ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-467766
DATE: 20150812
BETWEEN:
Steven Goldsmith
Plaintiff
– and –
Sears Canada Inc.
Defendant
David Greenwood, for the Plaintiff
Arlen Sternberg, for the Defendant
HEARD: May 11, 12, 13, 14, 15, 19, 2015
Pollak J.
Introduction
[1] The Plaintiff, Steven Goldsmith, (“Mr. Goldsmith”) was employed by Sears Canada Inc. (“Sears”) for approximately 14 months from July 25, 2011 to October 11, 2012.
[2] The terms of his employment are set out in an Employment Agreement (“EA”).
[3] Mr. Goldsmith claims damages for Sears’ failure to pay amounts he alleges are owing to him by pursuant to the EA.
[4] He claims:
(a) a Relocation Payment for the net amount of $150,000;
(b) pay in lieu of notice of the termination of his employment in the sum of either $312,500 or $625,000 (less amounts paid by Sears);
(c) an Annual Incentive Program payment (the "AIP Payment") for fiscal 2012 of $140,625; and
(d) a Retention Payment for fiscal 2012 of $150,000.
Issues
[5] The issues to be decided at trial are:
(1) Does Mr. Goldsmith meet the requirements of s. 3.1 of the EA, for payment of the “Relocation Payment”?
(2) Do certain sections of the EA violate the Employment Standards Act, 2000, S.O. 2000, c. 41, s. 60(1) (“Act”), namely the termination provisions and the AIP and Retention Payments provisions?; and
(3) What is the resulting entitlement of Mr. Goldsmith?
Burden of Proof
[6] Mr. Goldsmith has the burden of proving that he has met the requirements for payment as set out in the EA.
Relocation Provision
[7] The parties agree that this Court must determine if Mr. Goldsmith has met the requirements of s. 3.1 of the EA: "The Relocation Payment will be payable upon the move of your primary residence to Toronto, Ontario, or at such earlier time to fund a down payment for you on your primary residence in Ontario"?
[8] The parties are also agreed that the findings of the Supreme Court of Canada in the case of Sattva Capital Corporation v. Creston Moly Corporation 2014 SCC 53, [2014] 2 S.C.R. 633 (“Sattva”) are applicable. The Supreme Court stated that:
"the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine 'the intent of the parties and the scope of their understanding'."
[9] And further that:
“The goal of examining such evidence is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement.”
[10] The Supreme Court held at para. 58 that the evidence should be "objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or ought reasonably to have been within the knowledge of both parties at or before the date of contracting." The Court further stated that, subject to these requirements and the parol evidence rule, the permissible evidence includes "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man."
[11] Mr. Goldsmith relies on the parol evidence rule. He submits that the nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" should be limited to objective evidence of the background facts at the time of the execution of the contract.
[12] Sears submits that in the Sattva case, the Court found at para. 60 that "the parol evidence rule does not apply to preclude evidence of surrounding circumstances when interpreting the words of a written contract."
[13] Sears submits that it can rely on “evidence of the facts that were known or facts that reasonably ought to have been known to both parties at or before the date of contracting”. This evidence will help to determine what the parties' intent was, and the scope of their understanding with respect to the Relocation Payment provision.
[14] The parties agreed that the Court should hear all of the evidence and rule on admissibility, if necessary, at the end of the trial.
[15] Mr. Goldsmith submits that s. 3.1 of the EA provides that he is entitled to the Relocation Payment if one of these requirements are met:
(a) The move of "your" primary residence to Toronto, Ontario; or
(b) To fund a down payment for "you" on "your" primary residence.
[16] He submits that the use of the word “or” shows that the parties agreed he does not have to buy a home in Toronto. Further, he submits that as the clause states that "you" must move to Toronto -- the "you" means Mr. Goldsmith, which also shows that the section does not require his family to move to Toronto.
[17] Mr. Goldsmith submits that he has moved his “primary residence” to Toronto. His supporting evidence is that:
(a) He signed a long term lease for a condominium in Toronto and then bought furniture and decorations for it;
(b) He worked at Sears' Head Office in Toronto throughout his employment;
(c) Throughout his employment, his primary mailing address has been a Toronto address;
(d) His most important personal belongings are in Toronto;
(e) His personal mail is delivered to his Toronto address;
(f) He built a social network of friends in Toronto;
(g) He joined athletic clubs and sports teams in Toronto;
(h) He continued to live in Toronto following the termination of his employment by Sears;
(i) He searched for new employment in Toronto following the termination of his employment by Sears;
(j) He re-employed in Toronto and continues to reside here; and
(k) He pays taxes and files tax returns in Canada.
[18] Sears, however, submits that, without the need to consider evidence of “surrounding circumstances”, (that it submits is admissible as held in the Sattva case), on the basis of the clear interpretation of the words of the EA, Mr. Goldsmith has not met his burden of proving that he has met the requirements to entitle him to the relocation payment.
[19] Sears relies on the terms of the EA which must be interpreted as a whole and in particular, submits that all of the compensation terms are relevant:
(a) an annual salary of $625,000, less required deductions;
(b) a signing bonus of $200,000. (This payment was made at the start of employment. Sears submits that this provision shows that the Relocation Payment required more than coming to Toronto to start employment, as there is already a provision for a signing bonus.);
(c) a commuting payment of $150,000.
Section 3.2 of the EA provides:
3.2 You will be provided with a one-time $150,000 CDN (gross) payment to assist you with commuting from the Effective date of this Agreement.
Sears submits that the commuting payment provision and the commuting payment made to Mr. Goldsmith shows that the Relocation Payment had to be for a purpose other than to compensate him for renting his apartment in Toronto and commuting to be with his family on weekends and holidays. It does not make sense that he would be entitled to the commuting payment (which he received at the start of employment and the relocation payment at the same time, as these are two different provisions);
(d) a one-time relocation payment of $150,000 (net) "to assist with [Mr. Goldsmith's] relocation" for a move of his primary residence, payable when he moved his primary residence to Toronto, or earlier to fund the down payment on a primary residence in Toronto;
(e) eligibility to participate in the annual incentive plan (AIP); and
(f) retention bonuses.
[20] Sears argues that the purpose of the “commuting” payment was to assist Mr. Goldsmith with commuting after he started employment. This was to compensate him for the need to rent an apartment in Toronto and to pay for travel costs to be with this family in Connecticut (he incurred on most weekends and holidays). Sears emphasizes that Mr. Goldsmith’s position throughout this litigation is that because he rented an apartment in Toronto, and started work in Toronto, the Relocation Payment was owing on “day one”. Sears argues this position would effectively make the relocation payment an additional signing bonus. Sears submits that it could not have been the intention of the parties that Mr. Goldsmith would be entitled to the commuting payment and the Relocation Payment at the same time in the same circumstances.
[21] Sears also emphasizes these uncontested facts:
(a) he lived in his downtown rented apartment during the week and commuted to his family home in Connecticut most weekends and at various other holidays;
(b) his family did not move to Toronto;
(c) he did not sell his house in Connecticut;
(d) he did not purchase a home in Toronto;
(e) he filed joint tax returns in the U.S. with his wife for 2011 and 2012, certifying that he is a citizen of the U.S. and a resident of the U.S. and not of Canada;
(f) he filed Canadian tax returns for 2011 and 2012 certifying that he is a non-resident of Canada (and not a “factual resident of Canada”) and only reporting his Canadian employment income and not his world-wide income;
(g) he did not get an Ontario driver's licence even though he rented a car and drove sometimes in Ontario;
(h) he did not claim that the Relocation Payment was due until after his employment was terminated. Sears argues that his explanation “that he did not need the money” is not credible as he was otherwise insistent that he be paid all amounts owing promptly; and
(i) the commuting payment covered the costs of his lease and costs associated with commuting to Connecticut for about one year.
[22] Further, Sears submits that s. 4.3 of the EA which refers to a potential termination of his employment occurring "before you move to Toronto", also shows that a move to Toronto had to mean more than coming to Toronto and living here during the week. It was obvious that Mr. Goldsmith would need to stay in Toronto during his working days. Sears submits that the evidence Mr. Goldsmith relies on is not enough to establish a "move to Toronto", or a "move of primary residence". Otherwise, s. 4.3 of the EA would be meaningless.
[23] Mr. Goldsmith submits that the nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" should be limited to objective evidence of the background facts at the time of the execution of the contract.
[24] Sears also relies on the uncontested facts regarding the surrounding circumstances which were facts that were (or ought reasonably to have been) known by both sides including:
(a) As of the date of the EA, his primary residence was in Greenwich, Connecticut, at the house he owned and lived in with his family. He had already leased his apartment for one year, when he started work.
(b) His plan was to rent an apartment in downtown Toronto, and to "travel", to Connecticut on weekends and holidays for at least a year.
(c) His 800-900 square foot, 2-bedroom apartment was not intended to be a family residence.
(d) He negotiated an increase to his commuting payment from $100,000 to $150,000, to cover the apartment and commuting costs for about one year.
[25] I agree that the uncontested facts relied on by both Mr. Goldsmith and Sears qualify as “objective” evidence of the backgrounds facts at the time of the execution of the contract.
[26] Further, I agree with the submission of both parties that it is not necessary to consider the additional evidence from Sears (which I have not referred to above and which was objected to by Mr. Goldsmith), with respect to the intention of the parties.
[27] The question for this Court is whether Mr. Goldsmith has met his burden of proving he has met the requirements for the payment.
[28] I agree with the submissions of Sears with respect to the purpose and meaning of the commuting payment, relocation payment and signing bonus provisions.
[29] As well, on the basis of the uncontested evidence I have referred to above, including Mr. Goldsmith's own characterization and certification to both the U.S. and Canadian tax authorities that his residence is in the United States and not in Canada, I find that Mr. Goldsmith has not met his burden of proving he has met the requirements for entitlement to the relocation pay. I do not accept Mr. Goldsmith’s evidence that “I did what my accountants told me to do” in this regard, as a justification for the Court to ignore the Plaintiff’s own characterization and his understanding that he was not a resident of Canada, but a resident of the United States.
Termination Pay, Retention Bonus and AIP
[30] With respect to Mr. Goldsmith's notice pay claim, retention and AIP payment claims, the parties agree that Mr. Goldsmith does not meet the required terms of the EA. He, however, claims that some provisions of the EA are “void ab initio” and therefore not operative. Sears submits that he is asking the Court to “re-write” those provisions and that such would result in “windfall payments” to Mr. Goldsmith.
[31] Mr. Goldsmith argues that because certain sections of the EA could potentially result in violations of the Act, in certain hypothetical situations (which are not factually applicable in this case), the fact that such potential violations could possibly occur, is enough to make those provisions of the EA void ab initio. Those potentially offending sections of the EA therefore cannot be enforced.
[32] Mr. Goldsmith relies on the Supreme Court of Canada decision in Machtinger v. H.O.J. Industries Ltd., 1992 102 (SCC), [1992] 1 S.C.R. 986 and on the case of Wright v. The Young and Rubicam Group of Companies, 2011 ONSC 4720, 2011 O.J. No. 4960. In those cases the length of the notice period in the employment contract was less than the statutory minimum. It was clear factually that the contractual notice period would be less than the minimum notice period set out in the legislation as an employee’s length of service increased.
[33] Sears submits that in these cases, it was easy to conclude that the employers wanted to give some employees less than their statutory required minimum period of notice. The court therefore found that it could reasonably be concluded that the intent of the drafters of the contract was to violate the minimum standards legislation and that the employers had attempted to contract out of the legislation. It was therefore held that the notice provisions were void. The courts concluded these employees were entitled to common law reasonable notice.
[34] In this case, Mr. Goldsmith was paid his salary and benefits until he fully mitigated his damages by starting new employment at a higher compensation. These payments were significantly more than the minimal payments pursuant to the Act.
[35] Sears argues that the EA provides significantly more than the minimum length of notice in the Act. Sections 4.3, 4.4 and 4.5 provide that if Mr. Goldsmith gives Sears a release then he is entitled to 6 months or 12 months compensation in lieu of notice. Without a release, Mr. Goldsmith is entitled to the statutory minimums. It is submitted that no intent can be inferred on the part of Sears to pay Mr. Goldsmith less than the statutory minimums.
[36] It is argued that contrary to Mr. Goldsmith’s submissions with respect to the words in the mitigation provision, the words “but not below zero” have to be read in context and in light of the last sentence of section 4.5 of the EA. Read in this context, the words mean that Sears will not be entitled to claw back payments it has already made to Mr. Goldsmith if he makes more money at his new job than he did before.
[37] Sears relies on the recent case of Ford v. Keegan, 2014 ONSC 4989, [2014] O.J. No. 3995 at paras. 150-152, which considered the Wright case. The court focused on the fact that there was no actual violation of the Act and that there was no intent on the part of the employer to deprive the employee of his minimum standards payment. The court held that :
[150] I respectfully disagree with Low J.’s reasoning in Wright. An employer who prescribes a notice period in a contract of employment must conform to provincial employment standards legislation for the particular employee, in the particular circumstances. The employer who drafts an agreement prescribing a fixed notice period, rather than one that increases with the employee’s years of service, and who does not negotiate a new employment agreement when the employee’s years of service entitles him/her to a longer period of notice, assumes the risk that the clause will become invalid at that point and that the common law will prevail to determine the period of notice required. It is only invalid at that point and not invalidated from when the contract was initially executed.
[151] If the contract is invalidated from the beginning it would unreasonably restrict the parties’ ability to negotiate their own terms of employment to require that the notice period must be of such a length as to satisfy the legislative requirements in every conceivable circumstance. This would require the notice period in a contract of employment for a new employee to meet the minimum notice requirements for an employee of the longest conceivable years of service. This goes beyond what is necessary to provide an employee with the notice period prescribed by provincial legislation and restricts to an unreasonable extent the parties’ right to negotiation their own agreement.
[38] Sears submits that the policy considerations referred to in the Machtinger and Wright cases do not apply in this case.
[39] I agree that the reasoning of the court in the Ford case is applicable in this case. I find that as the mitigation clause in the EA does not result in a violation of the Act, in this case, absent the factors present in the Machtinger and Wright case, the mitigation provision is therefore valid. I find that as Mr. Goldsmith has mitigated his damages, he is not entitled to any payment under the termination provisions of the EA.
[40] Sears also submits in the alternative that even if the Court were to accept Mr. Goldsmith's argument that part of the mitigation provision is null and void, the remedy would be that the entire notice provision would be null and void. Mr. Goldsmith's common law entitlement would then not be displaced or rebutted by a provision of the EA. At common law, Mr. Goldsmith would be entitled to reasonable notice, but would be subject to the duty to mitigate. Mr. Goldsmith more than fully mitigated his damages. As such, he is not entitled to any compensation at common law.
[41] In light of my finding above, it is not necessary for the Court to consider this alternate position.
Retention Bonus and AIP payments
[42] Mr. Goldsmith also claims payments of the special retention bonus in s. 3.3 of the EA, and the minimum AIP payment set out in section 2.7 of the EA.
[43] Sears argues that Mr. Goldsmith is not eligible for either of these payments as both require that he be "actively employed on the date of payout." The date of payout would not have been until May, 2013, at least six months after Mr. Goldsmith's termination on October 11, 2012.
[44] It is agreed between the parties that Sears did not meet the financial targets established for any payouts to employees under the AIP for fiscal 2012. If Mr. Goldsmith had been actively employed until May of 2013, he would have been paid $150,000 (retention bonus), and $140,625 (AIP payment).
[45] The courts have enforced the requirement to be “actively employed” on the date of payment of bonuses. Sears relies on the cases of Kieran v. Ingram Micro Inc., 2004 4852 (ONCA) ("Kieran") at paras. 53, 56-58 and Poole v. Whirlpool Corporation, 2011 ONSC 4100 at paras. 32-33, aff'd 2011 ONCA 808.
[46] Mr. Goldsmith argues that, hypothetically, the definition of "actively employed" in the EA has the potential to alter the terms and conditions of his employment during a possible statutory notice period, in violation of s. 60(1) of the Act. Therefore, the requirement to be “actively employed” on the payment date and the relevant part of the section is null and void.
[47] Sears emphasizes that even if s. 60(1) could be interpreted as Mr. Goldsmith suggests, there could have been no violation of the Act in this case. Mr. Goldsmith's statutory period of notice was only two weeks. The payouts under the retention bonus and AIP clauses could only have been payable six months after the end of his statutory notice period. The potential payouts would not have occurred during the statutory notice period.
[48] For the same reasons I have set above with respect to the validity of the Notice provision, because there could not possibly have been a violation of the Act in Mr. Goldsmith’s case, I do not accept this argument by Mr. Goldsmith and find that the provision is valid.
[49] On the basis of the above-noted reasons, I must therefore dismiss Mr. Goldsmith’s claims against Sears in this action.
Costs
[50] The Defendant has been the successful party on this trial and is therefore entitled to a cost award. If the parties are unable to agree on the cost award, they may make brief written submissions as follows:
The Defendant’s costs submissions must be delivered by 12:00 p.m. on August 21, 2015; and the Plaintiff’s costs submissions must be delivered by 12:00 p.m. on August 31, 2015. In accordance with what the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, provide, the submissions should not exceed three pages in length.
Pollak J.
Released: August 12, 2015
COURT FILE NO.: CV-12-467766
DATE: 20150812
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Steven Goldsmith
Plaintiff
– and –
Sears Canada Inc. - check
Defendant
REASONS FOR JUDGMENT
Pollak J.
Released: August 12, 2015