COURT FILE NO.: 07-30337
DATE: 2012-02-16
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
DAN LAWRIE INSURANCE BROKERS LTD.
Barry L. Yellin, for the Plaintiff/Defendant by Counterclaim
Plaintiff
- and -
MONICA WHITE
Brent J. Foreman and Patricia Kennedy for the Defendant/Plaintiff by Counterclaim
Defendant
A N D B E T W E E N:
MONICA WHITE
Plaintiff by Counterclaim
- and -
DAN LAWRIE INSURANCE BROKERS LTD.
Defendant by Counterclaim
HEARD: at Hamilton on January 23, 24, 25 and 26, 2012
REASONS FOR JUDGMENT
CAVARZAN J.
[1] Each of the parties claims damages from the other for breach of contract. The pivotal issue is whether or not the plaintiff, Dan Lawrie Insurance Brokers Ltd. (DLIB), was entitled to deduct from the earnings of the defendant, Monica White (White), unpaid premiums on policies of insurance sold by White for which DLIB had advanced the premium amount to the insurer.
[2] DLIB claims, in the alternative, damages for breach of fiduciary duty and for tortious interference with DLIB’s economic relations. White has counterclaimed for reimbursement of all monies paid to DLIB with respect to outstanding premiums as well as for various payments alleged to fall due upon termination of the employment relationship.
BACKGROUND
[3] DLIB is the eponymous insurance brokerage headed by its president and CEO, Dan Lawrie. It employs some 85 persons. He testified that he works with a management team to promote the business of the brokerage. Included in that team are the witnesses Robert Lawrie, vice president of DLIB and Joanne Taylor, DLIB’s commercial services manager. DLIB has a transportation unit within its commercial line which deals with insurance for owner/operator trucks and for fleet owners of trucks.
[4] In the chain of command, producers and customer services representatives (CSRs) report to Joanne Taylor. Producers report to Dan Lawrie concerning sales issues. Dan Lawrie explained that “producer” is an industry term for a licenced broker who sells insurance. Producers are authorized to “bind coverage”, meaning to put insurance coverage into effect.
[5] The role of the producer is to prospect for business, call on potential clients, determine the client’s needs, find solutions and obtain quotes (for premiums) from insurers. CSRs perform a subsidiary support role in servicing clients and in helping to collect premiums from clients.
[6] Premiums, net of commission, are paid to the insurance company. Ten percent of the premium for truck insurance is retained by the brokerage. The producer who sold the policy is paid a portion of the ten percent retained by the brokerage in accordance with the terms of DLIB’s contract with the producer.
[7] Premiums are billed to the client by invoice sent by the CSR working with the producer. DLIB’s policy is to require a down payment on the premium from the client in every case.
[8] Some clients pay the full premium up front, others negotiate payment plans spreading the annual premium over periods of e.g. 6 months or 12 months on a case-by-case basis. On occasions when the premium is not paid, the insurance coverage is cancelled.
[9] In trucking insurance, the premium is due within 30 days. DLIB advances the premiums to the insurance companies in those cases when the client does not pay the full premium up front. It often uses a finance company to finance the premium payment to the insurer.
[10] Dan Lawrie testified that it was DLIB policy to charge unpaid premiums to the producer if DLIB had advanced the premium and the receivable from the client was more than 60 days old.
[11] White was hired by DLIB in mid-January, 2004 as a producer after a search by a placement agency engaged by DLIB to identify good candidates. Based upon her experience in the trucking sector, White was hired to help build DLIB’s trucking insurance portfolio.
[12] White was a 13 year employee of Baird MacGregor, a competing brokerage, when she joined DLIB. She testified that her earnings at Baird MacGregor in her last 4 or 5 years there were about $90,000 per annum comprised of $60,000 salary and $30,000 in commissions.
[13] In early December, 2003 the placement agency arranged an interview for White with Dan Lawrie. The position discussed was that of manager of marketing. White indicated that she could best serve in the trucking /transportation area. Further discussions later in December concerned enlarging DLIB’s tucking portfolio and an action plan to do that.
[14] The position then contemplated for White was that of producer with more selling than servicing. Dan Lawrie advised White that DLIB had an established structured method of compensation, but white expressed her reluctance to work on a pure commission basis. Lawrie advised her that he would consider a “transition plan”.
[15] There were telephone conversations between Lawrie and White between Christmas and New Year’s Day. In early January she advised Dan Lawrie that she would join the firm beginning January 19, 2004.
[16] A written Producer’s Agreement was signed on January 19, 2004; however, the matter of compensation was agreed upon orally[^1] as comprising salary plus draws against anticipated earned commissions as follows:
Year 1 Salary $24,000 plus $36,000 (draw)
Year 2 Salary $12,000 plus $48,000 (draw)
Year 3 No salary $60,000 (draw)
Over this period, White received $2,500 (gross) every two weeks.
[17] Exhibit 1 is a copy of Dan Lawrie’s handwritten note made during salary negotiations on which he wrote the word “validation” next to the Year 1, Year 2, Year 3 commission amounts. He explained that “validation” means that under the Producer’s Agreement White was to cover the unpaid premiums. He did not testify that he discussed with White the significance of the term “validation”. The note was later dated January 19, 2004 and given by Lawrie to DLIB’s accounting manager.
THE PRODUCER’S AGREEMENT
[18] There is conflicting evidence as to when a draft agreement was given to White. She claims to have seen it for the first time on January 19, 2004. She was told by Dan Lawrie that it was a standard agreement. Upon asking whether she should have it perused by her lawyer, Dan Lawrie told her that that would not be necessary.
[19] Dan Lawrie testified that he “would have” given White the document to peruse prior to January 19, 2004, in accordance with his usual practice. In any event, it is not disputed that white retired to a separate room on January 19, 2004 to review the text of the agreement, after which she signed it.
[20] A copy of the Producer’s Agreement is annexed to these reasons as an Appendix. It is a document prepared by DLIB and, as such, subject to construction contra proferentem.
[21] Paragraph 5 of the agreement entitled “Administration” is relied upon by DLIB to shift the risk of unpaid premiums from the brokerage to the individual broker. It purports to do this by incorporation by reference of “any and all administrative procedures and underwriting requirements as given verbally [sic] or as set out in writing from time to time by the Company”. In his testimony at trial, Dan Lawrie gave as an example of an administrative procedure the requirement that no new business be bound without receipt of a down payment.
[22] “Administration”, “administrative procedures” and underwriting requirements” are not defined terms in the agreement, nor is their meaning self-evident. They are open-ended terms with the potential of permitting unilateral amendment of a fundamental term of the contract. This is particularly so in the circumstances here where White insisted upon the above transitional arrangement for compensation.
[23] She testified that it was never her understanding that she would have to pay a client’s unpaid premiums. She had never heard of that being done in the industry.
[24] This same issue was considered by Eberhard J. in Reilly v. Hastings, [1997] O.J. No. 2009, especially at paras. 10 to 16, a decision cited by DLIB. Eberhard J. declined to opine on the fairness of the claimed industry practice, there being insufficient information about the insurance industry to assess either its uniformity of application or it efficacy. Here, there is only White’s uncontradicted testimony that this is not an industry practice.
[25] Reilly involved an oral agreement; furthermore, it appears that the producer in that case had not objected to the charge back of unpaid premiums.
[26] In this case the first charge back occurred in October, 2004. White objected frequently to Dan Lawrie and, on one occasion in 2005 tendered her resignation over this issue. Lawrie persuaded her to stay on with assurances that assistance in collecting premiums would be provided, all the while insisting that deduction of unpaid premiums was the way things were done at DLIB.
[27] The Producer’s Agreement refers in paragraph 6 to the duties of a producer which “may require” her to collect premiums. Nowhere in the agreement is there any reference to charge back of unpaid premiums. The matter of advances on anticipated commissions versus commissions earned, however, is dealt with in detail.
[28] The memorandum to “All Producers, Account Managers & CSRs” of July, 2004 concerning accounts receivable (Exhibit 4) makes it clear that unpaid premiums must be remitted “to avoid charges to your statement”. White understood this to mean that she would have to relinquish the commission already credited to her.
[29] In my view, there is ambiguity in para. 5 of the Producer’s Agreement and in the word “charges” in the July, 2004 memorandum.
[30] The following is stated at p. 722 of John D. McCamus, The Law of Contracts (Irwin Law Inc. 2005):
The principle of construction contra preferentum [sic] holds that provisions in agreements and other written documents that suffer from ambiguity are to be construed against the interest of the person who drafted or proferred the ambiguous provision. … The doctrine works against unfair surprise of the non-drafting party.
[31] In my view, it cannot be said, as maintained by DLIB, that White condoned the practice of charging back unpaid premiums to the producers by not resigning from her position at DLIB. She did resign ultimately. In the interim, she tried to make the best of the unilaterally-imposed alteration in her compensation, based on assurances from Dan Lawrie that assistance would be provided in collecting unpaid premiums.
[32] DLIB took advantage of its superior bargaining position. It imposed the requirement unilaterally and then assumed a take it or leave it attitude with White. This serves to underscore the inequality in bargaining positions and the unfairness inherent in such an arrangement. White was encouraged to continue in DLIB’s employ despite the take it or leave it bottom line of the company. White’s e-mail of January 12, 2005 to Ruth Seguin and Joanne Taylor concerning the client Ryker Enterprises Inc.’s unpaid premiums (Exhibit 25) states: “If it needs to be charged back to me so be it”. In my view, this is more an expression of exasperation over the charge back policy rather than evidence of condonation of the practice.
[33] In all of the circumstances, I conclude that the imposition of the charge back policy in this case amounted to a breach of contract by DLIB.
THE EMPLOYMENT STANDARDS ACT
[34] The Employment Standards Act, S.O. 2000, c. 41 (the ESA) defines “wages” broadly in s. 1 to include “monetary remuneration payable by an employer to an employee under the terms of an employment contract, oral or written, express of implied”.
[35] Section 13 of the ESA authorizes deductions from an employee’s wages pursuant to a court order [s. 13(2)] and pursuant to the employee’s written authorization which refers to a specific amount or provides a formula from which a specific amount may be calculated [ss. 13(3) and (5)].
[36] In my view, the provisions of paragraphs 10(b) and 11(a)(i) and (ii) of the Producer’s Agreement fulfill the requirements of s. 13 of the ESA which authorizes deductions by the employer. Moreover, case law has interpreted advances by the employer against anticipated earned commissions to be a “loan”. See NAS Canada Inc. v. Noel 1990 CanLII 6944 (ON SC), [1990] O.J. No. 1886 (Ont. Ct. Gen. Div.).
[37] White acknowledged in her testimony that the monthly draws of $5,000 amounted to an advance or loan against anticipated earned commissions.
[38] The final accounting between the parties comparing draws or advances against earned commissions involves no breach of the ESA.
TERMINATION AND THE NON-INTERFERENCE CLAUSE
[39] Paragraph 11 of the Producer’s Agreement governs what occurs upon termination of the agreement. Paragraph 11(b) specifies that if the agreement is terminated as a result of the resignation of the producer, DLIB has an option. If it elects to pay deferred compensation in accordance with the formula in subparagraphs 11(b)(i), (ii), (iii) and (iv), then the producer becomes bound by the non-interference provision in 11(b)(v).
[40] Subparagraph 11(b)(vi) makes it a condition of the exercise of the above option that the company notify the producer in writing of that election within 30 days of the date of the termination of the agreement.
[41] There is no dispute that the agreement was terminated in late January, 2007. White ended her employment effective January 26, 2007. By letter of February 2, 2007, Ruth Seguin, DLIB’s controller wrote to White enclosing a deferred compensation payment schedule indicative of DLIB’s election to exercise the option in paragraph 11(b) of the Producer’s Agreement.
[42] White’s position is that DLIB’s letter of February 2, 2007 did not constitute notice in writing as required by s. 11(b)(vi). I disagree. The letter was provided within 30 days of termination of the agreement. No reason was given in argument as to why the notice was deficient. It would be the triumph of form over substance to require DLIB to refer specifically to the relevant paragraph of the agreement when exercising its option.
[43] Although I have found that DLIB was not entitled to charge back to White the unpaid premiums, this does not render the written notice ineffective. The calculation of sums owing following upon the election was, as a result, in error. However, the non-interference provision in clause 11(b)(v) was properly triggered.
[44] Paragraph 11(b)(v) is a non-solicitation provision rather than a non-competition one. In Lyons v. Multari (2000), 2000 CanLII 16851 (ON CA), 50 O.R. (3d) 526, the Court of Appeal stated the following at paras. 30 and 31:
(iii) Non-competition versus non-solicitation
[30] It is quite common for employers to insist that their employees sign a contract containing a non-solicitation clause. This type of provision prohibits a departing employee from solicitating [sic] the customers of his or her previous employer.
[31] The non-competition clause is a more drastic weapon in an employer’s arsenal. Its focus is much broader than an attempt to protect the employer’s client or customer base; it extends to an attempt to keep the former employee out of the business. Usually, non-competition clauses are limited in terms of space and time.
[45] In my view, the restrictive covenant in this case is not unreasonable. The Court of Appeal reiterated the governing principles at para. 16 of its reasons in Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344, [2011] O.J. No. 1994:
• To be enforceable, the covenant must be “reasonable between the parties and with reference to the public interest.”
• The balance is between the public interest in maintaining open competition and discouraging restraints on trade on the one hand, and on the other hand, the right of an employer to the protection of its trade secrets, confidential information and trade connections.
• “The validity, or otherwise, of a restrictive covenant can be determined only upon an overall assessment of the clause, the agreement within which it is found and all of the surrounding circumstances.”
• In that context, the three factors to be considered are, 1) did the employer have a proprietary interest entitled to protection? 2) are the temporal or spatial limits too broad? and 3) is the covenant overly broad in the activity it proscribes because it prohibits competition generally and not just solicitation of the employer’s customers?
[46] I would answer questions 2 and 3 above in the negative. With regard to question 1), DLIB has a proprietary interest entitled to protection.
[47] As acknowledged by White in her testimony at trial, the non-solicitation prohibition is a quid pro quo for the four years of deferred payments to her contemplated by the formula in the agreement.
[48] Upon resigning from DLIB, White was hired by a competing brokerage called Hargraft Schofield LP. It is not disputed that the list of 13 clients in Exhibit 28 represents former clients of DLIB who transferred their business to Hargraft Schofield LP shortly after White joined that firm on February 1, 2007. At least one more was acknowledged by White on her examination for discovery.
[49] The onus is on DLIB to prove on a balance of probabilities that White solicited those clients contrary to the prohibition in the restrictive covenant. White denies that she solicited DLIB clients. She testified that in each case it was the client who contacted her and sought her services. DLIB submits, notwithstanding that White’s testimony was not shaken on cross-examination, that the court should draw an adverse inference against White. This inference is said to follow from White’s failure to call any of those clients to testify at trial to corroborate her account.
[50] DLIB’s submission amounts to an attempt to reverse the onus of proof. It led no evidence to contradict White’s version. I find that White did not solicit DLIB’s former clients.
[51] It is undeniable, nonetheless, that she did receive commissions as a result of former DLIB clients transferring their business to Hargraft Schofield LP. It follows, necessarily, that she is not entitled to any deferred payments pursuant to subparagraphs 11(b)(i), (ii), (iii) and (iv). Moreover, DLIB has a valid and enforceable claim in damages for the commission payments received by her from Hargraft Schofield LP upon the transfer of that business.
[52] Although it is strictly unnecessary to address DLIB’s alternative claim for damages for breach of fiduciary duty, I have concluded that White does not come within that category of employee who owes a fiduciary duty to the employer.
[53] I adopt, with respect, the view reflected in Allstate Insurance Co. of Canada v. Laroque 2008 CarswellOnt 541 (Ont. S.C.) that too many lower level employees are being swept into the fiduciary net. The court adopted a narrow approach in imposing a fiduciary responsibility. In particular, I agree with the following statement in para. 74 regarding who may be considered a “key” employee:
…A “key” employee is: (1) an integral and indispensable component of the management team that is responsible for guiding the business affairs of the employer; (2) necessarily involved in the decision-making process; and (3), therefore, has broad access to confidential information that if disclosed would significantly impair the competitive advantages that the former employer enjoyed. These employees fall within the categories: “top management”, “senior management” or “key management”.
CONCLUSION
[54] Both parties breached the Producer’s Agreement. The plaintiff must reimburse the defendant the total of the amounts charged to her account for unpaid premiums over the term of her employment. That sum is $42,281.03 being item 11(c) in Exhibit 11. To that extent, the defendant’s counterclaim succeeds.
[55] The defendant must disgorge to the plaintiff the total of commission payments received by her from Hargraft Schofield LP as a result of DLIB’s former clients transferring their business to Hargraft Schofield LP.
[56] Other damages claimed by DLIB are contingent upon the court finding either that White had solicited the business of former DLIB clients or was in breach of a fiduciary duty owed to DLIB. Having concluded to the contrary concerning both bases for recovery by DLIB, its claim for damages succeeds only to the extent of recovering from White the commission amounts referred to above.
[57] The evidence is that Hargraft Schofield’s commission on truck insurance premiums was 10% and that White’s share of that commission was 25% or ¼. DLIB claims from White, in its written submissions, a total of $137,158.00 being the 10% commission charged by Hargraft Schofield.
[58] Hargraft Schofield LP has been let out of this action. DLIB’s claim against White is limited by the wording of paragraph 11(b)(v) to the commission which she earned, i.e. 25% of $137,158.00 or $34,289.50.
[59] To the above extents only do the claim and the counterclaim succeed.
[60] If necessary, the parties may arrange with the trial co-ordinator a mutually convenient time to appear before me regarding anything arising out of these reasons for judgment or respecting the matter of the costs of the trial.
CAVARZAN J.
Released: February 16, 2012
COURT FILE NO.: 07-30337
DATE: 2012-02-16
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
DAN LAWRIE INSURANCE BROKERS LTD.
Plaintiff
- and -
MONICA WHITE
Defendant
A N D B E T W E E N:
MONICA WHITE
Plaintiff by Counterclaim
- and -
DAN LAWRIE INSURANCE BROKERS LTD.
Defendant by Counterclaim
REASONS FOR JUDGMENT
Cavarzan J.
JC:mg
Released: February 16, 2012
[^1]: Two other provisions of the contract between the parties were concluded orally and implemented: 1) The cost of advertising White’s services in the trucking news was shared 2/3 paid by DLIB and 1/3 paid by White; 2) White was required to pay her own Errors and Omissions Insurance.