to hire him for a safety-sensitive position.

The applicant in this case was a unionized employee and the dispute commenced as a grievance by his union. The arbitrator denied the grievance, finding that accommodating the applicant would constitute an undue hardship for the employer as a result of the safety risk.

The arbitrator held that the employer was entitled to obtain medical information about the employee's cannabis use which satisfactorily demonstrated that he could safely perform his duties notwithstanding the cannabis use. Without the ability to obtain this information, the employer was not obligated to take the risk of hiring the applicant.

On judicial review, the Court agreed with the arbitrator that, due to the lack of technology or resources to measure and manage the risk of cannabis impairment and the unavailability of non-safety-sensitive positions, the employer could not accommodate the employee without undue hardship.

The Court of Appeal of Newfoundland disagreed with the lower court's ruling, finding that the arbitrator's ruling had been unreasonable. The problem with the arbitrator's analysis according to the Court was that he considered the risk posed by "the class of individuals" who used cannabis rather than individually assessing whether the grievor could safely perform the job despite his use of medical cannabis.

The Court commented that:

…the analysis requires an assessment regarding what alternatives were investigated by the employer that may have allowed for individual testing of the grievor. Was a scientific or medical standard the only option? If so, why? If alternate options were identified, why were they not implemented? For example, was a functional assessment of the grievor before his shift considered? If rejected, why? What discussions were had with the Union to identify and assess alternate options for determining whether the grievor was capable of safely performing the job despite his use of cannabis in the evening? The employer failed to address these questions or provide evidence as necessary to discharge the onus of demonstrating that accommodation of the grievor on an individual basis would result in undue hardship.

The conclusion follows that the arbitrator's decision was unreasonable as he failed to address the employer's onus to establish that to accommodate the grievor by means of individual assessment of his ability to perform the job safely, regardless of the absence of a scientific or medical standard, would result in undue hardship^[21].

Based on this analysis, the Court remitted the matter for a consideration of whether there was a means of individualized assessment of the applicant's ability to perform the job safely without causing undue hardship to the employer, notwithstanding the apparent absence of any scientific or medical standard to do so.

This decision, although it emerges in the labour context, could have significant implications for all employers with safety-sensitive employment positions. Those employers may not be able to rely on current shortcomings in cannabis impairment testing as a basis to apply a blanket refusal of applicants disclosing regular cannabis use. Failure to conduct an individualized assessment of such applicants may be found to constitute a failure to accommodate to the point of undue hardship and thereby discriminatory on the basis of disability.

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8. Corporate context is unhelpful in avoiding common-law obligations based on full service of selling shareholder/principal

Groves v. UTS Consultants Inc., 2020 ONCA 630

Wayne Groves founded UTS Consultants Inc. (UTS) and served as its President from 1992 to 2017. He and his wife sold the shares of his business in November 2014 for $2,375,678.99. As part of the transaction, Wayne Groves resigned as an officer and director of the company, but continued as an employee under new ownership as President. His wife resigned as officer, director and employee. In 2017, he was terminated.

The Court had to determine the interpretation of the following termination provision in the employment agreement between UTS and Wayne Groves that was entered into as part of the 2014 share purchase transaction:

This agreement may be terminated in the following manner in the specified circumstances:

…

b) By the Company at any time for cause without notice or pay in lieu;

c) By the Company at any time without cause provided that the Company provides you with notice in writing or pay in lieu of notice (as salary continuation) or some combination thereof equal to four (4) weeks base salary for each year of service that you have with the Company calculated from the date of this letter (and, for greater certainty, excluding any period of service you had with the Company prior to the date of this letter) with a guaranteed minimum notice or pay in lieu of notice equal to three (3) months base salary; provided that the maximum notice period or pay in lieu of notice that you will receive shall in no circumstances exceed twelve (12) months. Notwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the Employment Standard Act (Ontario). In addition, the severance package will also include continuation of medical and dental benefits during the severance period. Any variable pay owing to you will be prorated for the year's service and paid at the time of termination. For greater certainty, you agree that for purposes of calculating any entitlement which you may have arising from the termination, without cause, of your employment with the Company, any prior service with the Company is excluded and you hereby waive and release any prior service entitlements.^[22] (Emphasis added).

Furthermore, Groves had entered into a Release as part of the transaction, releasing UTS and the purchaser from:

all claims, demands, actions, causes of action, debts… which the undersigned in any capacity whatsoever (including, without limitation, as officer, director, shareholder, employee, creditor or otherwise) had, now has or hereafter can, shall or may have, for or by reason of or in any way arising out of, relating to or in connection with, any cause, matter or thing whatsoever existing up to the present time and, without limiting the generality of the foregoing, arising from: (1) the undersigned having been an officer, director, shareholder, employee or creditor of the Corporation, or (2) any Claims for unpaid remuneration, termination or severance pay.

Justice Nishikawa at first instance found that the termination clause and the Release were both ineffective to detract from Groves' common law rights. He was awarded 24 months' pay in lieu of notice.

On appeal, the employer sought to rely on the commercial context of the agreement. The Court of Appeal, in a very short decision, dismissed the argument and concluded as follows:

Given our conclusions on the other grounds of appeal, Mr. Groves was not limited to notice based only on his post-sale employment period. Therefore, we see no error in the motion judge's conclusion that Mr. Groves, as a 65-year-old with over 25 years of service, was entitled to a notice period of 24 months' notice.

Neither level of court considered the saving provision fully. The Release was found to be ineffective as it was an effort to contract out of the Employment Standards Act, 2000.

It is not uncommon for founders to eventually sell their shares and either want or be required to work for the purchaser in order to ensure a smooth transition in ownership.

Corporate lawyers acting for purchasers will want to ensure that they reconsider their standard form agreements to take into account the possibility of a result that is neither intended nor anticipated by their client. Purchaser counsel may wish to require a post-dated resignation or a lengthy indemnity from the seller covering all claims from specified employees (including the selling principals) for termination or dismissal that is in addition to the usual corporate indemnity.

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9. SCC confirms that employee entitled to damages for loss of LTIP during reasonable notice period.

Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26

On October 9, 2020, the Supreme Court of Canada released the long-awaited decision in Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26. For litigators, it is instructive to read the decision at first instance for a full appreciation of the facts.^[23]

The Applicant, David Matthews, had been a key and important employee in the growth of Laer, which refined and manufactured Omega-3 fatty acids for veterinary use. As a chemist, Matthews had researched and refined an innovative approach to process fish oil, known as fractional distillation. He started with Laer in January 1997.

Laer was subsequently acquired by Ocean Nutrition Canada Ltd. ("ONC"), which manufactured fish oil for nutritional supplements and nutriceuticals. According to Justice Leblanc, "the fractional distillation process allowed ONC to process a greater volume of oil, with higher purity, more efficiently than its competitors."

As the company grew and became much more corporate, however, Matthews became exceedingly unhappy. There was evidence, which the court chose not to emphasize, that the chemist had a personality that "was not to everyone's taste."^[24]

There was clearly a division amongst the executive team about Mr. Matthews' value and role at ONC. Although Matthews had the impressive title of Vice President New and Emerging Technologies at the end of his career at ONC, significant aspects of his role were removed in the spring of 2011.

Mr. Matthews resigned from ONC on June 24, 2011, and took on a key position with a competitor on August 1, 2011.

Mr. Matthews began an application, claiming constructive dismissal. I note parenthetically that the process was complex and, personally, I would have expected the case to proceed by trial and not by application. Mr. Matthews' contract limited him to a twelve-month notice period, which was ultimately disregarded in favour of a 15 month common-law notice period.

On May 18, 2012, ONC and Royal DSM N.V. (DSM) announced that the latter would acquire ONC in an all-cash deal for CAD $540 million. The net equity value was $454,757,344. On July 19, 2012, DSM announced that it had successfully completed the acquisition.

In a subsequent decision on damages, Justice Leblanc found:

[23] Accordingly, the applicant's recovery (both in this decision and the main decision at paras. 426-330) is summarized as follows:

Base salary for July 2011: $11,833.00 ($142,000/12)

LTIP: $1,086,893.36

STIP: $64,125.00

LESS TASA credits: ($78,000.00)

SUB-TOTAL: $1,084,851.36

LESS withholding income tax at 50 percent.^[25]

[24] The respondent shall pay to the applicant the amount of $1,084,851.36. From this amount the respondent shall remit the withholding tax in the amount of $542,425.68 to Canada Revenue Agency.

The decision was appealed to the Nova Scotia Court of Appeal, which ruled in favour of ONC with respect to the LTIP (Long-Term Incentive Plan).

The decision was further appealed to the Supreme Court of Canada and the nine-year battle ended in favour of the employee.

Matthews v. Ocean Nutrition Canada Ltd. provides an excellent summary of how courts will view any attempt by employers to limit the recovery of incentive, variable and similar types of compensation during a notice period.

ONC relied upon language in the LTIP agreement that purported to exclude entitlement after termination of employment.

2.03 CONDITIONS PRECEDENT:

ONC shall have no obligation under this Agreement to the Employee unless on the date of a Realization Event the Employee is a full-time employee of ONC. For greater certainty, this Agreement shall be of no force and effect if the employee ceases to be an employee of ONC, regardless of whether the Employee resigns or is terminated, with or without cause.

2.05 GENERAL:

The Long Term Value Creation Bonus Plan does not have any current or future value other than on the date of a Realization Event and shall not be calculated as part of the Employee's compensation for any purpose, including in connection with the Employee's resignation or in any severance calculation.

While it is our view that the language was clear, the Supreme Court of Canada disagreed unanimously:

[64] The question is not whether these terms are ambiguous but whether the wording of the plan unambiguously limits or removes the employee's common law rights (Paquette, at para. 31, citing Taggart, at paras. 12 and 19-22). Importantly, given that the LTIP is a "unilateral contract", in the sense that the parties did not negotiate its terms, the principle of contractual interpretation that clauses excluding or limiting liability will be strictly construed "applies with particular force" (Taggart, at para. 18, citing Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426, at p. 459). As this Court recognized in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at para. 73, albeit in the commercial context, and cited here to underscore just this point, sophisticated parties are able to draft clear and comprehensive exclusion clauses when they are minded to do so.

[65] To this end, the provisions of the agreement must be absolutely clear and unambiguous. So, language requiring an employee to be "full-time" or "active", such as clause 2.03, will not suffice to remove an employee's common law right to damages. After all, had Mr. Matthews been given proper notice, he would have been "full-time" or "actively employed" throughout the reasonable notice period (Paquette, at para. 33, citing Schumacher v. Toronto-Dominion Bank (1997), 1997 CanLII 12329 (ON SC), 147 D.L.R. (4th) 128 (Ont. C.J. (Gen. Div.)), at p. 184; see also para. 47; Lin, at para. 89). Indeed, the trial judge and the majority of the Court of Appeal agreed that an "active employment" requirement is not sufficient to limit an employee's damages (trial reasons, at para. 398; C.A. reasons, at para. 66).

[66] Similarly, where a clause purports to remove an employee's common law right to damages upon termination "with or without cause", such as clause 2.03, this language will not suffice. Here, Mr. Matthews suffered an unlawful termination since he was constructively dismissed without notice. As this Court held in Bauer v. Bank of Montreal, 1980 CanLII 12 (SCC), [1980] 2 S.C.R. 102, at p. 108, exclusion clauses "must clearly cover the exact circumstances which have arisen". So, in Mr. Matthews' case, the trial judge properly recognized that "[t]ermination without cause does not imply termination without notice" (para. 399; see also Veer v. Dover Corp. (Canada) Ltd. (1999), 1999 CanLII 3008 (ON CA), 120 O.A.C. 394, at para. 14; Lin, at para. 91). Yet, it bears repeating that, for the purpose of calculating wrongful dismissal damages, the employment contract is not treated as "terminated" until after the reasonable notice period expires. So, even if the clause had expressly referred to an unlawful termination, in my view, this too would not unambiguously alter the employee's common law entitlement.

[67] I therefore agree with the trial judge that clause 2.03 does not unambiguously limit or remove Mr. Matthews' common law right. In my respectful view, the majority of the Court of Appeal erred in concluding otherwise.

A short and simplistic summary of the Supreme Court of Canada's reasoning might be as follows:

1. An employee is presumptively entitled to compensation for all elements of the total compensation package – including, without limitation, benefits, pension, commission, short-term and long-term incentive for the entire notice period.
2. It remains clear that non-discretionary incentive compensation plans require robust language to oust the common law presumption that such payments apply during the reasonable notice period. Employers will want to consider including in their employment agreements explicit waivers of all rights to claim damages for any losses or amounts that would have otherwise been attributable to the notice period.
3. It is recommended that employers take on an active role in explaining and ensuring that employees are given explicit plain-language explanations of the impact of any limitations or restrictions on damages.

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Conclusion

Despite the challenges associated with COVID-19, a number of cases with a significant impact on employment law nonetheless emerged throughout 2020. As well, since many of the cases summarized above were released by provincial appellate courts, it remains to be seen what impact those decisions will have across Canada. In particular, considering the differences in employment standards legislation and the interpretations of such legislation from province-to-province, it is unclear whether all provinces will take similar interpretations.

Given the current business uncertainty for many employers, vulnerability of many employees, and the precarious state of the Canadian economy in general, there is little question that courts will face difficult questions and be required to provide important answers regarding employment law during 2021 and the months ahead.