Court File and Parties
COURT FILE NO.: CV-14-509533
DATE: 20151008
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: PATRICIA CARPENTER, Plaintiff
AND:
BRAINS II, CANADA INC., Defendant
BEFORE: Stinson J.
COUNSEL:
Paul S. Schwartzman, for the plaintiff
Michael A. Kleinman, for the defendant
HEARD at Toronto: September 28, 2015
ENDORSEMENT
[1] This endorsement concerns a motion for summary judgment brought by the plaintiff in this wrongful dismissal action. Both parties agree that this is a case that is suitable for determination by summary judgment.
Background
[2] From September 1996 through October 2007, plaintiff was employed by a company known as NexInnovations Inc. (“Nex”). In 2007, Nex encountered financial difficulties and was the subject of creditor protection proceedings under the Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C-36 (“CCAA”). As a result of the CCAA proceedings, various portions of the business of Nex were sold to various purchasers. The defendant purchased some of the assets, property and undertakings of Nex relating to its Services Division.
[3] At the time of the insolvency, the plaintiff was employed by Nex as a Project Coordinator in its Services Division. After the transactions contemplated by the restructuring, the plaintiff was employed by the defendant in a similar capacity, at the same location and earning the same salary. She continued in that position until May 2014 when the defendant notified her that her employment was being terminated, without cause, effective July 23, 2014. She was thus given eight weeks’ working notice. At the end of the eight weeks, she was also paid 17.9 weeks’ pay as statutory severance.
[4] As a consequence of the termination of her employment with the defendant, the plaintiff was out of work from July 2014 until late January 2015, when she chose to enroll in a retraining program. She has commenced this action for wrongful dismissal, seeking common law damages for her income loss over the notice period to which she claims she was entitled, as a long-serving employee. The defendant counters that she contracted out of any common law remedy and, in any event, she received adequate notice or payment in lieu of notice.
Issues and Analysis
[5] As a consequence of the foregoing, at issue in this case are the following:
(a) Is the plaintiff at liberty to seek a remedy against the defendant based upon the common law entitlement to reasonable notice of termination of her employment or is her right to do so eliminated by the terms of her signed employment contract with the defendant?
(b) If the plaintiff is entitled to pursue a common law remedy, what notice period is appropriate in the circumstances?
(a) Is the plaintiff at liberty to seek a remedy against the defendant based upon the common law entitlement to reasonable notice of termination of her employment or is her right to do so eliminated by the terms of her signed employment contract with the defendant?
[6] The sequence of events relating to the plaintiff’s employment with Nex and with the defendant may be briefly summarized as follows:
Date
Events
September 1996
Plaintiff commences employment with Nex.
October 2, 2007
Order made by Campbell J. in relation to Nex under the CCAA appointing a Chief Restructuring Officer (“CRO”). The order authorizes the CRO to terminate the employment of Nex’s employees and on that date of the employment of all employees, including the plaintiff, is terminated.
October 3, 2007
The CRO re-employs various employees of Nex on a temporary, day-to-day, contractual basis, going forward. The plaintiff continues to perform her services for the business as an employee of the CRO. Not all employees of Nex are offered employment by the CRO.
October 17, 2007
Campbell J. issues an approval and vesting order authorizing the CRO to enter into agreements to sell certain assets, property and undertakings of Nex relating to its Services Division to the defendant. Pursuant to that order, the defendant purchases certain assets of Nex and hires certain former employees of Nex within the Services Division, including the plaintiff.
October 26, 2007
The defendant extends a written offer of employment to the plaintiff which is accepted by the plaintiff on October 30, 2007. The plaintiff’s acceptance is subject to a caveat expressed by her in writing that she “will sign the acceptance letter, but would like to revisit it by November 30, 2007 so that we can come to an amicable decision.” It is common ground that there was no subsequent revisiting of the terms of employment contained in the October 26, 2007 letter.
Mid-November 2007
The CRO makes the last payment to the plaintiff as her employer, and thereafter she is paid by the defendant.
May 28, 2014
Defendant notifies plaintiff that her employment will terminate effective July 23, 2014 and further advises her that she is entitled to severance pay in accordance with her employment contract and the Employment Standards Act, 2000. S.O. 2000, c. 41 (“ESA”).
July 2, 2014
Plaintiff receives formal notice advising her that she will receive 17.9 weeks of severance pay as of July 23, 2014 and that her benefits will continue until that date.
July 23, 2014
At the end of the 8 weeks of working notice, the plaintiff’s employment with the defendant ends, and she is paid 17.9 weeks of severance pay.
[7] At the heart of the question whether the plaintiff is entitled to claim common law wrongful dismissal damages in addition to the ESA payments she received, is whether she is precluded from doing so by reason of the contents of her employment agreement with the defendant. In turn, that question depends on whether certain provisions of her employment contract that purport to limit her rights are or are not enforceable.
[8] Plaintiff contends that the limitations are unenforceable, because they purport to contract out of her rights under the ESA. Defendant disputes that contention.
[9] Under separate headings contained in it, the October 26, 2007 employment contract describes the plaintiff’s employment, her remuneration and benefits, her position, her duties, the relevant office regulations, the term of her employment and the rules governing the termination of her employment and other obligations. Under the heading “Term of Employment & Termination of Employment” the agreement provides as follows:
In the event the [sic] termination of employment, except where such termination is for just cause, the company will provide you with notice (or salary in lieu thereof), and severance pay [if applicable] pursuant to its obligations as an employer and successor employer to NexInnovations Inc. under Employment Standards legislation, as amended. You will also be paid all salary amounts that may have accrued to you to the date of termination. This includes all your entitlements to both termination pay and severance pay under the applicable Employment legislation [sic] as well as any outstanding vacation or statutory holiday pay.
You agree and acknowledge that you will not be entitled to any other compensation, under common law or equity, by reason of the termination of your employment by the Company. At all times, should the requirements under statutory law, or successor legislation be amended, the Company will provide you with your entitlements under such legislation in lieu of your entitlements under this Agreement.
[10] On its face, therefore, the agreement imposes on the defendant the obligation to provide notice or salary in lieu thereof and severance pay as an employer and as a successor employer to Nex under the ESA. The agreement further provides that the plaintiff is not entitled to any other compensation by reason of the termination of her employment, thus eliminating any right to claim common law damages arising out of the termination of her employment.
[11] In Machtinger v. HOJ Industries Ltd., 1992 102 (SCC), [1992] 1 S.C.R. 986 at 1004-1005, the Supreme Court of Canada held that “absent considerations of unconscionability, an employer can readily make contracts with his or her employees which referentially incorporate the minimum notice periods set out in the Act or otherwise take into account later changes to the Act or to the employee’s notice entitlement under the Act. Such contractual notice provisions would be sufficient to displace the presumption that the contract is terminable without cause only on reasonable notice”.
[12] On its face, the employment contract in this case purports to contract out of the common law notice provisions that otherwise might be applicable. In other words, the agreement provides that the ESA entitlement is the only recourse, and no common law entitlement is available. Such provisions have been held to be valid and enforceable in other cases. See, for example, Roden v. Toronto Humane Society, 2005 33578 (ON CA), [2005] O.J. No. 3995 (C.A.) at paras 55 through 62.
[13] Various other cases demonstrate that the validity of such a clause turns on the language used. In essence, the question comes down to whether the contractual language does or does not offend the statutory prohibition found in s. 5(1) of the ESA against contracting out of that statute. For example, in Roden the court held that a clause that required the defendant to comply with the ESA standards and did not purport to limit the defendant’s obligations to pay such amounts did not attempt to contract out of any statutory obligations.
[14] By contrast, in Miller v. A.B.M. Canada Inc., 2014 ONSC 4062, aff’d 2015 ONSC 1566 (Div. Ct.), the court reached a contrary conclusion. In that case, the clause in question provided as follows:
Regular employees may be terminated at any time without cause upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation. [Emphasis in original.]
In Miller, the court noted that the employment contract was drafted in such a way as to make the pension contribution part of remuneration, but not part of salary; the car allowance was also not defined as being part of salary. The trial judge concluded that, since the contract provided for payment of salary in lieu of notice in the event of termination without cause, but made no mention of benefits, those items were not included in the amounts to be paid during the period of notice, contrary to the ESA.
[15] On appeal to the Divisional Court, the appellant employer relied on Roden. In dismissing the appeal, Marrocco A.C.J.S.C.J. noted that the contract in Roden had provided that the employee would be provided with the minimum amount of notice “or payment in lieu thereof as required by the applicable employment standards legislation.” [Emphasis in original.] He contrasted that language to the contract in Miller which provided merely for the plaintiff to be “paid salary in lieu of such notice.” He went on to note (at para. 12):
12 It is obvious that the word payment is different than the word salary. The difference in wording is significant because the employment agreement with which we are concerned distinguishes salary, pension contributions and a car allowance. [Emphasis in original.]
[16] Marrocco A.C.J.S.C.J. went on to note (at para. 15) that “the trial judge found and we agree that the Employment Agreement was not silent and that the wording of the agreement provided that benefits were not to be paid during the notice period, ...” The clause was therefore contrary to the ESA and was unenforceable.
[17] In my view, the present case comes within the scope of the principles discussed in Miller and is not within the same category as Roden. In the present case, as in Miller, remuneration and benefits are discussed separately in the agreement. In the termination clause, reference is made to salary in lieu of notice, without any mention of benefits being paid should notice not be provided. Indeed, the employment agreement in the present case goes farther than the one in Miller because it expressly provides that the employee is not entitled to any other compensation by reason of the termination of her employment. In other words, not only does the clause provide the employer with the right to pay salary, without mentioning or obliging it to pay benefits during the notice period, it also expressly exempts the employer from any other obligations.
[18] Section 61(1) of the ESA permits an employer to terminate the employment of an employee without notice or with less notice than is required, provided that the employee is paid a lump sum equal to the amount the employee would have been entitled to receive during the notice period and provided the employer continues to make benefit plan contributions that would have continued during the period of notice. The contract in this case purports to exempt the employer from paying anything other than salary. As such, it amounts to a waiver of the employee’s rights under s. 61(1)(b) of the ESA. Pursuant to s. 5(1) of the ESA, any contracting out of the statute is void. As such, consistent with Miller, the elimination of the plaintiff’s common law right to sue for damages is unenforceable. As a result, I now turn to the question of the plaintiff’s common law entitlements.
(b) If the plaintiff is entitled to pursue a common law remedy, what notice period is appropriate in the circumstances?
[19] The first issue to resolve in answering this question is: what is the correct measure of the plaintiff’s length of service as an employee of the defendant? Plaintiff asserts that it should be measured from the date she joined Nex, being 1996. The defendant submits that it should be measured from October 2007, when it purchased some of the assets of Nex.
[20] Plaintiff relies on Sorel v. Tomenson Saunders Whitehead Ltd., 1987 154 (BC CA), [1987] 15 B.C.L.R. (2d) 38 (C.A.) In that case, the court set out the following regarding reasonable notice where there has been a change of ownership (at pages 40-41):
In every case, of course, the judge must assess reasonable notice based on the particular circumstances before him. Where there has been merely a change in ownership, it is open to the judge to consider the period of continuous employment as a whole.
We think the legal situation might be conceptualized as follows:
When a purchaser acquires a business as a going concern, there is an implied term in the contract of employment between it and those employees continuing in the service of the business, that the employees will be given credit for years past service with the vendor or for purposes of such incidents of employment as salaries, bonuses and notice of termination.
This implied term may be negated by an express term to the contrary. In other words, the purchasing employer may, at his option, advise the employees that he does not intend to give them credit for past services to the vendor. If this is done, the employees have the option of entering into the new contract of employment on these terms or of declining to work for the purchasing company and suing the vendor for wrongful dismissal and damages in lieu of notice.
Where the new employer does not advise the employees that he is unwilling to contract on the basis that the employees have credit for past years of service, the employer is deemed to have contracted with the employees on the basis that the employees will be given such credit.
[21] To illustrate the application of the foregoing principles, the plaintiff relies on such cases as Dhatt v. Kal Tire Ltd., 2015 BCSC 1177. In that case, following an asset sale, the defendant continued in the same position with the new operator of the business. The court held that the defendant purchased the business as a going concern and, as a result, for purpose of providing notice of termination, the contract of employment was interpreted as containing an implied term that he would be given credit for his years with his prior employer. The change in ownership there was, from the plaintiff’s perspective, seamless and the defendant did not tell the plaintiff that his prior years of service would not be recognized.
[22] In my view, the present case must be distinguished from the principles discussed above. To begin with, and significantly, this was not a simple asset sale and a mere change of ownership. The circumstances by which the plaintiff came to be employed by the defendant involved (1) the insolvency of her former employer; (2) an application under the CCAA; (3) the termination of her employment by her predecessor employer; (4) her hiring on a temporary basis by the CRO; (5) the termination of her employment by the CRO; (6) the purchase of some, but not all of the assets of the former business by the defendant; and (7) the hiring of the plaintiff by the defendant on the basis that, while it would for ESA purposes consider itself to be a successor employer of Nex, she would not have any common law entitlements. While I have found the limitation on her entitlements to be void, I cannot overlook the fact that, at the time of her hiring, the defendant effectively told her that it would not be honoring any prior severance entitlement save for purposes of calculating ESA rights.
[23] I am also mindful of the fact that, although the plaintiff continued to perform much the same function in the same surroundings as she previously had, she was clearly aware of the change of circumstances relating to her employment. Additionally, according to the evidence of the defendant, since it acquired only some of the assets relating to the Services Division of Nex and hired only some of the former employees, the enterprise could not continue to operate as it formerly did without becoming part of the defendant’s larger business; in other words, it was not “business as usual”, even though the plaintiff may have continued to perform her functions as before.
[24] On balance, therefore, I am not persuaded that the plaintiff is entitled to be credited with uninterrupted service from the date of her employment with Nex. Rather, I conclude that her common law notice entitlement should be based on the premise that she became an employee of the defendant as of November 2007. This means that her entitlement to notice should be based on the premise that she was an employee of approximately 6½ years.
[25] At the time she was given notice of termination of her employment, the plaintiff’s base salary was $45,000. She was 54 years old. Between the date of her termination and December 2014, she diligently searched for new employment and applied for more than 50 positions, attended three job workshops and three networking events. She was unable to obtain new employment.
[26] In late January 2015, the plaintiff enrolled full-time in the Intra Oral Dental Program through the National Academy of Health and Business. She is scheduled to graduate from that program at the end of October 2015.
[27] I am satisfied that the plaintiff made reasonable efforts to mitigate her damages until she decided to go back to school. The evidence thus persuades me that, despite those efforts, a replacement position was difficult to locate. Having regard to that factor as well as the plaintiff’s age, seniority, income level, length of service and the availability of comparable employment having regard to her experience, training and qualifications, I hold that a proper period of notice in the present case would be eight months or 34.4 weeks.
[28] I note that eight months’ notice would take the plaintiff from May 2014 until January 2015, when she chose to return to school instead of continuing her job search. I therefore conclude that she has satisfactorily mitigated and should not lose any credit for the sums due to her by reason of her decision to leave the workforce in late January 2015.
conclusion and disposition
[29] For the foregoing reasons, I find in favour of the plaintiff and award her damages for wrongful dismissal based on a common law period of notice equivalent to 8 months’ notice. With respect to the calculation of the amount due, I note that the plaintiff was given eight weeks working notice, during which time (presumably) her benefits continued. As best I can determine, she received nothing on account of benefits in relation to the 17.9 weeks of severance she was paid. I will leave it to the parties to calculate the precise sum due in light of my conclusion that she was entitled to receive a total of eight months’ notice. Should they have any difficulty doing so, they should arrange a telephone case conference with me.
[30] In relation to costs, by my rough calculation the quantum of the judgment that I have awarded to the plaintiff is within the monetary jurisdiction of the Small Claims Court. It is therefore open to me pursuant to rule 57.05(1) to order that the plaintiff shall not recover any costs. Where a case is complex and involves difficult questions of law, however, it does not automatically follow that a successful plaintiff should be deprived of costs. Here, I consider that principle applicable and I decline to make an order that the plaintiff shall not recover any costs.
[31] In closing submissions, counsel agreed that the successful party should recover costs of $9,000, subject to my determination of the rule 57.05 issue. Having decided that point in favor of the plaintiff and having found her entitled to succeed in the action, I order the defendant to pay costs of $9,000 for the action, including the motion, which in my view, represents a fair and reasonable amount for partial indemnity costs.
Stinson J.
Date: October 8, 2015