DATE: 20041201

DOCKET: C39836

COURT OF APPEAL FOR ONTARIO

MACPHERSON, JURIANSZ JJ.A. and SPEYER J. (ad hoc)

B E T W E E N:

ALLAN HOBBS

Howard A. Levitt and Roslyn Baichoo for the plaintiff/appellant

Plaintiff (Appellant)

• and -

TDI CANADA LTD.

Louis A. Frapporti and Michele Ballagh for the defendant/ respondent

Defendant (Respondent)

Heard: September 15, 2004

On appeal from the judgment of Justice Peter G. Jarvis of the Superior Court of Justice dated March 13, 2003.

JURIANSZ J.A.:

[1] Accepting an offer of employment and committing the next stage of one’s career to a new employer is an important life decision that most people make carefully. Instability in an individual’s life, and in the workforce generally, is minimized when the decision is made on the basis of complete and accurate information about the new position. In this case, the appellant accepted a commissioned sales position with the respondent, only to discover later that his commissions would not be paid as he expected. The appellant quit after only a few months, and initiated this lawsuit claiming unpaid commissions. The respondent argued that the appellant’s entitlement to commission was restricted by the terms of an agreement that the appellant had signed shortly after he had been hired.

[2] The principal issues in this appeal are whether the respondent fairly disclosed to the appellant its view of what the terms of his new employment would be, and whether the respondent can rely on the terms of the agreement that it obliged the appellant to sign after he was hired. I would allow the appeal because the agreement upon which the respondent relies is not enforceable.

A. Background

[3] From March 1994 to December 31, 1999, the appellant Allan Hobbs (“Hobbs”) was a salesperson employed by Urban Outdoor Transit (“Urban”), a company that sold billboard and transit advertising. Hobbs earned an annual salary of between $120,000 and $150,000 while employed by Urban.

[4] Urban’s largest client was the Toronto Transit Commission (“the TTC”). The TTC account was responsible for much of Urban’s and Hobbs’s financial success. In November 1999, Urban lost its bid for the renewal of the TTC contract, which was awarded instead to the respondent TDI Canada Ltd. (“TDI”).

[5] As a result of the loss of the TTC account, Urban laid off several employees, but retained Hobbs. Urban assigned Hobbs to its Cieslok Outdoor division, guaranteeing him a minimum monthly salary of $9000, with a review to take place three months later.

[6] TDI, an American company, had no previous experience in the Canadian market, no previous contact with the TTC, and no Toronto office. Not surprisingly, TDI embarked on an initiative to hire Urban’s former sales staff and approached Hobbs. On November 29, 1999, Hobbs attended his first interview with TDI. He met with Corey Gottlieb (“Gottlieb”), who was recruiting sales personnel for TDI to work on the TTC account, and with Thomas Cummings (“Cummings”), who was to be transferred from TDI’s Minneapolis office to establish and manage its Toronto office. While this first meeting was general in nature, Hobbs indicated that the commission rate that TDI was proposing for new business and for renewals was too low for the Canadian market.

[7] On December 7, 1999, Hobbs and Cummings had a lunch meeting, during which Cummings indicated that TDI was considering higher commission rates for its sales staff.

[8] Hobbs met with TDI representatives again on December 15 at TDI’s temporary office in Toronto. Gottlieb and Cummings attended, as well as Judy Sense, who was vice-president of marketing for TDI. Gottlieb told Hobbs that TDI would pay commission rates of six percent for new business, five percent for renewals, and two percent for sales into the United States. Hobbs said that he would not resign from his current job without a written job offer.

[9] On December 16, Cummings made an oral offer of employment to Hobbs that included the commission rates they had discussed the day before. Hobbs stated again that he would not resign from his current job without something in writing.

[10] On December 22, Hobbs went to the TDI office. He was given a letter on TDI letterhead offering him a position with the company. The letter was dated December 16, 1999, to coincide with the date that Cummings made the oral offer of employment to Hobbs. The letter provided that his starting date would be January 4, 2000. It also stated: “We have agreed that you will be paid an annual draw of $60,000 per year against sales commissions. Details on the rates, calculation and payment of commissions shall be provided to you in a separate document.” The letter provided for a probationary period, participation in the company’s benefits plan, holiday and vacation entitlements, and entitlement to termination pay. The letter also stated: “You will be required to sign and return our standard Confidential Information Agreement which is attached to this letter.”

[11] Hobbs pointed out to Cummings the fact that the letter did not specify the higher commission rates that they had agreed upon on December 16. Cummings indicated that the commission rates would be covered in a separate document, which he did not have as yet. Cummings assured Hobbs that TDI was a trustworthy company and that things were done on a “handshake around here.” Hobbs testified that he assumed the separate document would simply confirm the commission rates that he and Cummings had agreed to on December 16.

[12] Hobbs also expressed concern about the wording of the non-competition clause in the Confidentiality Agreement, something he knew other new employees were also concerned about. Cummings agreed that the clause could be struck out. Hobbs then signed the December 16 letter and the Confidentiality Agreement with the non-competition clause deleted. Later that day Hobbs resigned from his employment with Cieslok Outdoor.

[13] Immediately upon resigning from Cieslok Outdoor, Hobbs started contacting his previous clients to advise them of his new position with TDI. Hobbs began working for TDI on January 4, 2000. The trial judge found that Hobbs had secured substantial business for TDI before his first commission advance came due.

[14] On January 10, 2000, Cummings gave Hobbs and the other newly hired TDI sales representatives a document entitled “Solicitor’s Agreement”. Cummings told the employees that the document was non-negotiable and that they had to sign it if they were to be paid. Hobbs testified that since he had been told that the Solicitor’s Agreement was non-negotiable, and that since he was already an employee at the time, he had no choice but to sign the document. Hobbs agreed that he took a couple of days to consider the Solicitor’s Agreement and that Cummings appeared willing to answer any questions he might have about it. Hobbs did not sign the Solicitor’s Agreement until January 12, one business day before he was due to be paid his first draw.

[15] The trial judge appropriately described the Solicitor’s Agreement as containing “very onerous terms”, as the following review illustrates:

• While the Solicitor’s Agreement set out the commission rates that Cummings and Hobbs had agreed upon at their meeting on December 16, paragraph 2 provided that these rates were “subject to change at the sole discretion of TDI Management and changes thereof shall not be deemed a change in the solicitor’s employment terms.”

• Paragraph 4 of the Solicitor’s Agreement provided that each solicitor would get a report of net billings per account generated by each solicitor, but that such reports were for accounting purposes only. Paragraph 4 further provided that commissions were “payable only on amounts actually received by the Company during the term of solicitor’s employment” and that “[n]o commissions will be paid unless a solicitor has surpassed his/her annual draw.”

• Paragraph 5 provided that “[p]ayments of commissions to a solicitor will be made once the cumulative commissions exceed the solicitor’s annual draw for that calendar year. Once this occurs, the Company will pay the solicitor the commissions earned less a twenty five percent (25%) reserve for bad debts subject to Paragraph 6 hereof.” Paragraph 5 also provided that “[t]he draw of a solicitor is to be determined by Management in its sole discretion.”

• Paragraph 6 provided that TDI would only pay a solicitor whose employment had been terminated “the commissions due him/her as of the date of his/her termination over that solicitor’s annual draw.” Paragraph 6(c) provided that a solicitor who was terminated or resigned would have no claim for commission “with respect to any billings on accounts commencing subsequent to his/her date of termination of employment, even though such billings result from contracts actually entered into before his/her termination of employment or for collections occurring after such date.”

[16] Hobbs’s interpretation of the Solicitor’s Agreement was that TDI would pay him his accrued commissions quarterly, after deducting any draw payments paid to him. Based on this understanding, at the end of March 2000, he asked Cummings when he might expect a commission cheque. Cummings explained that TDI would not pay Hobbs any of his commissions until he had been paid his full annual draw.

[17] In early May 2000, Hobbs was confident that his commissions exceeded his full annual draw, and he called Cummings again to inquire about payment of his commissions. He testified that Cummings told him he would not receive any commissions until all his billings had been collected. Hobbs testified that he began to fear that he might not be paid his commissions at all. He started to believe that TDI had hired him and the other Urban sales representatives for their experience and knowledge, intending to terminate them later on. (In fact, all the other Urban sales representatives hired by TDI were terminated by August 2001.)

[18] By this time, Hobbs had been contacted by Alliantis, a company he had first talked to about joining in 1999. He decided to resign from TDI and to join Alliantis. Hobbs gave notice on May 12, 2000 that he would be leaving at the end of the month.

[19] The trial judge found that by the end of May 2000, Hobbs had earned commissions of $76,043, and had received no payment from TDI other than his monthly draw of $5,000 and his monthly car allowance of $300. The $76,043 figure evidently comes from one of the damages scenarios filed jointly by the parties. It represents commissions for all contracts sold by Hobbs for which billings were issued between January 1, 2000 and May 26, 2000. The trial judge also found that the contracts that Hobbs had sold to the end of May 2000 totalled $3.1 million, which would have generated total commissions of $153,321.62. Many of these contracts would have been billed after Hobbs left TDI.

[20] TDI, relying on the Solicitor’s Agreement, paid Hobbs only $24,423.07, which was his draw to the date of his resignation, plus $923.08 in vacation pay, without any additional commissions.

[21] There is no dispute that had Hobbs not resigned, he would eventually have been paid all of his commissions.

B. Discussion

i. The Solicitor’s Agreement did not form part of the original contract of employment

[22] The trial judge took the view that TDI’s letter dated December 16, 1999 and the Solicitor’s Agreement were “best viewed as one contract in two instalments executed over a very short time.” The trial judge dismissed Hobbs’s claim, noting that Hobbs left TDI of his own volition and that his entitlement to commission was dictated by the Solicitor’s Agreement if he left.

[23] For the following three reasons, I find that the trial judge erred in concluding that the December 16 letter and the Solicitor’s Agreement together constituted one contract of employment, and that therefore its provisions limited Hobbs’s entitlement to commissions.

[24] First, TDI did not present its December 16 letter to Hobbs as the introductory part of a more extensive contract of employment that was to follow at a later date. The December 16 letter was clearly an offer of employment. It set out the terms of employment, save for the commission rates which Hobbs and Cummings had already agreed upon, and Hobbs signed the offer letter on that basis.

[25] The December 16, 1999 letter opened: “We are pleased to confirm our offer of employment and your acceptance on the following terms.” The letter closed by stating: “Should you wish to accept this offer of employment on the terms and conditions set out in this employment agreement, please sign, date and return this letter to me on or before December 20, 1999.” Finally, the letter provided a place for Hobbs to place his signature below the sentence: “I accept employment with the Employer on the terms and conditions set out in the letter.” Hobbs signed the letter in the space provided.

[26] Nothing in the December 16 letter suggested that Hobbs would be required to sign any other document relating to commissions or that such a document would form part of his employment contract with TDI. In fact, the letter implied the opposite. The letter stated that “details on the rates, calculation and payment of commissions shall be provided to you in a separate document”. This may be contrasted with the letter’s more formal reference to a “standard Confidential Information Agreement”, which was attached to the letter and which was to be signed and returned by Hobbs. The December 16 letter did not indicate Hobbs would have to sign any document other than the Confidential Information Agreement. Further, the letter did not even hint at the many additional onerous terms set out in the Solicitor’s Agreement.

[27] Second, the Solicitor’s Agreement cannot be viewed as constituting the second part of one contract of employment because it was inconsistent with the commission arrangement that Hobbs and Cummings had already agreed upon. Hobbs and Cummings had agreed to commission rates of six percent for new business and five percent for renewals. The Solicitor’s Agreement, while setting out these commission rates, provided that TDI could change the rates unilaterally at any time. Thus the Solicitor’s Agreement negated the secure rates that Hobbs had negotiated with Cummings.

[28] Third, the Solicitor’s Agreement was presented to Hobbs after he had already been hired and after he had started working. Hobbs had already secured TDI’s oral agreement regarding commission rates, and he had received and accepted a written offer of employment setting out the terms of his employment. These agreements contained all of the essential terms of the employment contract between TDI and Hobbs. The Solicitor’s Agreement was not necessary to complete an already valid contract.

[29] As the December 16 letter suggested, the administrative arrangements for the payment of commissions were matters of mere detail. The real issue was what would be Hobbs’s commission rates. As it happened, Hobbs and TDI had the same understanding of how commission would be calculated. Hobbs believed he would receive quarterly commissions on advertising that had run and been invoiced, and that the commission would be balanced against the draws he had received. Cummings testified that TDI’s practice was to calculate commissions on a quarterly basis based on amounts billed, and not on amounts collected as stipulated by paragraphs 2 and 4 of the Solicitor’s Agreement. The Solicitor’s Agreement was therefore not required in order for the parties to have a method of calculating commissions. Rather, in this respect too, the Solicitor’s Agreement was inconsistent with what both parties took to be implicit.

[30] I conclude that the Solicitor’s Agreement was not part of the employment contract under which TDI hired Hobbs. Rather, the Solicitor’s Agreement was an amendment of the employment contract put forward by TDI.

ii. There was no consideration for the Solicitor’s Agreement

[31] The trial judge observed that the Solicitor’s Agreement might be found on appeal to be a new agreement executed after the commencement of Hobbs’s employment, and considered its effect in this light. He noted that Hobbs’s refusal to sign the Solicitor’s Agreement would have resulted in the termination of his employment with TDI. He concluded that the Solicitor’s Agreement was enforceable on the basis that Hobbs’s continued employment after he signed the Solicitor’s Agreement constituted legal consideration by TDI given in exchange for Hobbs signing the agreement. In reaching this conclusion, the trial judge relied on the Supreme Court of Canada’s decision in Maguire v. Northland Drug Co., [1935] S.C.R. 412, as well as this court’s decision in Techform Products v. Wolda (2001), 56 O.R. (3d) 1 (C.A.), leave to appeal refused [2002] 3 S.C.R. xii.

[32] The trial judge erred in relying on Maguire and Techform Products. The governing legal authority in the circumstances of this case is Francis v. Canadian Imperial Bank of Commerce (1994), 21 O.R. (3d) 75 (C.A.). Francis makes it clear the law does not permit employers to present employees with changed terms of employment, threaten to fire them if they do not agree to them, and then rely on the continued employment relationship as the consideration for the new terms.

[33] In Francis, the employer had made a written offer of employment to the employee, subject to a satisfactory reference. The employee accepted the offer, and the satisfactory reference was obtained. When the employee arrived for his first day of work a few days later, he was given a document to sign entitled “Employment Agreement”. This document provided that the employer could terminate the employee without cause upon giving one month’s notice for each completed year of service, up to a maximum of three months’ notice. Some eight years later, the employer terminated the employee. The trial judge concluded that the Employment Agreement was not binding on the employee and found that the appropriate notice period was twelve months.

[34] On appeal, this court upheld the trial judge’s conclusion that the Employment Agreement was not enforceable. Weiler J.A., writing for the court, stated at p. 84 that the three months’ notice period found in the Employment Agreement was “a tremendously significant modification of the implied term of reasonable notice” that applied to the original terms of employment. Additional consideration was required to support such a modification of the original terms of employment.

[35] In Techform Products, Rosenberg J.A. similarly recognized that new consideration is required in order to modify an existing employment contract. He stated at para. 24:

It is also consistent with the principle fundamental to consideration in the context of an employment contract amendment – that in return for the new promise received by the employer something must pass to the employee, beyond that to which the employee is entitled under the original contract. Continued employment represents nothing more of value flowing to the employee than under the original contract.

[36] As discussed further below, Rosenberg J.A. concluded on the facts in Techform Products that there was consideration beyond mere continued employment, and therefore held that the defendant employee was bound by the modified terms of the agreement.

[37] The facts in Maguire and Techform Products include an important additional circumstance that is not found in the present case. In both those cases, the courts found that the employer had made the promise to the employee to forbear from exercising its right to terminate the employee for a reasonable period, thus enhancing the employee’s security of employment.

[38] In Maguire, “the hiring was by the month”. It would have been understood, in 1935 when the case was decided, that the employee could be dismissed on one month’s notice. After eleven months of employment, the employer asked Maguire to sign a non-competition bond. It was understood that Maguire’s refusal to sign it would result in his termination. The Supreme Court of Canada found that there was valid consideration for the bond, as the employer had tacitly promised that if Maguire signed it, he would not soon be terminated. In other words, Maguire received something he did not have before he signed the non-competition bond: his employer’s promise not to terminate his employment on one month’s notice as it was entitled to do.

[39] The situation in Techform Products is similar. The defendant entered into a consultancy agreement with the plaintiff, an auto parts manufacturer. The plaintiff had good reason to be concerned that the defendant might seek royalties for inventions the plaintiff viewed as belonging to it. Because of this concern, the plaintiff prepared an “Employee Technology Agreement”, which provided that inventions were the plaintiff’s property. The plaintiff presented the Employee Technology Agreement to the defendant for signature. The defendant understood that if he did not sign the Employee Technology Agreement, he would be fired. He signed it. Subsequently, the defendant invented a valuable hinge and sought to assign it to the plaintiff. The plaintiff terminated the defendant’s employment and, relying on the Employee Technology Agreement, sought a declaration that it was the owner of the hinge.

[40] This court concluded that the Employee Technology Agreement was enforceable and overturned the trial judge’s dismissal of the plaintiff’s action. The result is explained by the fact that the plaintiff was displeased with the defendant and had intended to terminate him if he did not sign the Employee Technology Agreement. By presenting the defendant with the agreement, the plaintiff tacitly promised not to dismiss him for a reasonable period, as it otherwise had been planning to do. In this context, the plaintiff’s forbearance from acting on its intention to dismiss the defendant constituted consideration for the defendant signing the Employment Technology Agreement.

[41] In reaching this conclusion, Rosenberg J.A. was careful to distinguish Francis, as well as a decision of the British Columbia Court of Appeal to the same effect: Watson v. Moore Corp. (1996), 21 B.C.L.R. (3d) 157. He wrote at para. 26:

Where there is no clear prior intention to terminate that the employer sets aside, and no promise to refrain from discharging for any period after signing the amendment, it is very difficult to see anything of value flowing to the employee in return for his signature. The employer cannot, out of the blue, simply present the employee with an amendment to the employment contract, say, ‘sign or you’ll be fired’ and expect a binding contractual amendment to result without at least an implicit promise of reasonable forbearance for some period of time thereafter.

[42] The requirement of consideration to support an amended agreement is especially important in the employment context where, generally, there is inequality of bargaining power between employees and employers. Some employees may enjoy a measure of bargaining power when negotiating the terms of prospective employment, but once they have been hired and are dependent on the remuneration of the new job, they become more vulnerable. The law recognizes this vulnerability, and the courts should be careful to apply Maguire and Techform Products only when, on the facts of the case, the employee gains increased security of employment, or other consideration, for agreeing to the new terms of employment.

[43] In the present case, I conclude that Hobbs received no consideration for signing the Solicitor’s Agreement. The trial judge made no finding that TDI, either explicitly or tacitly, promised to forbear from terminating Hobbs if he signed the Solicitor’s Agreement, nor would the evidence have supported such a finding. There is no evidence that TDI wanted, or intended, to end Hobbs’s employment prior to him signing the Solicitor’s Agreement. Further, nothing in the evidence suggests that TDI considered that whatever right it had to dismiss Hobbs would be affected in any way by him signing the Solicitor’s Agreement. Signing the Solicitor’s Agreement did not provide Hobbs with any additional security in his employment than he had under the terms set out in TDI’s letter dated December 16, 1999.

[44] I conclude that Hobbs received no consideration for signing the Solicitor’s Agreement.

iii There was no reliance on the Solicitor’s Agreement

[45] TDI submitted that the Solicitor’s Agreement was binding on Hobbs, even without consideration, because it relied on it. In Francis and Techform Products, this court discussed the evolving concept that a promise made without consideration may be enforceable where the promisee has relied on the promise, but found it unnecessary in both those cases to determine whether this is the law in Ontario.

[46] It is similarly unnecessary to consider the issue in this case, as there is no evidence of any reliance by TDI. TDI argued that it had relied on the Solicitor’s Agreement by allowing Hobbs’ probationary period to elapse, thereby losing the opportunity to terminate him without notice had he refused to sign the agreement. However, as noted, the evidence was that TDI had no desire or intention of dismissing Hobbs. He was its top biller. TDI’s argument on this point simply is not grounded in the evidence. TDI may have believed the Solicitor’s Agreement was enforceable, but it took no action to its detriment on the basis of that belief.

iv. Duress, Misrepresentation, and Unjust Enrichment

[47] I find it unnecessary to deal with Hobbs’s submissions that he signed the Solicitor’s Agreement under duress, that TDI misrepresented the employment opportunity it was offering, and that TDI was unjustly enriched by its refusal to pay Hobbs the commission to which he was entitled. Hobbs did not set out the claims of misrepresentation and unjust enrichment in his statement of claim and did not assert them at trial.

[48] That said, it is worth repeating Weiler J.A.’s observation in Francis, at p. 85, that employers who wish new employees to sign a standard agreement can:

incorporate the terms of a standard employment agreement into the original contract of employment by stating in their offer of employment that the offer is conditional upon the prospective employee agreeing to accept the terms of the employer’s standard form of agreement, a copy of which could be enclosed with the offering letter.

[49] In this case, TDI’s standard Solicitor’s Agreement contained onerous terms that it must have known would be important to a prospective employee’s decision whether to accept employment with the company. Instead of following the procedure suggested by Weiler J.A., TDI failed to advise Hobbs that it would require him to sign a standard form of agreement and did not advise him of its terms until after he had resigned from his previous employment. This prevented Hobbs from making a fully informed decision whether to resign from Cieslok Outdoor and accept TDI’s offer.

C. Damages

[50] For the reasons set out above, I conclude that TDI cannot rely on the Solicitor’s Agreement in order to avoid paying Hobbs commissions owing to him at the time he left TDI’s employ. It remains to be determined what commissions were owing to Hobbs at that time.

[51] As already noted, the parties had agreed that Hobbs would receive commissions on the basis of six percent for new business and five percent for renewals, and also had a common understanding that his commissions would be calculated quarterly based on advertising that had run and been billed, balanced against the monthly draw he had received. As TDI cannot rely on the provisions of the Solicitor’s Agreement that restricted payment to Hobbs of commissions calculated in this way, I conclude that Hobbs is entitled to commissions calculated on advertising he sold that ran and was billed while he was employed by TDI.

[52] The parties agreed on what the calculation of damages would be depending on the findings of the court. They agreed that if the court finds that commissions are payable to Hobbs for all contracts for which billings were issued between January 1, 2000 and May 26, 2000 and only the actual draw paid to Hobbs is to be set off, the damages to be awarded to Hobbs would be $52,778.81. I conclude that this is the appropriate amount of damages.

D. Conclusion

[53] The appeal is allowed and Hobbs is entitled to judgment in the amount of $52,778.81 as well as prejudgment and post judgment interest.

[54] The appellant’s costs of the appeal are fixed on a partial indemnity scale in the amount of $25,000.00 including disbursements and G.S.T. The appellant is entitled to costs at trial as assessed on a partial indemnity scale.

“R.G. Juriansz J.A.”

“I agree J.C. MacPherson J.A.”

“I agree C.M. Speyer J. (ad hoc)

RELEASED: December 01, 2004