ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-12-450079
DATE: 20121123

B E T W E E N:

FRED DIMSON Plaintiff/Moving Party - and - KTI KANATEK TECHNOLOGIES INC. Defendant/Responding party

Daniel A. Lublin and Aaron Rousseau for the Plaintiff/Moving Party Andrew J. McCreary for the Defendant/Responding party

HEARD: November 15, 2012

LEDERMAN J.

REASONS FOR DECISION

NATURE OF MOTION

[ 1 ] The plaintiff moves for summary judgment for determination of whether clause 18 of the employment contract between the parties is void or illegal and, therefore, unenforceable.

[ 2 ] The parties have agreed that it is appropriate to bring this motion for summary judgment under rule 20 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194 as the evidence necessary to adjudicate this motion can be “fully appreciated” by the Court without the need for a trial.

[ 3 ] In the event that the contract is held to be void, the issue of damages need not be determined on this motion.

ISSUE IN DISPUTE

[ 4 ] The motion involves the interpretation of the following termination clause in the plaintiff’s employment agreement:

18(c) In addition, KANATEK may terminate this Agreement at its sole discretion for any reason, upon providing Employee all payments or entitlements in accordance with the standards set out in the Ontario Employment Standards Act , as may be amended from time to time.

(d) If at any time KANATEK provides you with a bonus, it will not be included in the calculation of payment for the purpose of this Article or as otherwise agreed to or required by the Employment Standards Act .

BACKGROUND FACTS

[ 5 ] The plaintiff was an employee of the defendant for six years from February 13, 2006 to February 2, 2012. At the time that his employment was terminated, he occupied the senior position of Vice-President, Strategic Accounts.

[ 6 ] While employed by the defendant, his compensation package included an annual salary of $165,000, full benefits, a car allowance, commissions, and a bonus based on the company’s earnings before interest and taxes.

[ 7 ] The plaintiff was dismissed on a without cause basis on February 2, 2012.

[ 8 ] Upon his termination, the defendant provided the plaintiff with pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000 , S.O. 2000, c.41 (“ESA”). Because the plaintiff’s compensation was variable, in order to calculate the plaintiff’s pay in lieu of notice and severance pay under the ESA, the defendant was required to average the plaintiff’s salary and commission and income for a twelve week period preceding his termination in order to determine the amount payable during the statutory notice and severance period. (ESA: ss.61(1.1) , 65(6) (a))

[ 9 ] The defendant did not average the plaintiff’s bonus earnings in the calculation of his termination and severance pay.

[ 10 ] The defendant maintains that because the plaintiff did not receive a bonus during the twelve weeks prior to his termination, the bonus would not form part of the termination and severance pay calculations pursuant to the ESA .

POSITION OF THE PARTIES

[ 11 ] The plaintiff submits that clause 18 of the employment contract is illegal in that its language is expressly contrary to s.5(1) of the ESA which provides as follows:

No contracting out

5.(1) Subject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.

[ 12 ] The plaintiff submits that clause 18(d) of the employment contract states that the profit sharing bonus that the plaintiff received would not be included in the plaintiff’s termination and severance pay as “required by the Employment Standards Act”. He submits that a plain and literal reading of clause 18(d) confirms that the defendant drafted a clause that was intended to waive a right that was required by the ESA .

[ 13 ] The defendant’s position, on the other hand, is that clause 18 of the employment agreement is enforceable and clearly limits the plaintiff’s entitlements on termination without cause to the standards set out in the ESA .

[ 14 ] The parties are in agreement that if the Court finds that clause 18(d) is illegal and void because it contravenes s.5(1) of the ESA , then the entire clause 18 termination provision is unenforceable and the plaintiff would be entitled to reasonable notice of his termination in accordance with common law principles.

COMPETING INTERPRETATIONS OF CLAUSE 18(d)

[ 15 ] The plaintiff submits that clause 18(d) permitted the defendant to avoid averaging the plaintiff’s profit-sharing bonus payments and, therefore, clause 18 of the contract represents an attempt to contract out of the ESA .

[ 16 ] The plaintiff submits that the appropriate meaning of clause 18(d) is that a bonus is not to be included in the calculation of termination payments regardless of what may be required by the ESA .

[ 17 ] On the other hand, the defendant submits that the language in clause 18(d) preserves the plaintiff’s right to the inclusion of a bonus in the calculation of his termination entitlements if he and the defendant otherwise agreed or if it was required by the ESA .

[ 18 ] In support of his position, the plaintiff submits that if article 18(d) is read as suggested by the defendant, then clause 18(c) would be meaningless. In other words, the effect of clause 18(d) is already included in 18(c) and clause 18(d) does not enhance 18(c) at all. The plaintiff further submits that the interpretation suggested by the defendant would require the reading in of critical language to make sense of it. Words such as “a bonus will be included” or words to that effect would have to be added just after the first “or” in the clause.

[ 19 ] The plaintiff submits that if words have to be added or if the language is ambiguous in any way, the clause should be construed in favour of the employee and not the employer.

DISPOSITION

[ 20 ] The termination provision in article 18(c) is perfectly acceptable in that it provides expressly for payments or entitlements to the terminated employee in accordance with the standards set out in the ESA as may be amended from time to time (See Machtinger v. HOJ Industries Ltd ., 1992 102 (SCC) , [1992] 1 S.C.R. 986 at paragraph 35 ; MacDonald v. ADGA Systems International Ltd ., 1999 3044 (Ont. C.A.) at para. 23 .)

[ 21 ] One then might wonder why it was necessary to craft a specific provision relating to bonus in clause 18(d). It seems that at the time that the employment agreement was drafted and executed, there was no bonus policy in place and clause (d) was drafted in contemplation of a bonus policy coming into effect.

[ 22 ] The plaintiff would construe the word “or” to mean “regardless” or “even if”. If that were so, then it would mean that the parties had provided that they could not otherwise come to a different agreement about the treatment of the bonus and that the first part of clause (d) was cast in stone and could never be altered even by the parties themselves. Further, to read clause (d) as suggested by the plaintiff would mean that even though the parties had agreed in clause 18(c) that the plaintiff would be treated in accordance with the ESA requirements, an exclusion was created by clause (d).

[ 23 ] Principles of contract interpretation seek to avoid unreasonable or absurd outcomes and the contract should be construed as a whole and with its context in mind.

[ 24 ] Whether a bonus is to be included in the calculation of termination entitlements under the ESA depends upon the date of termination in relation to the preceding twelve week period. In some cases, it would be included while in others, it would not.

[ 25 ] The plain, literal and sensible meaning of clause 18(d) is that if, in the circumstances, the bonus is to be taken into calculation under the ESA , then it is to be included as it is required by statute. In other words, clause 18(d) makes it clear that with respect to the bonus, it will be included in termination entitlement calculations if the parties come to a subsequent agreement about this or it is specifically required by the ESA.

[ 26 ] This interpretation arises from the plain meaning of the language. No extra words need to be read into the clause to give it this meaning. This interpretation is also both harmonious with clause (c) and avoids an illogical interpretation that the parties are forbidden forever from entering into any agreement to change this aspect of termination entitlement.

[ 27 ] Therefore, I agree with the defendant’s interpretation of clause 18 in which case, there is no illegality.

[ 28 ] The plaintiff was paid in accordance with the ESA and the employment agreement. Accordingly, summary judgment will issue dismissing the action. If the parties are unable to come to an agreement with respect to costs, they may make written submissions within thirty days.

Lederman J.

Released: 20121123

COURT FILE NO.: CV-12-450079

DATE: 20121123

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N:

FRED DIMSON Plaintiff/Moving Party and KTI KANATEK TECHNOLOGIES INC. Defendant/Responding party

REASONS FOR DECISION Lederman J.

Released: 20121123