ONTARIO

SUPERIOR COURT OF JUSTICE

BARRIE COURT FILE NO.: CV-12-0499

DATE: 20140417

BETWEEN:

Gregory Smith
Plaintiff

– and –

Diversity Technologies Corporation (also known as DiCorp)
Defendant

Amanda M. Chapman, for the Plaintiff

Landon Young, for the Defendant

HEARD: January 29, 2014

REASONS FOR JUDGMENT

Cases Cited:

Donaldson v. Philippine Airlines Inc., 1985 CarswellOnt 875 (O.C.A.)

Candy v. C.H.E. Pharmacy Inc., 1997 CarswellOnt 781 (B.C.C.A.)

McKinley v. BC Tel, 2001 SCC 38, [2001] 2 S.C.R. 161

Beard v. Suite Collections, [2006] O.J. No. 5736, aff’d [2008] O.J. No. 2799 (Ont.Div.Ct.)

Barton v. Rona Ontario Inc., 2012 ONSC 3809

Hyrniak v. Mauldin, 2014 SCC 7

VALLEE J.:

Overview

[1] The plaintiff, Gregory Smith, was a sales manager of the defendant, Diversity Technologies Corporation, also known as DiCorp. DiCorp terminated his employment on October 14, 2011. The company states that Mr. Smith sold product to a client after being told that no further orders would be accepted due to the client’s large outstanding account. Mr. Smith disagrees that he received these instructions. He brings a motion for summary judgment for an order that DiCorp did not have cause to terminate him and that DiCorp has failed to pay him a fixed term of notice to which he is entitled under his employment contract. DiCorp states that it never intended to enter into the contract and therefore it is not enforceable.

[2] The issues in this matter are:

(a) Was there an enforceable employment contract between Mr. Smith and DiCorp when he was terminated;

(b) Did DiCorp have cause to terminate Mr. Smith without pay in lieu of notice; and

(c) If Mr. Smith is entitled to damages, what is the correct amount?

Was There an Enforceable Employment Contract Between Mr. Smith and DiCorp?

[3] Mr. Smith began his employment with DiCorp’s predecessor, Drillwell Supply Ltd., on October 14, 1991. Drillwell was purchased in June 2007 and became DiCorp. At the time of the purchase, DiCorp prepared a written employment contract entitled “Employment Agreement” and presented it to Mr. Smith. On the first page, it is dated August 31, 2007. The agreement provides for an annual base salary of $74,000 (which had increased to $100,000 at the time of termination), vacation, use of a company vehicle and bonuses, among other things. The agreement also states that it can be terminated by either party upon certain terms. Regarding DiCorp’s ability to terminate, the agreement states that it shall be terminated upon twelve months’ written notice by DiCorp of its intention to terminate the agreement, or pay in lieu of notice or a combination of both.

[4] Mr. Smith obtained independent legal advice regarding the contract and subsequently signed it. Mr. Smith’s lawyer, Mr. J. Tascona, then sent the signed agreement to DiCorp. Another copy of the agreement was signed by Mr. Dirk LePoole, President of DiCorp. It was then sent to DiCorp’s corporate counsel. DiCorp paid Mr. Tascona’s account for providing the advice to Mr. Smith.

[5] On September 1, 2007, the day after the date of the employment agreement, Mr. Smith’s salary was increased to $74,000. This was recorded in Mr. Smith’s employee file on a document entitled “Notification of Rate Change.” The reason stated on the document is “as per employment agreement.”

[6] DiCorp states that it did not enter into a written employment agreement with Mr. Smith. DiCorp argues that the background concerning the sale of Drillwell to DiCorp is relevant to this issue. When Drillwell was purchased by DiCorp, its shareholders requested, as a condition of the sale, that DiCorp provide a written employment contract to Mr. Smith. They made this request because they had intended to make Mr. Smith a partner in Drillwell, but had not actually done it. They wanted him to have some job security with DiCorp. Nevertheless, this condition was dropped when DiCorp made counter-demands in the purchase negotiations. As a result, Drillwell paid $200,000 to Mr. Smith in recognition of the fact that they had not made him a partner. Mr. LePoole does not recall signing the agreement. There is no single copy of the agreement that contains both Mr. Smith and Mr. LePoole’s signatures.

[7] Mr. Smith states that the $200,000 was paid to him in lieu of Drillwell shares that were to be sold to him. The funds were paid as a bonus in July 2007. His Canada Revenue T4PS entitled “Statement of Employee Profit Sharing Plan Allocations and Payments” shows the funds. The employment agreement was then negotiated and signed on August 31, 2007, the same day as the corporate purchase closed. The agreement has nothing to do with the bonus he received from Drillwell.

[8] Even though Mr. LePoole does not recall signing the agreement, there was no dispute that his signature was on the agreement. DiCorp conceded that even though the agreement was signed in counterparts, this would not invalidate an agreement. As noted above, DiCorp prepared the agreement. Several drafts were produced to the court. The final version was given to Mr. Smith. He obtained independent legal advice, signed it and his lawyer sent the signed copy to DiCorp. At no time did DiCorp advise Mr. Smith that it would not be bound by the agreement because Mr. Smith had received $200,000 from Drillwell. The agreement does not state that it would be void if Mr. Smith received any funds from Drillwell. Mr. Smith continued along as a DiCorp employee reasonably believing that he had an employment contract.

[9] Based on the above, I conclude that there was an enforceable employment contract between Mr. Smith and DiCorp when he was terminated.

Did DiCorp Have Cause to Terminate Mr. Smith Without Pay in Lieu of Notice?

Defendant’s Position

[10] DiCorp states that Mr. Smith was terminated for just cause for insubordination, disrupting production and making a sale to a client when he had specifically been instructed not to do so. Mr. Smith was the primary contact for this client, Roger Boadway Enterprises Ltd. In September 2011, Boadway owed DiCorp approximately $100,000. In mid-September, Mr. Scott Sawyshyn, Mr. Smith’s superior, instructed him to make sales to Boadway only if they were paid for by cash or credit card. Despite this, Mr. Smith instructed employees in DiCorp’s fabrication shop to produce a custom part for Boadway as a rush. This disrupted the shop’s production of other work. DiCorp states that it gave Mr. Smith a written warning about the incident. It should be noted that no document has been produced to prove this.

[11] On October 4, 2011, Mr. LePoole and Mr. Smith had lunch. Mr. LePoole told Mr. Smith that sales to Boadway should be on a cash or credit card basis. Further, on October 7, 2011, Mr. Sawyshyn told Mr. Smith that no sales would be made to Boadway whatsoever and that DiCorp would be serving legal papers on Boadway to recover the debt. Nevertheless, Mr. Smith took an order amounting to $1,168.94 from Boadway on October 21, 2011, without telling Mr. Sawyshyn. Mr. Smith accepted a cheque from Boadway to pay for the order. Another employee, Mike Minor, also accepted an order from Boadway amounting to $866.21 on the same date. Copies of the orders confirming this have been produced. DiCorp characterizes Mr. Smith’s actions as gross misconduct.

[12] DiCorp states that it terminated Mr. Smith for cause on October 14, 2011. Mr. Smith found another comparable job within a few weeks, with pay similar to what he earned at DiCorp. Accordingly, Mr. Smith has not suffered a loss.

Plaintiff’s Position

[13] Not surprisingly, Mr. Smith disagrees with DiCorp’s characterization of the events. He states that he did not receive a written warning from Mr. Sawyshyn. Mr. Smith states that when he had lunch with Mr. LePoole on October 4, 2011, Mr. LePoole told him that he could sell to Boadway and “continue to take his money”, but that sales had to be cash on delivery.

[14] With respect to the sale, Mr. Smith states that on October 12, 2011, he took a phone call from Mr. Boadway who wanted to place an order. Mr. Smith put the order on the system to reserve the product, but took no further steps from there. He did this because he knew that DiCorp was about to start legal proceedings and he did not want to alert Mr. Boadway. Another employee, Mike Minor, completed the sale. His initials are on the order documents. Mr. Smith states that he did not process or complete the sale, nor did he take Mr. Boadway’s cheque. Further, he did not give permission to Mr. Minor to complete the sale. At his examination for discovery, Mr. Sawyshyn stated that he did not know whether Mike Minor had requested permission to complete the sale. Mr. Smith stated that if DiCorp had decided that absolutely no sales were to be made to Boadway, he did not receive those instructions. He continued to operate on the instructions that he received from Mr. LePoole, one week earlier.

[15] By all accounts, Mr. Smith was an exemplary employee. He worked for Drillwell for sixteen years before its sale to DiCorp. The owners of Drillwell would have made him a partner, but for the sale of the company to DiCorp. He then worked for DiCorp for a further four years. DiCorp carried out a performance review of Mr. Smith on June 28, 2011, less than four months prior to his termination. In various places the notes on the evaluation form state as follows:

(a) No one is more customer focused than Greg;

(b) Greg is our most reliable and dependable employee;

(c) Greg is totally focused on profitability;

(d) Greg is expected to resolve all problems at the branch. He does so very efficiently; and

(e) Greg is our most valuable employee. He is totally dedicated and engaged.

If Mr. Smith had a fault, it was that he needed to delegate more work to others rather than doing it himself.

Analysis

[16] In considering whether DiCorp had cause to terminate Mr. Smith, the court must determine whether Mr. Smith’s conduct was sufficient to justify it. DiCorp relies on Donaldson v. Philippine Airlines Inc. In 1979, the airline decided not to extend credit to one of its customers, Plaza Air. It learned in 1980 that one of its employees, Mr. Donaldson, had continued to extend credit in the amount of $185,174.21. He received a clear written warning that he must not continue to extend credit and that he was required to collect the outstanding amount. He was reprimanded and his increase in pay was suspended for three months. Subsequently, Plaza paid its account. In 1981, Mr. Donaldson again extended credit to Plaza, this time in the amount of $73,000. He deliberately falsified and withheld sending certain reports to head office so the company did not know about the outstanding amount. When the airline learned of this, it terminated Mr. Donaldson’s employment.

[17] In considering whether the airline had cause to terminate, the court noted that Mr. Donaldson had received clear instructions that he was not to extend any further credit to Plaza. In doing so, he wilfully disobeyed his employer in a manner that was essential to the operation of its business and deliberately withheld information from the company, which it was entitled to receive. Accordingly, the airline had cause for the termination.

[18] DiCorp also relies on Candy v. C.H.E. Pharmacy Inc. Mr. Candy had worked at the drugstore since 1967, making his way up from a stock clerk to a merchandise manager. This was the highest position available to someone who was not a pharmacist. The pharmacy operated as a franchise, which had a manual of procedures that had to be followed. This included a specific procedure for recording employee purchases. Mr. Candy used his own method for recording employee purchases, which did not comply with procedure. He was informed by a previous franchisee that his method was not appropriate. Subsequently, the pharmacist who was employed by the franchisee gave him strict orders to adhere to proper procedure, which he did not do. He was terminated for cause.

[19] In considering whether the drugstore had cause to terminate Mr. Candy, the court commented that insubordination, like dishonesty is grounds for termination without notice. The employer had a right to determine how business would be conducted and the employee was obliged to follow it. Mr. Candy had been insubordinate in that he failed to follow the lawful orders of his employer. He had disregarded an essential condition of his employment. Accordingly, there was cause for termination.

[20] DiCorp further relies on McKinley v. BC Tel, in which the court stated that in order to determine whether an employer is justified in dismissing an employee for dishonesty, a contextual assessment must be carried out. Mr. McKinley committed a single act of dishonesty. In para. 48, the court commented that the test is whether the employee’s dishonesty caused a breakdown in the employment relationship. If the dishonesty violates an essential condition of the employment contract, breaches the faith inherent in the work relationship or is directly inconsistent with the employee’s obligations to the employer, then just cause for dismissal exists. The question is whether the employer has proven the employee’s deceitful conduct on a balance of probabilities and, if so, whether the nature and degree of the dishonesty warranted dismissal. The facts have to be established and carefully considered. The court had difficulty with an unqualified rule that a single act of dishonesty was sufficient to justify dismissal. In para. 55, it noted that if such a rule were applied, the consequences of dishonesty would be the same, regardless of whether the act was serious enough to violate or undermine the faith that underlies an employment relationship.

[21] In Donaldson and Candy, both employees had been given very clear warnings that their conduct had to change. Mr. Donaldson wilfully disobeyed his employer and concealed important information from it. Large amounts of money were at stake. Despite the gravity of his behaviour, Mr. Donaldson was given another chance and was terminated only after he did it again. Mr. Candy received two clear warnings regarding his refusal to comply with bookkeeping practices. He deliberately ignored both and was then terminated. Both Mr. Donaldson and Mr. Candy were wilfully disobedient. Mr. Candy was insubordinate as well.

[22] In considering terminations for cause, courts have treated dishonesty differently from a breach of policy. In Beard v. Suite Collections, the court noted at paras. 30, 41 and 65 that where a breach of corporate policy forms part of the basis for dismissal, the rules must be well known to the employees, consistently enforced and the consequences proportionate to the implications of the breach. In Barton v. Rona Ontario Inc., the court stated at para. 50 that cases relating to dishonesty and self-dealing generally are in a different category than cases involving breaches of policy.

[23] DiCorp states that it was justified in dismissing Mr. Smith because he was insubordinate. Mr. Smith’s situation was very different from Mr. Donaldson and Mr. Candy’s circumstances. Prior to the incident, Mr. Smith’s conduct as an employee was exemplary. As noted above, he was DiCorp’s most reliable, dependable and valuable employee. He was totally dedicated to his job. The documents indicate that Mr. Smith did not process either of the orders in issue. Further, Mr. Minor’s initials are on them. DiCorp states that it gave Mr. Smith a written warning regarding the custom order, but there is no proof of this.

[24] DiCorp argues that the court should not entertain a summary judgment motion in this matter because there are credibility issues. Specifically, DiCorp states that Mr. Smith was advised of the new company policy regarding “no sales to Boadway” and that he made a sale anyway. Mr. Smith states that he did not know about the “no sale” policy, he was following the instruction that he received from Mr. LePoole. After he learned that DiCorp was going to start legal proceedings against Boadway, he only put an order in the system when Boadway called so as not to alert him to DiCorp’s plan. He did not complete the sale. DiCorp argues that in light of these credibility issues, a trial is necessary for a fair adjudication of the dispute.

[25] In Hyrniak v. Mauldin, the court recently provided guidance on the interpretation of Rule 20 of the Rules of Civil Procedure and introduced a new test for summary judgment. Rule 20.04(2)(a) states that the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial The court noted in para. 49 that if the process allows a judge to make the necessary findings of fact, apply the law to the facts, is a proportionate, more expeditious and less expensive means to achieve a just result, and if the judge is able to reach a fair and just determination on the merits of the motion, there will be no genuine issue requiring a trial.

[26] I disagree with DiCorp’s position that a trial is necessary in this matter. There is no issue that requires a trial. There is sufficient documentary evidence to allow the court to carry out a fair and just adjudication of the dispute on this motion for summary judgment. The interests of justice do not require that the evidence be presented and assessed at a trial. The cost savings to the parties by proceeding with a motion for summary judgment are considerable when compared to the cost of the trial that DiCorp says is required.

[27] With respect to the evidence, the court will consider DiCorp’s case at its highest and best, thereby setting aside any credibility issues. If Mr. Smith did intentionally process the orders and accept the cheque, it appears that this was the first mistake that he made in his employment. The amount at issue is trifling, being $1,168.94. In comparison to the amount of Boadway’s outstanding account of $70,000, it represents only 1.6 per cent. The additional order did not raise Boadway’s outstanding account in a significant way.

[28] In considering terminations for cause, courts have treated insubordination and dishonesty differently from a breach of policy. In Beard v. Suite Collections, the court noted at paras. 30, 41 and 65 that where a breach of corporate policy forms part of the basis for dismissal, the rules must be well known to the employees, consistently enforced and the consequences proportionate to the implications of the breach. In Barton v. Rona Ontario Inc., the court stated at para. 50 that cases relating to dishonesty and self-dealing generally are in a different category than cases involving breaches of policy.

[29] When the context of Mr. Smith’s actions is considered, they cannot be described as amounting to wilful disobedience or insubordination. Given his length of service and his impeccable employee record, DiCorp ought to have met with Mr. Smith, pointed out to him that his actions were in violation of the new company policy and provided him with a properly documented written warning.

[30] Mr. Smith was not insubordinate. Even if his conduct could be described this way, it was not of a magnitude sufficient to justify termination. If Mr. Smith had persisted in taking orders from Boadway and accepting cheques in payment after receiving a properly documented warning, only then would DiCorp have had grounds for termination for cause. Even if DiCorp’s case is taken at its highest and best, its termination of Mr. Smith was unjustified.

If Mr. Smith is Entitled to Damages, What is the Correct Amount?

[31] Mr. Smith is entitled to damages as result of his wrongful termination. As noted above, the employment contract between Mr. Smith and DiCorp states that he is entitled to twelve months’ written notice or pay in lieu thereof. When Mr. Smith was terminated, his base salary was $100,000.

[32] DiCorp states that Mr. Smith has mitigated his damages by finding another job, with a comparable salary, within a few weeks of his termination. Therefore, he lost approximately three weeks of pay. DiCorp further states that if the termination is wrongful, it is obliged to pay Mr. Smith only his actual loss. This is based on DiCorp’s position that there was no employment contract. It did not argue that it is entitled to a credit for Mr. Smith’s mitigation in the face of an employment contract with specific termination terms. DiCorp terminated Mr. Smith’s employment without cause to do so. The contract states that DiCorp was entitled to terminate without cause, but it had to give Mr. Smith twelve months’ notice or pay in lieu thereof. DiCorp gave Mr. Smith no notice. Accordingly, it is required to pay Mr. Smith $100,000, which was his base salary at the time of termination.

Costs

[33] If the parties cannot agree on costs, they may make written submissions not to exceed three pages of text, exclusive of a bill of costs. The plaintiff shall serve and file submissions within three weeks of the release date of this endorsement. The defendant shall do the same within the following two weeks. The plaintiff may reply within the following week with submissions not to exceed one page of text. Submissions shall be provided to my assistant by email at alissa.livesey@ontario.ca.

Justice M.E. Vallee

Released: April 17, 2014