ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-09-377147
DATE: 20120210
BETWEEN:
CHRISTOPHER PROSSER Plaintiff – and – PLANIT SEARCH INC. Defendant
Robert Watt, for the Plaintiff
Michael O’Connor, for the Defendant
HEARD: September 26, 27 and 28, 2011
GRACE J.
REASONS FOR JUDGMENT
[1] A good team is now divided. After approximately four years of employment, Christopher Prosser (“Prosser”) left PlanIT Inc. (“PlanIT”) in September, 2008. Mr. Prosser alleges that PlanIT failed to pay him all of the commission earned and neglected to pay any portion of a performance bonus [1] to which he was entitled under an October 11, 2005 agreement.
[2] PlanIT says that no monies are due. In fact, it alleges that Mr. Prosser has breached his contractual and common law obligations and solicited customers and/or employment candidates of PlanIT during the one year following departure.
A. BACKGROUND
[3] PlanIT specializes in finding and placing employees in the intellectual property sector, particularly persons having expertise in enterprise resource planning (“ERP”).
[4] In June, 2004, Mr. Prosser commenced employment with PlanIT as an account manager and recruiter.
[5] Mr. Prosser was ambitious. He believed opportunities existed to expand Plan IT’s business and improve its profitability. Mr. Prosser sought and obtained an expanded role.
[6] The arrangement was reflected in an October 11, 2005 Consulting Services Agreement (the “Consulting Agreement”). Pursuant to its terms, Mr. Prosser [2] was retained by PlanIT [3] indefinitely as a “contractor”. [4] He was to have three roles: as a Recruiting, Account and Information Technology Manager.
[7] The compensation package had three components:
a) First, PlanIT was to pay Mr. Prosser a share of the gross profit generated when candidates were placed with customers on either a contract or permanent basis; [5]
b) Second, PlanIT was to pay Mr. Prosser 1.5% of “total production” if it exceeded $2 million in any calendar year: and
c) Third, Mr. Prosser was to receive 5% of PlanIT’s net profit from the 2005 fiscal year onward. [6]
[8] At PlanIT’s option, a bi-weekly draw against commissions could be made available to Mr. Prosser “as a means of offsetting personal expenses and financial responsibilities.” [7]
[9] The Consulting Agreement contained other clauses as well. Mr. Prosser agreed to respect the confidentiality of certain information and the sanctity of PlanIT’s relationships with its customers even if his association with PlanIT ended.
[10] An entire agreement clause was included. Prior dealings were superseded. In the future the parties agreed:
Any modifications to this Agreement must be in writing and signed by both the Contractor [8] and the Company. [9]
[11] Revisions to the arrangement were discussed. Mr. Prosser’s acquisition of an equity interest was contemplated. Draft agreements were prepared but never finalized.
[12] A rift between Mr. Prosser and PlanIT formed and grew. As mentioned, Mr. Prosser left the company in September, 2008. The reason for his departure is debated: Mr. Prosser says he could no longer tolerate PlanIT’s breaches of its contractual obligations; PlanIT maintains Mr. Prosser exited to pursue an opportunity offered by a competitor.
B. MR. PROSSER’S POSITION
[13] The components of the compensation Mr. Prosser received during his tenure were different from the ones contemplated by the Consulting Agreement in nature or amount
[14] Mr. Prosser maintains that his compensation was mandated by the Consulting Agreement. He argues it contains three clear and unequivocal requirements that were not met. Since the Consulting Agreement was not amended by a written document signed by the parties, Mr. Watt, counsel for Mr. Prosser, submits the entire agreement clause governs. He maintains that clause renders any modification to the contract unenforceable. Mr. Watt asks the Court to apply the provisions of the Consulting Agreement to PlanIT’s financial results and grant judgment for the amount found to be due.
[15] Mr. Watt maintains that Mr. Prosser would have received $5,348.08 more on account of commissions if calculated in accordance with the Consulting Agreement. [10] He alleges PlanIT’s total production exceeded the $2 million threshold in 2007 and 2008. Mr. Prosser seeks payment of 1.5% of PlanIT’s “production” for those calendar years. [11]
C. ANALYSIS
[16] Is the entire agreement clause dispositive? Mr. Watt relies on the following passage from Incanore Resources Ltd. v. High River Gold Mines Ltd. where Allen J. wrote:
Courts have commented on the interpretation of an entire agreement clause. As an express contract, it cannot be rebutted outside of a claim of mistake or fraud. Once such a clause is drafted unambiguously, the court should not hesitate to find the entire agreement supersedes another prior agreement. [12]
[17] I do not quarrel with that statement. However, it was expressed in relation to conduct which predated execution of the contract. This case concerns steps taken by the parties after the Consulting Agreement was signed. The issue here is whether the parties’ rights and obligations under the Consulting Agreement are affected by subsequent conduct which was not reduced to “writing…signed by both the Contractor and the Company” as the entire agreement or more appropriately, the exclusion clause required. [13]
[18] None of the cases relied on by Mr. Watt are analogous. PlanIT’s lawyer, Mr. O’Connor, relies on the Court of Appeal’s decision in Shelanu Inc. v. Print Three Franchising Corp. [14] . In Shelanu a franchise agreement required that any “waiver, amendment or change of any of the terms or covenants” be contained in a “notice signed by…all parties” to be effective. The enforceability of a subsequent oral arrangement was in issue.
[19] Two principles emerge from Shelanu :
a) First, the trial judge should determine whether the entire agreement or exclusion clause applies to the oral agreement in question. Clear words are required;
b) Second, if the oral agreement is within its ambit, the court has jurisdiction to decline to enforce an exclusion clause where subsequent events demonstrate it would be unconscionable, unfair, unreasonable or otherwise contrary to public policy to do so. [15]
i. Does the entire agreement/exclusion clause apply?
[20] As noted, “any modifications” to the Consulting Agreement were to be put in writing and signed by the parties.
[21] They did not do so. Nonetheless, when it came to compensation, PlanIT and Mr. Prosser followed a different path.
[22] Commissions were paid to Mr. Prosser. However, from at least February, 2006 onward, the contractual rates were not always applied.
[23] Mr. Prosser was never paid any amount on account of “total production”. Indeed, the parties did not calculate that number in any calendar year except 2006 despite the Consulting Agreement’s requirements.
[24] Mr. Prosser was not paid 5% of PlanIT’s fiscal year end net profit. He was paid a $10,000 bonus in March, 2007. How the amount was determined is unknown. [16]
[25] However, Mr. Prosser did earn more than commissions. Mr. Prosser [17] or his company 2087221 Ontario Inc. (“208”) [18] rendered monthly invoices for various “consulting services”. Mr. Prosser explained that he began to perform duties beyond those originally contemplated and spent less time on recruiting. PlanIT paid the invoiced amounts. [19] The practice was not contemplated by the Consulting Agreement.
[26] I am of the view the arrangement the parties implemented binds them notwithstanding the entire agreement/exclusion clause. The word “modifications” does not capture the parties’ actions. They entirely disregarded two of the three components of the compensation package. The approach to commissions was also markedly and permanently altered.
[27] In the circumstances of this case, I am of the opinion the entire agreement/exclusion clause does not catch the significant and long term changes made by the parties.
ii. If the entire agreement/exclusion clause applies, should it be enforced?
[28] In my view, it would be inappropriate to enforce the entire agreement/exclusion clause even if it applied. I reach that conclusion for these reasons.
[29] On the subject of compensation, the Consulting Agreement no longer accorded with the intention of the parties despite the fact a new agreement was not finalized. Mr. Prosser’s August 29, 2007 e-mail to Joe Zitek of PlanIT’s is telling. [20] Mr. Prosser said, in part:
Just following up on our discussion of last Friday. We agreed to put in place a new agreement, that would replace the current one and one that we both agree represents our working relationship…The key elements:
Remove the provision of 1.5% override on sales if over $2M
Remove the provision of 5% override on Net Profit
Maintain my responsibilities in the areas of Process Improvement, IT infrastructure…and business expansion…
Will still be a (sic) AM/Recruiter and generate commissions as per a standard PlanIT commission plan and continue to provide…mentoring…(we discussed getting this contract into a standard form, so we don’t have all the different “deals” going on)
Will still receive a monthly stipend in recognition of the various building activities ($4,000?, (sic) $5,000? $10,000? (sic)
I think these were the points we discussed and agreed to. If you remember something differently, or want to tweak it, please let me know and we can get this thing put to bed and move on with making money.
[30] Three hours later Mr. Zitek confirmed “you’ve covered all the points that we’ve officially agreed on” and indicated that “compensation for your Operations/Process related functions” would remain at its then current level. [21]
[31] The e-mail exchange envisioned a continuation of the practice that had already developed. No invoice was ever rendered with respect to sales/production or net profit. Those provisions were to be removed because they did not reflect the parties’ bargain.
[32] Monthly invoices for “consulting services” were generated by Mr. Prosser both before and after that e-mail exchange. Initially they were submitted in his name. Later, invoices were submitted in the name of his company. They were received and paid by PlanIT.
[33] The e-mail exchange evidences the intention of the parties to this action to formalize an already completed restructuring of Mr. Prosser’s compensation.
[34] I turn to commissions. Mr. Prosser and his company also generated invoices for commissions on contract and permanent placements. They reflected commission rates which were at variance with those set forth in the Consulting Agreement. Mr. Prosser agreed to accept lower commission payments in order to ensure that the contribution of other PlanIT employees was recognized.
[35] The parties’ intention is evident from their actions. While they never achieved agreement on the terms of a new contract covering all aspects of their relationship, [22] the subject of compensation was resolved.
[36] The arrangement has legal force notwithstanding the entire agreement/exclusion clause. Mr. Prosser knew of his contractual rights and clearly and unequivocally waived them. [23] Commissions were spread among other PlanIT employees based on the alternative arrangements the parties implemented.
[37] Mr. Prosser has lost the ability to rely on the wording of the Consulting Agreement. [24] Indeed, in my view, it would be most unfair for either party to revert to a compensation arrangement they mutually agreed to abandon. If the exclusion clause applies, it would be most unjust to enforce it. [25]
[38] I have not forgotten that Messrs. Zitek and Prosser engaged in discussions concerning Mr. Prosser’s roles, responsibilities and compensation as the relationship slowly disintegrated in 2008. Both contemplated changes.
[39] While their communications evidence increasing tension, the subject of consulting services was debated and resolved. As Mr. Zitek requested, Mr. Prosser began to deliver monthly invoices supported by timesheets. The amount invoiced monthly for consulting services was reduced from $3,500 to $2,600. However, Mr. Prosser’s compensation did not otherwise change.
[40] Areas of disagreement surfaced. Mr. Prosser made various requests. They included payment of commission at the rates set forth in the Consulting Agreement and a proposal that PlanIT enter “an AP [26] into the books that covers the sales and profit sharing bonus that is in my current contract that is still outstanding.” [27] None found favour and differences remained for the balance of the relationship. While Mr. Prosser may wish he could simply revert to terms of the Consulting Agreement he had agreed to abandon, he is not entitled to do so.
[41] Changes were made to the Consulting Agreement which had contractual force despite the lack of formality. The old terms could not be unilaterally resuscitated. [28]
[42] In my view, the claims of Mr. Prosser are without merit. The action is dismissed.
D. COUNTERCLAIM
[56] PlanIT alleged Mr. Prosser solicited customers and contract employees [39] in the year following his departure contrary to the Consulting Agreement.
[57] The counterclaim was pursued half heartedly. It was surprising the counterclaim was argued at all since the principal paragraphs relied upon were struck by order of Master Graham. [40] There was no appeal.
[58] Furthermore, PlanIT seeks to enforce provisions in the Consulting Agreement despite the fact Mr. Zitek took the position the agreement was “null and void” and “not…in force” in the months leading up to Mr. Prosser’s departure. [41]
[59] In any event, evidence of solicitation was inconclusive. Mr. O’Connor’s cross-examination of Mr. Prosser raised suspicion of isolated transgressions but nothing more. Mr. O’Connor expressed an intention to call the principal of one of Mr. Prosser’s post departure employers as a witness but did not do so.
[60] Even if properly pleaded, a breach of the non-solicitation clause set forth in the Consulting Agreement was not established and damages were not proven.
E. CONCLUSION
[61] For the reasons given the action and counterclaim are dismissed.
[62] If the parties cannot agree on costs, written submissions may be submitted to me through Judges’ Administration as follows:
a) By the PlanIT by no later than February 29, 2012;
b) By Mr. Prosser by no later than March 19, 2012;
c) If PlanIT chooses, a reply not exceeding three pages in length by no later than March 26, 2012.
[63] The submissions should not exceed five pages in length exclusive of offers to settle, dockets and authorities. Any reply submissions should not exceed three pages in length.
GRACE J.
Released: February 10, 2012