CITATION: Braiden v. La-Z-Boy Canada Limited, 2008 ONCA 464
DATE: 20080612
DOCKET: C45733
COURT OF APPEAL FOR ONTARIO
SHARPE, CRONK and GILLESE JJ.A.
BETWEEN:
GORDON BRAIDEN AND GORDON BRAIDEN SALES INC.
Plaintiffs (Respondents)
and
LA-Z-BOY CANADA LIMITED
Defendant (Appellant)
Myron W. Shulgan Q.C. for the appellant
Melanie Reist for the respondents
HEARD: January 25, 2008
On appeal from the judgment of Justice Ronald C. Sills of the Superior Court of Justice dated July 5, 2006, with reasons reported at [2006] O.J. No. 2791.
GILLESE J.A.:
OVERVIEW
[1] Gordon Braiden had worked for La-Z-Boy Canada Limited for almost 23 years when La-Z-Boy ended the employment relationship. Termination was effected pursuant to a sixty-day notice provision in an agreement between La-Z-Boy and Gordon Braiden Sales Inc. (“Sales Inc.”), a corporation owned by Mr. Braiden. Mr. Braiden and Sales Inc. are collectively referred to as the Respondents.
[2] Mr. Braiden successfully sued La-Z-Boy for wrongful dismissal.
[3] After a four-day trial, Sills J. found that, given the extent of La-Z-Boy’s control over the Respondents’ functions and activities, an employer and employee relationship existed between La-Z-Boy and Mr. Braiden. He also held that the sixty-day notice provision was null and void. In light of Mr. Braiden’s age (53) and years of service to La-Z-Boy, the trial judge held that a reasonable notice period was twenty months.
[4] La-Z-Boy appeals. It argues that there was no employer-employee relationship between it and the Respondents. Rather, it says, at the time of termination its relationship was only with Sales Inc. and Sales Inc. worked for it as an independent contractor, not as an employee. Further, La-Z-Boy contends that it was entitled to end the contractual relationship it had with Sales Inc. on sixty days’ notice.
[5] For the reasons that follow, I would dismiss the appeal.
BACKGROUND
[6] La-Z-Boy manufactures and sells furniture. In Canada, its products are sold to furniture retailers through sales agents.
[7] On August 4, 1981, Mr. Braiden began working for La-Z-Boy as a customer service manager at its Waterloo factory. His immediate superior was the sales manager. His duties were to respond to sales staff and retail dealers who sold La-Z-Boy furniture.
[8] In June 1986, Mr. Braiden became a sales representative trainee with La-Z-Boy. As a sales representative trainee, Mr. Braiden received a salary and commission. In addition, he:
a. worked from a home office,
b. regularly reported to and was reviewed by La-Z-Boy’s national sales and marketing manager,
c. sold products at prices established by La-Z-Boy,
d. was given sales targets by La-Z-Boy,
e. paid for his own expenses, including that of his vehicle,
f. attended furniture shows and sales meetings as directed by La-Z-Boy,
g. serviced a geographical territory established by La-Z-Boy, and
h. was provided with training, advertising materials and tools, catalogues and fabric samples by La-Z-Boy.
[9] By letter dated August 7, 1987, from La-Z-Boy, Mr. Braiden was advised that effective August 29, 1987, his training period and employment were at an end. The letter went on to state that effective August 30, 1987, he would become a commissioned sales representative for La-Z-Boy (“sales agent”). As a result, La-Z-Boy ceased paying him a salary and commission. Instead, his compensation was based on commissions alone. All other aspects of his employment, including those set out in the immediately preceding paragraph, remained the same as when he had been a sales agent trainee.
[10] In 1995, La-Z-Boy decided that it would enter into annual written agreements with its sales agents. It prepared an “Independent Sales & Marketing Consultant’s Agreement” which it required all its sales agents to sign (the “Agreement”).
[11] The first such Agreement that Mr. Braiden signed was dated January 1, 1996. The Agreement contained a significant and new notice provision: either party could terminate the Agreement, without cause, on sixty days notice in writing to the other.
[12] Mr. Braiden testified that he felt he had to sign the Agreement in order to keep his job. Iain Douglas testified on behalf of Mr. Braiden. Mr. Douglas joined La-Z-Boy in 1983 as Canadian sales manager and remained with it until June 2001. Mr. Braiden reported to Mr. Douglas for the duration of Mr. Douglas’ employment with La-Z-Boy. Mr. Douglas confirmed that Mr. Braiden had to sign the Agreement or lose his job.
[13] The Agreement made no changes to Mr. Braiden’s job responsibilities, the way in which he did his job, or his compensation. The evidence showed that the Agreement was a response to audits of La-Z-Boy conducted in respect of Employer Health Tax (EHT) and the Workplace Safety and Insurance Board (WSIB). The audits led government agencies to conclude that the sales agents were La-Z-Boy employees and La-Z-Boy was required to make EHT and WSIB contributions accordingly.
[14] The Agreement stated that the “Independent Sales & Marketing Consultant” was not an agent or employee of La-Z-Boy.
[15] Mr. Braiden executed similar agreements annually from 1996 to 2003. However, in 1997, La-Z-Boy required Mr. Braiden to incorporate a company and to pay his own EHT and WSIB premiums. As a result, Mr. Braiden established Sales Inc. and the 1998 annual Agreement was between La-Z-Boy and Sales Inc.
[16] Again, Mr. Braiden understood that failure to comply with these requirements would result in the loss of his job. As before, there was no change in his working relationship, the way in which he performed his job, or the manner in which he was compensated.
[17] In 1999, La-Z-Boy urged Mr. Braiden to share office facilities and staff with two other sales agents in the area and he did so. Consequently, he stopped working from his home and began paying his share of the associated expenses.
[18] The annual Agreements contained detailed provisions governing Mr. Braiden’s functions and responsibilities. As many of these requirements are included in the findings of the trial judge which are set out below, I will not repeat them here. Suffice to say that under the terms of the Agreements, La-Z-Boy paid Mr. Braiden at a commission rate established by it, on sales as defined by it. Mr. Braiden was obliged to personally engage, on a full time basis, in such sales promotional activities as La-Z-Boy, in its sole discretion, deemed advisable. In addition, Mr. Braiden agreed to service a territory established by La-Z-boy and to sell exclusively La-Z-Boy furniture. He was precluded from selling any competing or non-competing product lines, without La-Z-Boy’s consent.
[19] In 2003, La-Z-Boy, relying on the notice provision in the Agreement, terminated Mr. Braiden’s contract on sixty days’ notice.
THE TRIAL JUDGMENT
[20] The trial judge recognized that there were two issues that required resolution when deciding whether the Respondents were entitled to reasonable notice. First, what was the nature of the relationship that existed between the parties at the time of termination? Second, what was the consequence of Sales Inc., rather than Mr. Braiden, entering into the annual Agreements after 1997?
[21] In deciding the first issue, the trial judge began by noting that application of the label of “independent contractor” in the Agreement was not determinative of the nature of the relationship.
[22] In para. 35 of the reasons, the trial judge made detailed findings about the nature of the relationship, findings which warrant being set out in full despite their length.
[35] What does the evidence before the court indicate about the relationship?
(1) Braiden was in fact an employee from the date he joined the defendant on August 4, 1981 until the completion of the training period as sales representative on August 29, 1987.
(2) By letter dated August 7, 1987 (Exhibit One, Tab 5), he was told that his employment by the defendant would end effective August 29, 1987.
(3) That same letter advised Braiden that he would become a “commissioned sales agent” on August 30, 1987 and his remuneration thereafter was set out.
(4) During the years 1987 through 1997, the terms of Gordon Braiden’s relationship with the defendant remained the same as established by the defendant. Thereafter, “Annual Independent Sales and Marketing Consultants’ Agreements’ set out the terms of a relationship between the corporate plaintiff and the defendant, which remained the same, except for registration by Braiden’s corporation under EHT and WSIB, GST registration February 27, 1998 by the corporate plaintiff (Exhibit One, tab 13), and execution of annual agreements by the plaintiff corporation from 1998 to 2003.
(5) Commission payments from and including 1998 were made to the plaintiff corporation by the defendant.
(6) The annual “independent sales and marketing consultants” agreements after 1997 were entered into by the plaintiff corporation but paragraphs 3(i) and (j) provided for compensation to the plaintiff corporation only when the “principal” of the independent sales and marketing consultant was actively involved in the performance of the duties of the consultant. Nowhere in any of the annual agreements is the “principal” of the independent sales and marketing agent identified or otherwise defined but obviously, in this case it can only refer to Gordon Braiden.
(7) The defendant was solely responsible for fixing compensation of the plaintiff corporation.
(8) The defendant was solely responsible for sales and promotional activities and required the co-operation of the agent in that regard.
(9) The Plaintiff corporation as a [S]ales and Marketing Consultant agreed to accept compensation as fixed by the defendant and to pay all expenses incurred in the performance of its duties and obligations under the agreements.
(10) The defendant required the agent to service its territory by calling regularly on established accounts, establishing new accounts and using its best efforts on behalf of the defendant and its products.
(11) The said agent was restrained from selling or promoting competing lines of merchandise and even non-competing lines of merchandise, absent the consent of the defendant, and as included in a schedule to the agreement.
(12) The said agent was to be responsible to the defendant’s sales department to maintain and improve sales volume of the defendant’s products within the territory assigned and failure to adequately service accounts may result in a withholding or adjusting of compensation in the discretion of the defendant.
(13) The agent is to accept and follow the information received from the defendant as to designs of its products and prices of the products and to maintain sale information and materials in good condition for use and display to customers.
(14) The agent is to maintain customer records satisfactory to the defendant and to maintain its place of business within the territory unless otherwise agreed to by the defendant in writing.
(15) The agent is to attend, at its own expense, trade shows, furniture markets and other events where, in the opinion of the defendant, attendance is appropriate, and to attend the defendant’s display space at such events on a daily basis to service the defendant’s customers. Presumably, all attendances, including calls on customers, were to be by the “principal” Gordon Braiden.
(16) The agent is to attend at the defendant’s manufacturing facility and other locations as agreed for meetings deemed appropriate by the defendant.
(17) The agent is to maintain third party liability insurance and accident benefit insurance in its own name and to so inform the defendant.
(18) The agent was subject to non-disclosure of confidential data, including customer lists and trade secrets.
(19) Only the defendant could accept orders solicited from customers by the agent and the agent had no authority to bind the defendant. The agreement specifically describes the relationship with the defendant as independent sales and marketing consultant, and not an agent of the defendant.
(20) The defendant was able to modify and change the terms of the agreement in its own discretion at any time on 60 days notice to the agent.
(21) The agent was to participate in group health and insurance benefit plans subject to the consent of defendant’s insurer and at its own expense.
(22) No prior discussions between the parties had occurred with respect to the provisions of the agreement and certainly the 60-day notice of termination was a new provision from inception of the annual agreement.
(23) The defendant controlled the work to be done by the agent relative to the agent’s obligation to oversee “accessorization” setups as in the case of La-Z-Boy Furniture Gallery in Oshawa (Exhibit One, tab 26). Sales reviews were conducted extensively by the defendant with regard to the agent’s activities (Exhibit One, tab 28, 31 and 32).
[23] The trial judge then concluded that the relationship between Mr. Braiden and La-Z-Boy was that of employee and employer.
[24] The trial judge also explained that employment relationships exist on a continuum. The employer-employee relationship lies at one end of the continuum and independent contractors lie at the other end. He suggested that a third category of relationship has emerged, between those two points, in which reasonable notice of termination must also be given. He referred to Marbry Distributors Ltd. v. Avrecan International Inc. (1999), 1999 BCCA 172, 171 D.L.R. (4th) 436 (B.C.C.A.) for this proposition, noting that in Marbry, the British Columbia Court of Appeal relied on several Ontario appellate cases.
[25] In relation to the second issue, the trial judge recognized that from 1998 to the time of termination the Agreements were between Sales Inc. and La-Z-Boy and, in that sense, there was no direct relationship between Mr. Braiden and La-Z-Boy. Nonetheless, he refused to attach significance to what he viewed as the “technical structure” of the arrangement. As he explained, all of the Agreements recognized the ongoing participation of Mr. Braiden as a necessary “principal” of Sales Inc., La-Z-Boy relied on Mr. Braiden’s presence as Sales Inc.’s principal, and the Agreements were entirely dependent on Mr. Braiden’s personal involvement. He found that Sales Inc. was used, at La-Z-Boy’s insistence, simply as a vehicle to transfer financial obligations from La-Z-Boy to Mr. Braiden and “to attempt to create in the plaintiff the status of independent contractor for purposes of termination of the contract and avoidance of reasonable notice thereof and claims for wrongful dismissal”.
[26] The trial judge concluded that it did not matter whether the plaintiff was Mr. Braiden or Sales Inc. when determining the length of the reasonable notice period. Mr. Braiden was “vulnerable” as an employee, in the sense that word was used in Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701. Further, it was clear from the reference to “principal” in each of the annual Agreements that it was Mr. Braiden whom La-Z-Boy considered to be the “prime mover” of the corporate plaintiff. Accordingly,
[43] … Given the extent of control held and exercised by the defendant regarding the functions and activities of the plaintiffs, the annual agreements, although said to be agreements with an independent sales and marketing consultant, represented an employment relationship between the defendant and Gordon Braiden, either directly or through the plaintiff corporation. As stated earlier, it does not matter whether the plaintiff is the individual, Gordon Braiden, or his corporation, in determining the notice period.
[27] The trial judge then referred to some of the factors set out in Bardal v. Globe and Mail (1960), 1960 CanLII 294 (ON SC), 24 D.L.R. (2d) 140 (Ont. H.C.J.) for determining the length of the notice period. Based on the length of service, Mr. Braiden’s age, and the difficulty he could expect to encounter in finding comparable employment, the trial judge found that a reasonable notice period was twenty months.
THE ISSUES
[28] This appeal raises two issues.[^1] Did the trial judge err:
(1) in finding that the relationship between La-Z-Boy and the Respondents was that of employer and employee? and
(2) in holding that La-Z-Boy was not entitled to terminate the Agreement on sixty days’ notice?
THE NATURE OF THE EMPLOYMENT RELATIONSHIP
[29] La-Z-Boy reiterates the arguments made at trial to the effect that no employer-employee relationship existed between it and Mr. Braiden. It submits that its employment relationship with Mr. Braiden was terminated in 1987 when he became a sales agent for La-Z-Boy. After 1997, La-Z-Boy says, its only relationship was with Sales Inc. and Sales Inc. was an independent contractor.
[30] La-Z-Boy’s submission that its relationship was with Sales Inc. alone can be answered shortly. Where an individual is providing services pursuant to an agreement, the fact that the individual is paid through his or her corporation is not determinative of whether an employment relationship exists with the individual. See Kordish v. Innotech Multimedia Corp. (1998), 46 C.C.E.L. (2d) 318 (Ont. Ct. J. (Gen. Div.)), aff’d [2000] O.J. No. 2557 (C.A.). On the record, there is no other conclusion available but that La-Z-Boy used the Agreements to secure the personal services of Mr. Braiden, as sales agent, even though the Agreements in the later years of the relationship were with Mr. Braiden’s corporation.
[31] As to the nature of the relationship, the determination whether an individual is an employee or an independent contractor must, in every case, be made on the evidence accepted by the trier of fact: Belton v. Liberty Insurance Co. of Canada (2004), 2004 CanLII 6668 (ON CA), 72 O.R. (3d) 81 at para. 14 (C.A.) quoting from Jaremko v. A.E. LePage Real Estate Services Ltd. (1989), 1989 CanLII 4163 (ON CA), 69 O. R. (2d) 323 (C.A.). It is trite law but bears repeating that the trial judge’s factual findings made when deciding this matter are not to be disturbed absent palpable and overriding error.
[32] In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983 at para. 47, the Supreme Court of Canada stated that there is no one conclusive test that can be universally applied to determine whether a person is an employee or independent contractor. However, it went on to set out what it considered to be a persuasive approach to the issue:[^2]
The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.
[33] In Belton, as in the present case, this court was required to determine whether a commissioned sales representative was an independent contractor or employee. The court reiterated that a statement in an agreement that purports to establish the nature of the relationship is not determinative of the issue.[^3] Despite a statement in the agreement between the parties that the sales representatives were independent contractors, this court concluded that the sales representatives were employees. In reaching that conclusion, Juriansz J.A, writing on behalf of the court, considered five principles which had been modelled on the considerations set forth in the above quotation from Sagaz:^4
Relying on Doyle v. London Life Insurance Co. (1985), 1985 CanLII 301 (BC CA), 23 D.L.R. (4th) 443 (B.C.C.A.), leave to appeal to S.C.C. refused, [1986] S.C.C.A. No. 73, 64 N.R. 318n, the trial judge identified the following principles to distinguish independent contractors from employees when considering the status of a commissioned agent:
Whether or not the agent was limited exclusively to the service of the principal;
Whether or not the agent is subject to the control of the principal, not only as to the product sold, but also as to when, where and how it is sold;
Whether or not the agent has an investment or interest in what are characterized as the “tools” relating to his service;
Whether or not the agent has undertaken any risk in the business sense or, alternatively, has any expectation of profit associated with the delivery of his service as distinct from a fixed commission;
Whether or not the activity of the agent is part of the business organization of the principal for which he works. In other words, whose business is it? [Emphasis added.]
[34] In many ways, the question posed at the end of the fifth principle – whose business is it? – lies at the heart of the matter. Was the individual carrying on business for him or herself or was the individual carrying on the business of the organization from which he or she was receiving compensation? In my view, given the findings of the trial judge, the answer to that question can only be that Mr. Braiden was carrying on the business of La-Z-Boy.
[35] Four of the five principles in Belton point unequivocally to an employment relationship.
As required by the terms of the Agreements, Mr. Braiden worked full-time and exclusively for La-Z-Boy.
Mr. Braiden was subject to La-Z-Boy’s control not only as to the products sold but also as to the territory in which they were to be sold and the promotional methods he was to use. Mr. Braiden’s sales obligations were completely determined by La-Z-Boy – where he was to sell, the promotional methods he was to use, what he was to sell and how much he was to sell it for. La-Z-Boy regularly monitored Mr. Braiden’s sales performance and measured it against the performance of other of La-Z-Boy’s sales agents. Sales goals, performance directions and reviews were all determined and conducted exclusively by La-Z-Boy.
Mr. Braiden’s financial compensation consisted solely of his commissions from La-Z-Boy. La-Z-Boy established the commission levels, the price of the products that Mr. Braiden sold and the territories and accounts which Mr. Braiden was to service. Mr. Braiden was restrained from selling or promoting competing and non-competing product lines. He was financially dependent on La-Z-Boy and had no expectation that he might earn a profit as distinct from the fixed commissions he received from La-Z-Boy.
The group of sales agents of which Mr. Braiden was a member was the central method by which La-Z-Boy distributed and sold its products. Accordingly, the sales force of which Mr. Braiden was a member was a crucial element of La-Z-Boy’s business organization.
[36] It is not clear to me that the third principle is applicable to this case as there are no “tools” associated with Mr. Braiden’s work as a sales agent. If “tools” includes anything necessary to perform one’s contractual responsibilities, it would encompass Mr. Braiden’s car and office, both of which he furnished and maintained at his own expense. On that view of “tools”, the third principle is more indicative of an independent contractor than of an employment relationship. However, this is but one factor and, in the circumstances of this case, it is far less significant than the others.
[37] Accordingly, I see no basis on which to interfere with the trial judge’s determination that the continued relationship between the appellant and Mr. Braiden was that of employer and employee. This determination was based on careful, thorough findings of fact which are fully supported on the record, and was responsive to the issues raised by the parties. Although the reasons do not identify the factors set out above, the findings reflect a consideration of the appropriate factors.
[38] Thus, I would dismiss this ground of appeal.
THE NOTICE PERIOD
[39] I turn next to the question whether the appellant was entitled to rely on the sixty-day notice provision in the Agreement (the “Notice Provision”) in terminating the employment relationship.
The Employment Standards Act, 2000
[40] The trial judge held that the Notice Provision was void because it was less than the statutory minimum notice period prescribed by the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”). He gave no reasons for this conclusion.
[41] La-Z-Boy acknowledges that if the Notice Provision is less than the minimum notice period prescribed by the ESA, it is null and void.[^5] However, it submits that the Notice Provision did not contravene the statutory minimum notice period and that the trial judge erred in finding that it did.
[42] Section 57 of the ESA provides that, at a minimum, notice of termination of one week for each year of service up to a maximum of eight weeks (i.e. fifty-six days) must be given.[^6] La-Z-Boy employed Mr. Braiden from 1981 to 2003. Thus, pursuant to s. 57 of the ESA, Mr. Braiden would have been entitled to a minimum notice period of eight weeks. As the Notice Provision requires that sixty days’ notice be given and sixty days exceeds eight weeks, I accept La-Z-Boy’s submission that the Notice Provision met the minimum notice period prescribed by the ESA. Accordingly, the trial judge erred in holding that the Notice Provision was void because it provided for less notice than the statutory minimum prescribed by the ESA.
[43] The Respondents argue that the trial judge may have been considering severance, in addition to notice, when he concluded that the Notice Provision fell short of the statutory minimums prescribed by the ESA. This argument is based on the fact that, pursuant to s. 64(1) of the ESA, Mr. Braiden was entitled to severance as well as to notice. Section 64(1) stipulates that an employer “who severs an employment relationship with an employee shall pay severance pay to the employee” in certain circumstances. One such circumstance is where the employer’s payroll is $2.5 million or more (s. 64(1)(b)).[^7]
[44] Assuming that La-Z-Boy’s annual payroll is $2.5 million or more, the Respondents argue that once the trial judge determined that an employment relationship existed between La-Z-Boy and Mr. Braiden, he would have recognized that pursuant to s. 64(1)(b), La-Z-Boy was obliged to provide Mr. Braiden with severance pay, as well as notice. They submit that as the Agreement was silent in respect of severance, it was open to the trial judge to have concluded that the Agreement was intended to provide Mr. Braiden with no severance. Thus, they argue, although the Notice Provision met the statutory minimum, if an employment contract must provide no less than the statutory minimum in respect of both notice and severance, it was open to the trial judge to have found that the Agreement was void as it provided less than the minimum severance requirement prescribed by the ESA.
[45] As I explain in the following section, the Notice Provision is not enforceable as the Agreement fails for want of consideration. In light of that conclusion, it is not necessary to decide this appeal on the basis of whether silence in the Agreement on the matter of severance amounts to a failure to meet the prescribed minimum standards in the ESA. This is a novel and important point of law. Its determination is best left to a case in which the matter has been squarely raised and fully argued by the parties and a full record exists on which to properly interpret the contract in question.
The Requirement of Consideration
[46] Both at trial and on appeal, the Respondents offered an alternative basis for finding that the Notice Provision was not binding, namely, that the Agreement failed for lack of consideration. For the reasons that follow, I accept that submission.
[47] A contract is an exchange of promises, acts, or acts and promises, as a result of which each party to the contract receives something from the other. For a contract to be binding, consideration must flow between the parties. Absent consideration, there is no contract.
[48] Beginning with Francis v. Canadian Imperial Bank of Commerce (1994), 1994 CanLII 1578 (ON CA), 21 O.R. (3d) 75 at 84, this court has repeatedly held that a new notice provision in a contract is “a tremendously significant modification of the implied term of reasonable notice”, one that requires consideration flowing from the employer to support it. Accordingly, it is clear that consideration was required to support the Agreement which contained, for the first time, the Notice Provision.
[49] The requirement of consideration to support a change to the terms of an 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 job, they become more vulnerable.
[50] Recognition of this vulnerability is now so firmly embedded in the jurisprudence that it need hardly be recited. In Ceccol v. Ontario Gymnastic Federation (2001), 2001 CanLII 8589 (ON CA), 55 O.R. (3d) 614 at paras. 47 - 48 (C.A.), MacPherson J.A. summarized the jurisprudence in the following terms:
In an important line of cases in recent years, the Supreme Court of Canada has discussed, often with genuine eloquence, the role work plays in a person’s life, the imbalance in many employer-employee relationships and the desirability of interpreting legislation and the common law to provide a measure of protection to vulnerable employees [citations omitted].
These factors have clearly influenced the interpretation of employment contracts. In Wallace, Iacobucci J. said, at pp. 740-41:
The contract of employment has many characteristics that set it apart from the ordinary commercial contract. Some of the views on this subject that have already been approved of in previous decisions of this Court (see e.g. Machtinger, supra) bear repeating. As K. Swinton noted in “Contract Law and the Employment Relationship: The Proper Forum for Reform”, in B.J. Reiter and J. Swan, eds., Studies in Contract Law (1980), 357, at p. 363:
… the terms of the employment contract rarely result from an exercise of free bargaining power in the way that the paradigm commercial exchange between two traders does. Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer, particularly with regard to tenure.
Did consideration flow?
[51] A promise to do something that a party to a contract is already bound to do is not consideration. This was explained in K.M.A. Caterers Limited v. Howie, 1968 CanLII 172 (ON CA), [1969] 1 O.R. 131 at 134 (C.A.):
A promise to do what the promissor is bound to do under an existing contract cannot be consideration, for if a person gets nothing in return for his promise but that to which he is already legally entitled, the so-called consideration is not genuine and is not sufficient to support a contract.
[52] When Mr. Braiden became a sales agent for La-Z-Boy in 1987, there was no provision dealing with notice in the agreement between the parties, thus leaving common law reasonable notice as an implied term. In 1996, after almost a decade of loyal service to La-Z-Boy as a sales agent, Mr. Braiden signed the Agreement. The only substantive change to the parties’ rights that came about as a consequence of entering into the Agreement related to the insertion of the termination provisions. The Agreement contained, for the first time, the Notice Provision stipulating that Mr. Braiden’s employment could be terminated on sixty days’ notice. Sixty days was less than that which Mr. Braiden would have been entitled to at common law. No clauses detrimental to La-Z-Boy’s interests were inserted into the Agreement.
[53] Under the Agreement, Mr. Braiden was obliged to continue to provide the same services as he had under the prior agreement and La-Z-Boy was obliged to give Mr. Braiden only that to which he was legally entitled under that prior agreement. Thus, on the face of the Agreement, there is no indication that Mr. Braiden received any consideration for giving up his right to reasonable notice at common law.
[54] Further, there is nothing in the record to show that any fresh consideration flowed to Mr. Braiden in exchange for his giving up that right. Indeed, the evidence is to the contrary. From 1987 through to 2003, the regular rate of commission that La-Z-Boy paid Mr. Braiden remained fixed at 5%. During that period:
(a) the commission he received on the sale of leather products was decreased to 4%;
(b) in 1998 he was required to incur the expenses of incorporating Sales Inc., and in 1999 to assume the ongoing costs of rent for office space and payment of his share of the salaries of two support staff; and
(c) as a result of unilateral changes made by La-Z-Boy to Mr. Braiden’s territory during the period, he experienced a substantial reduction in earnings.
[55] La-Z-Boy counters by arguing that forbearance from firing constitutes good consideration. In support of this argument, it points to Mr. Braiden’s testimony that he entered into the Agreement because he understood that he might otherwise lose his employment with La-Z-Boy.
[56] It seems to me that this court’s decision in Hobbs v. TDI Canada Ltd. (2004), 2004 CanLII 44783 (ON CA), 246 D.L.R. (4th) 43 (C.A.), rev’g [2003] O.J. No. 2646 (Sup. Ct.), is a full answer to this submission. In Hobbs, the appellant accepted a commissioned sales position with TDI. During the second week of his employment with TDI, he was required to sign a Solicitor’s Agreement that changed his payment structure. The trial judge opined that the Solicitor’s Agreement formed part of the original employment agreement. However, if the Solicitor’s Agreement were a new agreement, he was of the view that consideration for it flowed in the form of “the continuation of employment”, since it was clear that Mr. Hobbs’ refusal to sign the Solicitor’s Agreement would have resulted in the termination of his employment.
[57] On appeal, Juriansz J.A., writing on behalf of the court, held that the trial judge erred. He held that the Solicitor’s Agreement was an amendment of the original employment contract and that Mr. Hobbs received no consideration for it. In reaching this conclusion, Juriansz J. A. reviewed a number of decisions of this court, all of which are to the same effect: a change in the notice period is a significant modification of the employment agreement, additional consideration is required to support such a modification and continued employment does not constitute something of value flowing to the employee.[^8] At para. 32 of Hobbs, Juriansz J.A. explains:
The governing legal authority in the circumstances of this case is Francis v. Canadian Imperial Bank of Commerce (1994), 21 O.R. (3d) (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 relations as the consideration for the new terms.
[58] The situation that Mr. Braiden faced is similar to that of Mr. Hobbs but even more compelling. In Hobbs, the appellant had only worked for two weeks before being presented with the agreement. Mr. Braiden had given fifteen years of loyal service to La-Z-Boy when he was told by his immediate supervisor that he was to sign the Agreement or lose his job. Both Hobbs and Francis make it clear that continued employment, in such a situation, is not consideration for the new terms of the employment relationship.
[59] I accept that if an employer provides consideration beyond mere continued employment, the employee may be bound by the modified terms of the agreement. Techform is a case in which additional consideration flowed. In Techform, the court found that the employer had implicitly promised the employee that it would forbear from exercising its right to terminate the employee for a reasonable period, thus enhancing the employee’s security of employment.
[60] There is no such finding in the present case. Indeed, there is no evidence on which such a finding could be made. La-Z-Boy chose to lead no evidence. The testimony of Messrs. Braiden and Douglas, which the trial judge accepted, was that he was given a choice: sign or lose your job. There is no evidence that he received anything that might be considered to amount to “enhanced security of employment”. All that Mr. Braiden received for signing the Agreement was continued employment and, as previously stated, mere continuance of employment is not consideration.
[61] Nothing in these comments is intended to suggest that it would not have been possible for La-Z-Boy to have entered into a fresh agreement with Mr. Braiden with a notice provision of the sort in question. However, at a minimum, in order to discharge the burden of establishing such a new agreement, La-Z-Boy would have to point to evidence that it clearly communicated the changes in the agreement that governed its relationship with Mr. Braiden, Mr. Braiden appreciated that he was giving up legal rights and consideration flowed for his forfeiture of those rights.
Are tax benefits consideration?
[62] La-Z-Boy also argued that Mr. Braiden received consideration for the Agreement as a result of the Agreement being between La-Z-Boy and Sales Inc. It submitted that Mr. Braiden received financial benefits -- such as income splitting with his wife - because Mr. Braiden’s compensation flowed through his company, instead of directly to him.
[63] I reject this argument for two reasons. First, there is no evidence that Mr. Braiden actually received such a benefit. In the absence of such evidence, given that there are costs associated with incorporating and maintaining a company, it is not appropriate to simply assume that whatever tax benefits Mr. Braiden may have enjoyed exceeded the expenses of incorporating and maintaining Sales Inc. It will be recalled in this regard that Mr. Braiden only incorporated at the direction of La-Z-Boy. Had incorporation been at Mr. Braiden’s insistence, it may have been open to infer a financial or other benefit.
[64] Second, even if it can be assumed that Mr. Braiden received a benefit, the benefit arose as a result of favourable tax treatment and was a collateral or incidental result of the Agreement. It was not consideration that flowed from La-Z-Boy to Mr. Braiden. Rather, it was a benefit that flowed from the tax authority as a result of the relevant taxing statute.[^9]
Conclusion
[65] Thus, the Notice Provision is unenforceable and La-Z-Boy was not entitled to rely on it when it ended the employment relationship. Mr. Braiden was entitled to reasonable notice of termination.
DISPOSITION
[66] Accordingly, I would dismiss that appeal with costs to the Respondents fixed at $18,500, inclusive of disbursements and G.S.T.
RELEASED: June 12, 2008 (“R.J.S.”)
“E.E. Gillese J.A.”
“I agree Robert J. Sharpe J.A.”
“I agree E.A. Cronk J.A.”
[^1]: No appeal is taken from the length of the reasonable notice period as found by the trial judge.
[^2]: At para. 47.
[^3]: At para. 11.
[^5]: Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986.
[^6]: Section 57 reads as follows:
57. The notice of termination under section 54 shall be given,
(a) at least one week before the termination, if the employee’s period of employment is less than one year;
(b) at least two weeks before the termination, if the employee’s period of employment is one year or more and fewer than three years;
(c) at least three weeks before the termination, if the employee’s period of employment is three years or more and fewer than four years;
(d) at least four weeks before the termination, if the employee’s period of employment is four years or more and fewer than five years;
(e) at least five weeks before the termination, if the employee’s period of employment is five years or more and fewer than six years;
(f) at least six weeks before the termination, if the employee’s period of employment is six years or more and fewer than seven years;
(g) at least seven weeks before the termination, if the employee’s period of employment is seven years or more and fewer than eight years; or
(h) at least eight weeks before the termination, if the employee’s period of employment is eight years or more. [Emphasis added.]
[^7]: Section 64(1) (b) reads as follows:
64. (1) An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and, …
(b) the employer has a payroll of $2.5 million or more.
[^8]: See Francis, supra, and Techform Products v. Wolda (2001), 2001 CanLII 8604 (ON CA), 56 O.R. (3d) 1 (C.A.), leave to appeal refused [2001] S.C.C.A. No. 603.
[^9]: A number of lower court decisions have held that any tax benefits that accrue to a party are irrelevant to the question of consideration. See, for example, Agrios et al. v. Mediavision Inc. (1982), 1982 CanLII 1132 (AB KB), 134 D.L.R. (3d) 281 (Alta. Q.B.); Bank of British Columbia v. Coopers & Lybrand Ltd. (1984), 1984 CanLII 373 (BC SC), 59 B.C.L.R. 92 (Sup. Ct); Litwin Construction (1973) Ltd. v. Kiss (1985), 64 B.C.L R. 390 (Sup. Ct.); and, Reliable Toy Co. (Re.), [1986] O.J. No. 2164 (H.C.J.).