Court of Appeal for Ontario
Date: 2018-11-27 Docket: C62564
Panel: Hoy A.C.J.O., Feldman and Huscroft JJ.A.
Parties
Between
Fabiene Evans Plaintiff (Appellant/Respondent by way of cross-appeal)
and
Paradigm Capital Inc. Defendant (Respondent/Appellant by way of cross-appeal)
Counsel
Sean Lawler and Jonathan Miller, for the appellant
P.A. Neena Gupta and Jeramie Gallichan, for the respondent
Heard: November 14, 2018
On appeal from: The judgment of Justice Arthur M. Gans of the Superior Court of Justice, dated July 20, 2016, with reasons reported at 2016 ONSC 4286, 36 C.C.E.L. (4th) 129.
Reasons for Decision
Overview
[1] This is an appeal and cross-appeal from a judgment concluding that the appellant, who was employed as an institutional equity salesperson, was wrongfully dismissed by the respondent, an institutional investment dealer.
[2] It was agreed at trial that the appellant was constructively dismissed when the respondent revised her position and, among other things, reduced her responsibility, and that the dismissal occurred on January 16, 2009. The trial judge held that the appellant was entitled to 11 months' pay in lieu of notice, which resulted in an award of $240,313.79 in damages. That amount included base salary ($75,000), performance bonus, and a shareholders' bonus – dividends to which the appellant was entitled as an equity stakeholder in the company. After crediting the respondent for money it had already paid out and accounting for the appellant's recovery of her mitigation expenses, the net amount owing was $137,055.54.
[3] The trial judge held that the appellant was not required to accept the new revised role with the respondent in order to mitigate her damages. However, he rejected the appellant's claims regarding the alleged historic underpayment of her performance bonus and held that the respondent had not breached its duty of good faith in administering the bonus.
[4] The trial judge ordered the respondent to pay costs of $195,412.59 on a partial indemnity basis.
[5] The appellant submits that the trial judge erred in two ways: first, in calculating her performance bonus entitlement based on her last percentage allotment and the respondent's actual financial results in 2009, rather than a three-year historic average of her performance bonus; and second, in awarding partial indemnity costs on a reduced basis. At the hearing, the appellant abandoned her argument that the respondent breached its duty of good faith in contractual performance in administering her performance bonus.
[6] In its response and cross-appeal, the respondent submits that the trial judge erred in four ways: first, in finding that the appellant was not required to accept the new revised role with the respondent in order to mitigate her damages; second, in finding that the appellant was entitled to 11 months' notice; third, in awarding the appellant damages related to the shareholders' bonus, even though her equity interest in the company had been redeemed following her dismissal in accordance with the shareholders' agreement; and fourth, in failing to find that the respondent had been the successful party in the litigation and awarding the appellant costs. The respondent seeks leave to adduce fresh evidence on the costs appeal concerning a legal fees arrangement between the appellant and her counsel that it says should have been disclosed to the trial judge.
[7] For the reasons that follow, the appeal is dismissed. However, on the cross-appeal, we conclude that the trial judge erred in awarding the appellant damages related to the shareholders' bonus. The cross-appeal is allowed to this extent.
[8] Given the outcome of the cross-appeal, the costs award must be remitted to the trial judge to be recalculated in accordance with the outcome of this decision.
The Appeal
The Calculation of Damages
[9] The appellant submits that the trial judge should have calculated her performance bonus on the basis of an historical three-year average rather than on what her bonus would have been in 2009. In essence, the appellant argues that because of her constructive dismissal in January 2009, the 2009 pool used to determine her performance bonus was lower than it would have been had the appellant contributed to it, and as a result her performance bonus was lower.
[10] We disagree.
[11] Although it may sometimes be appropriate to calculate damages based on an average of earnings, there is no requirement to do so: Clark v. BMO Nesbitt Burns Inc., 2008 ONCA 663, 300 D.L.R. (4th) 313, at para. 35. In general, damages for wrongful dismissal reflect the amount the plaintiff would have earned had her employment continued in accordance with the contract. The trial judge was not persuaded that there was any reason to depart from this approach and there is no reason to interfere with his decision, absent a palpable and overriding error.
[12] We see no such error. The trial judge applied the 0.5% participation rate that the appellant had been allotted for seven straight quarters prior to the termination of her employment and multiplied it by the performance bonus pool for 2009. There was no evidence as to the appellant's previous contribution to the pool, and her position that the pool would have been bigger had she contributed to it is speculative. Moreover, the appellant's notice period was during a period of severe economic downturn. We agree with the trial judge that calculation of the performance bonus based on the 2009 pool and 0.5% participation rate was appropriate in all of the circumstances.
[13] Given our conclusion on the cross-appeal, it is not necessary to address the appellant's request for leave to appeal the trial judge's decision on the costs at trial.
The Cross-Appeal
Mitigation
[14] The respondent submits that the trial judge erred in finding that the appellant was not required to accept the new revised role with the respondent in order to mitigate her damages. In particular, the respondent argues that the trial judge erred in concluding that the revised role would have rendered the appellant's compensation uncertain; that the reduction of the appellant's shareholding to 1% of the company – which the appellant argues was contrary to the terms of the shareholders' agreement – was an appropriate factor in the appellant's decision not to accept the revised role; and that the appellant would have been humiliated in the revised role.
[15] We see no error in the trial judge's conclusions.
[16] The trial judge properly applied the law set out by the Supreme Court in Evans v. Teamsters Local Union No. 31, 2008 SCC 20, [2008] 1 S.C.R. 661, at paras. 27-33. In that case, the Supreme Court held that if an employer offers an employee the opportunity to mitigate damages by returning to work for the employer, the central issue is whether a reasonable person would accept such an opportunity. The Court added that employees are not obliged to mitigate by working in an atmosphere of hostility, embarrassment, or humiliation; non-tangible elements of the situation have to be considered as well as the nature and conditions of employment.
[17] In this case, the trial judge found that there were too many variables concerning the tangible aspects of the revised role that were essentially left to the department head and CEO, and that in these circumstances the offer of alternative employment was "more form than substance." It was not objectively reasonable to conclude that the offer should be accepted. Moreover, the trial judge found that non-tangible elements provided additional support for his conclusion. He found, in particular, that the move to the revised position "would have been devastating" for the appellant on several levels.
[18] These findings were open to the trial judge and are entitled to deference. This ground of appeal must be rejected.
The Appropriate Notice Period
[19] The respondent submits that the trial judge erred in finding that the appellant was entitled to 11 months' notice. The respondent argues that the trial judge made a palpable and overriding error by treating inducement as a relevant factor in calculating the period of reasonable notice, when the agreed statement of facts indicated that there was no inducement. According to the employer, the appropriate notice period was 6-8 months.
[20] We see no such error. The trial judge did not find that inducement was a relevant consideration in calculating the appellant's notice period; he simply stated that the appellant was "actively recruited" to her position, and made no error in doing so. Nor can it be said that 11 months' notice was unreasonable. The appellant was a relatively senior sales person who was dismissed during a difficult employment market in 2009. The trial judge considered the relevant factors and reached a decision that was within a reasonable range in all of the circumstances.
[21] This ground of appeal must be rejected.
The Shareholders' Bonus
[22] The respondent submits that the trial judge erred in awarding the appellant damages corresponding to the shareholders' bonus. In essence, the respondent argues that dividends can be claimed only by shareholders and that the appellant ceased to be a shareholder upon the termination of her employment, when her shares were purchased by the respondent in accordance with the deemed transfer notice provided for in the shareholders' agreement.
[23] The appellant argues that the trial judge correctly found that her right to receive the shareholders' bonus was an integral part of her overall compensation. Payment in lieu of notice is intended to compensate for breach of the employment contract, and as a result the shareholders' bonus should be included in calculating the damages during the notice period.
[24] On this issue, we agree with the respondent.
[25] The trial judge distinguished Kieran v. Ingram Micro Inc. (2004), 33 C.C.E.L. (3d) 157 (Ont. C.A.), and Brock v. Matthews Group Ltd. (1991), 34 C.C.E.L. 50 (Ont. C.A.), two cases in which the wrongfully dismissed employee was found not able to exercise stock options during the reasonable notice period, for which the employees received pay in lieu of notice. The trial judge noted that in those cases, the employees had contingent interests in the stock options bonuses, while in the present case, the appellant's interest in the equity and her right to receive the shareholders' bonus vested on her acquisition of the shares and debentures, subject to divestment on leaving the respondent. We see no relevant distinction for purposes of this case.
[26] In Love v. Acuity Investment Management Inc., 2011 ONCA 130, 89 C.C.E.L. (3d) 157, which concerned the relevant date for valuation of the shares of a wrongfully dismissed employee – shares that the employer had the right to repurchase in accordance with an investment agreement once the employee ceased to be an employee – the court made clear that an employee's employment is terminated when he or she is dismissed without cause, not when the notice period ends.
[27] In the present case, although the trial judge referred to divestment of the shares and debentures occurring when the appellant left the respondent, he failed to give effect to the terms of the shareholders' agreement, which clearly required the appellant to tender her shares for redemption on termination of her employment. As in Love, termination of employment occurred when the appellant was dismissed without cause – that is, when she was constructively dismissed. The appellant was required to tender her shares for redemption once her employment terminated and she did so in accordance with the terms of the shareholders' agreement.
[28] Once this occurred, the appellant was no longer entitled to receive the shareholders' bonus. If it were otherwise, the appellant would receive both the return of her share capital upon termination of employment and the dividends she would have earned had she retained the shares and her capital remained at risk in the company for the duration of the reasonable notice period.
[29] The trial judge assessed damages in relation to the shareholders' bonus at $79,792.58. This amount must be deducted from the appellant's net damages award of $137,055.54. In the result, the appellant is entitled to the net amount of $57,262.96.
Trial Costs and the Fresh Evidence Application
[30] Both parties seek leave to appeal the trial judge's costs order.
[31] The appellant submits that the trial judge wrongly discounted the partial indemnity costs she was awarded and seeks her full partial indemnity costs, $421,478.09. The respondent says that the appellant should have received no costs because she was unsuccessful in her bad faith claim, which was the most significant aspect of her claim, and that it ought to have been awarded costs of $610,242.49 on a substantial indemnity basis.
[32] The respondent brought a fresh evidence application, seeking to introduce evidence of a legal costs arrangement between the appellant and her counsel, which it argued the appellant wrongly failed to disclose in violation of procedural fairness. The fresh evidence application was opposed by the appellant on the basis that it failed to meet the requirements of the tests set out in R. v. Palmer, [1980] 1 S.C.R. 759, and Sengmueller v. Sengmueller (1994), 17 O.R. (3d) 208 (C.A.). In addition, the respondent argued that admission of the evidence would violate public policy, as the fee arrangement in question had been disclosed to the respondent's counsel in a without prejudice discussion.
[33] At the hearing the parties agreed that, if the respondent were to succeed on the shareholders' bonus issue, the outcome of the case would change for purposes of determining costs. As a result, it would be necessary to return the matter to the trial judge so that the matter of trial costs could be considered afresh.
[34] We agree. Accordingly, the trial judge's costs decision is vacated and the matter is returned to the trial judge for re-consideration in light of this decision. The trial judge shall determine whether the fresh evidence should be admitted and shall address any issues of policy that might arise.
Conclusion
[35] The appeal is dismissed.
[36] The cross-appeal is allowed in part. The trial judge's net award of damages is varied to $57,262.96. The case is remitted to the trial judge to determine the costs consequences of the revised damages award.
[37] The respondent has been successful on the appeal and partially successful on the cross-appeal. In the circumstances, the respondent's costs are fixed at $30,000, inclusive of taxes and disbursements.
"Alexandra Hoy A.C.J.O."
"K. Feldman J.A."
"Grant Huscroft J.A."