COURT FILE NO.: 11-26113

DATE: 20151221

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

THOMAS KURTZ

Plaintiff

– and –

CARQUEST CANADA LTD., GENERAL PARTS, INC. AND GENERAL PARTS INTERNATIONAL, INC.

Defendants

M. Bates, for the Plaintiff

K. MacNeill and C. Dunlop, for the Defendants

HEARD: February 2 - 6, 10 - 13, 2015

WRITTEN SUBMISSIONS: May 4, 2015

The Hon. Mr. justice Robert B. Reid

[1] This wrongful dismissal action was fought on the issues of cause for dismissal and quantum of damages.

[2] To be more precise, the nine days at trial were used to support two commonly held misapprehensions. The Plaintiff attempted to persuade me that his termination was unfair and unjustified and that he should be significantly compensated accordingly through multiple types of damages. The defendant, not satisfied with having made a carefully considered business decision to terminate the plaintiff’s employment contract asserted that the plaintiff’s inadequacies amounted to legal cause for dismissal such that no damages of any kind should be payable, and counterclaimed for an overpayment against the plaintiff.

The parties:

[3] Thomas Kurtz is an American who moved from California to Ontario by way of an intercompany transfer with the defendant. He was 50 years old on the date of termination.

[4] The defendants are related companies. Carquest Canada Ltd. is a Canadian subsidiary of an American parent company. By agreement, all the defendants for the purposes of this action can be identified as Carquest. The companies are in the business of distributing and selling replacement automotive parts in North America through 35 distribution centers in the United States and Canada. They operate 2,771 auto-parts stores.

The plaintiff’s tenure:

[5] In July 2005, the plaintiff began work at the defendant’s Sacramento California distribution center. He began as a supervisor and was eventually promoted to Director of Operations. As Director, he was in charge of the distribution center.

[6] Carquest advised Mr. Kurtz in January 2009 that his distribution center soon would be closed and consolidated with other distribution centers. To provide continued employment, Carquest offered him the opportunity to become Director of Operations at its Rexdale Ontario distribution center. Mr. Kurtz accepted the offer and officially began work on May 1, 2009.

[7] Carquest paid for Mr. Kurtz’ moving expenses from California to Ontario pursuant to company policy.

[8] Mr. Kurtz’s compensation package was approximately $100,000 US annually.

[9] Carquest subsequently determined that Mr. Kurtz was not performing to its requirements and on January 10, 2011 advised him of his immediate termination. His total length of company service was therefore approximately 5 ½ years.

The issues:

[10] The threshold issue is whether Carquest had legal cause for termination of Mr. Kurtz’s employment.

[11] All but one of the remaining issues relate to the plaintiff’s claim for damages, assuming dismissal without legal cause:

a. What was the proper period of reasonable notice?

b. What is the appropriate amount of compensation during the reasonable notice period?

c. Was Mr. Kurtz entitled to reimbursement for costs of relocation back to the United States?

d. Was Mr. Kurtz entitled to post-termination accounting costs and tax reimbursement?

e. Is vacation pay owing to Mr. Kurtz?

f. Did Mr. Kurtz reasonably mitigate his damages?

g. Did Carquest’s conduct justify an award of moral damages?

h. Did Carquest’s conduct justify an award of punitive damages?

[12] The defendant counterclaims for reimbursement of tax refunds received by the plaintiff based on overpayment of income taxes made by the defendant on the plaintiff’s behalf.

Legal cause for dismissal:

The legal test:

[13] In general, an employer has an obligation to provide either advance notice or pay in lieu of notice when it decides to dismiss an employee.

[14] An employee has no choice but to accept the employer’s decision to terminate and the employee has no right to claim reinstatement except in rare cases such as, for example, when the termination is in breach of an applicable human rights code.

[15] Where there is a legal cause for dismissal, as distinct from simply business reasons for doing so, the employer is relieved from the obligation to pay compensation to the departing employee. In effect, as a consequence of the employee’s conduct, he or she is disentitled to compensation by having fundamentally breached the employment agreement with the employer, thus allowing the employer to terminate the contract.

[16] Frequently, legal cause is alleged in cases of misconduct or serious dereliction of duty. No such allegations are made in this case by the defendant.

[17] In some situations, incompetence or substandard performance rises to the level of legal cause for dismissal. That is the basis for the submission by Carquest that no damages should be awarded to Mr. Kurtz.

[18] Typically, there is a power imbalance in an employment relationship in favor of the employer. The right of an employer to terminate an employee’s contract unilaterally is acknowledged, but the employee’s right to compensation represents a counterbalance in order to ameliorate the often severe consequences suffered by the employee. The onus of proving dismissal for legal cause, particularly in matters of incompetence or substandard performance, is borne by the employer.

[19] In my view, to justify legal cause for termination based on incompetence or substandard performance, the employer must satisfy several criteria:

a. Has the employer established reasonable objective standards of performance?

b. Have those standards been communicated to the employee?

c. Has the employee been given suitable instruction such that the standards can be met?

d. Has the employee failed to meet those standards?

e. Has the employee properly been warned of the substandard performance and that termination will be the consequence if the substandard performance continues?

f. Was the employee given a reasonable amount of time to correct the substandard performance?

[20] Those criteria are similar to those articulated by the Nova Scotia Supreme Court in Brown v. Sears Limited, [1998] N.S.J. No. 475 at paragraph 32, and by the Supreme Court of British Columbia in Kirby v. Amalgamated Income Fund Limited Partnership, [2009] B.C.S.C. 1044 at paragraph 295.

[21] The Supreme Court of Canada dealt with legal cause for dismissal in the context of misconduct in McKinley v. BC Tel, 2001 SCC 38, [2001] 2 S.C.R. 161. Writing for the unanimous court, Justice Iacobucci mandated the application of a contextual approach. He said at paragraph 56:

Absent an analysis of the surrounding circumstances of the alleged misconduct, its level of seriousness, and the extent to which it impacted on the employment relationship, dismissal on a ground as morally disreputable as “dishonesty” might well have an overly harsh and far-reaching impact for employees.”

He continued at paragraph 57 as follows:

I favour an analytical framework that examines each case on its own particular facts and circumstances, and considers the nature and seriousness of the dishonesty in order to assess whether it is reconcilable with sustaining the employment relationship. Such an approach mitigates the possibility that an employee will be unduly punished by the strict application of an unequivocal rule that equates all forms of dishonest behavior with just cause for dismissal. At the same time, it would properly emphasize that dishonesty going to the core of the employment relationship carries the potential to warrant dismissal for just cause.

[22] I consider that for the same underlying reasons the contextual approach set out in McKinley is equally applicable to dismissal for cause based on incompetence. As result, it is appropriate to consider this case using the above noted criteria for just cause dismissal overlaid with an examination of the facts to provide context.

The factual context:

[23] Through the nine days of trial, a great deal of time was spent by the parties detailing the job requirements of the director of operations at a Carquest distribution center and in particular the Rexdale Ontario location. By the end of the trial, I was confident that anyone who had carefully listened to the evidence would be reasonably well-qualified to assume a senior management position with the defendant.

[24] The distribution center orders and receives aftermarket auto parts from suppliers and manufacturers. Those parts are then stocked and ultimately shipped to retail stores for sale to consumers. Parts are also returned from the retail stores and shipped back to the suppliers. It is critical to the operation that the presence and exact location of the parts be known from the point they are received by the distribution center until they are shipped to the retail store or returned to the supplier.

[25] During the course of the plaintiff’s tenure with the defendant, Carquest was engaged in a process of converting distribution centers from a paper-based inventory control system to electronic systems based on digital scanning known as “DCMS”. Distribution centers operating with DCMS are able to more efficiently and accurately control inventory. With DCMS, the task for staff whose job it is to locate and retrieve parts for forwarding to retail stores is simplified.

[26] Mr. Kurtz had been successful in his role as director of operations in Sacramento. He performed at or above company standards.

[27] When the plaintiff accepted the proposal to run the Rexdale distribution center, he inherited a facility with significant existing problems. There was a poor labor relations climate. A union organizing drive had occurred, which was indicative of issues between management and non-management staff. The fact that the organizing drive was unsuccessful meant there were also divisions amongst employee groups. The previous operations manager was terminated at about the time the position was offered to Mr. Kurtz. The Rexdale distribution center achieved a failing grade in the June 1, 2009 audit performed shortly after Mr. Kurtz’s appointment. Amongst other issues, wage costs were above payroll budget. There was also an issue with the proper operation of the conveyor system which was important to the flow of inventory within the distribution center.

[28] The Rexdale facility was significantly greater in size than that of the Sacramento distribution center from which Mr. Kurtz came. The annual budget of the Rexdale distribution center was approximately $100 million. There were six or seven direct reports to Mr. Kurtz and approximately 100 employees.

[29] The Rexdale facility operated on a paper-based system until it was converted to the DCMS system from October 2009 to February 2010. The Sacramento distribution center had been paper-based and Mr. Kurtz had no prior experience with DCMS.

[30] Because the Rexdale distribution center was short of space for parts storage, a new mezzanine area was built between December 2009 and January 2010, although it was not populated with inventory until July 2010 when the required municipal approvals were given.

Employer response to challenges at the Rexdale distribution center:

[31] I accept the evidence that on several occasions, Carquest assisted Mr. Kurtz when underperformance occurred. For example, in the Performance Management Process (“PMP”) for 2009, Mr. Kurtz was given a passing score in the category of balance sheet management despite significant underperformance in that area, when it was deemed that the problems were due to circumstances beyond Mr. Kurtz’s control.

[32] As well, additional resources were provided to help Mr. Kurtz meet acceptable standards. For example, in February 2010 a Distribution Center manager from Chicago attended to provide additional coaching and support in relation to the implementation of the DCMS system. Employees from other distribution centers were brought in to assist with the transition from a paper system to DCMS. In March 2010, another manager attended to assist with the move up process for exhaust lines which was problematic in the Rexdale facility. Temporary staff was brought in to assist with moving stock to the new mezzanine area.

[33] Roger Payne, the divisional VP for Carquest, monitored the performance of the Rexdale distribution center as well as that of 13 other distribution centers under his purview. He attended at the Rexdale location four or five times, three or four days at a time during 2010, and he maintained regular email contact with Mr. Kurtz.

Standards of performance:

[34] Internationally, the Carquest operation is a large one. As previously noted, it operates 35 distribution centers in the United States and Canada with 2,771 auto-parts stores.

[35] The company has established what it calls “Gold Standards” for performance system-wide in various areas that are important to the company’s operation including, for example, invoice accuracy, quality control, loss of sales quantity on hand, and fill rate. Many of these areas are specific to the nature of the Carquest business. The company hopes that its distribution centers will exceed the Gold Standards and considers them to be minimum expectations.

[36] The standards have been established based on corporate experience with its distribution centers of various sizes and in various places in North America. Each distribution center and each director of operations is assessed in the same way. Many of the measurements are objective although, as to individual performance, perhaps 20% are subjective. Average scores across the system are reviewed against the actual scores for individual distribution centers to see if there needs to be a recalibration of the Gold Standards from time to time.

[37] All the operations managers of the distribution centers are made aware of the Gold Standards annually by April or May, based on Carquest’s analysis of year-end financial materials received in February.

Performance concerns:

[38] A transitional audit was performed in June 2009 which essentially established a baseline for the distribution center performance under Mr. Kurtz’ leadership. It produced an overall score which was a “fail” according to Carquest’s requirements. Listed were 17 areas of concern or needs for improvement.

[39] A regular annual audit was performed in January 2010 which produced an overall score that was acceptable. It also identified a variety of areas of concern and needs for improvement. There were four areas of measurement: office, warehouse, safety and fleet, and “other”. The percentage rating for three areas other than the warehouse section was between 89.81% and 92.04% and each was noted as acceptable. The percentage rating for the warehouse section was 84.98% which was categorized as conditional. The warehouse section percentage in the transitional audit was 69.96%, which was a fail. Some problems noted in the transitional audit remained areas of concern which needed improvement.

[40] The 2009 Performance Management Process (“PMP”) conducted in February 2010 noted that Mr. Kurtz had only been in place for part of the year and affirmed positive changes made by him. It also identified areas for improvement including concerns about exceeding payroll budget, fill rate and stocking issues. There was an overriding area of concern about the lack of a relationship between Mr. Kurtz and his staff. I have already noted that there was a pre-existing labour relations issue inherited by Mr. Kurtz.

[41] A notice of performance counseling (performance improvement plan) was given to Mr. Kurtz dated April 22, 2010. It identified several specific concerns, several of which had been set out in the February PMP. For reasons that were not made clear at trial, it was noted as a “final warning” as opposed to an initial coaching or repeated counselling. There is no evidence of a prior warning. The Carquest Standards of Conduct Policy provides that progressive discipline is to be used based on an initial coaching session followed by two counselling sessions prior to termination.

[42] I note that the notice of performance counseling identified underperformance by Mr. Kurtz in specific areas, including customer service fill rate, error rate, move up orders, and excess payroll. Under the heading of “performance status”, the performance counseling notice provided in part: “Tom is expected to provide leadership and direction to his management team and to hold them accountable for driving performance in the DC. Tom is to work with his warehouse manager closely to ensure proper expectations are established and managed, and that those supervisors not meeting their expectations are held accountable. Tom needs to identify what resources are needed and to do everything in his ability to create an environment where his team can be successful.” At trial, Mr. Kurtz appeared not to accept the seriousness of the counselling or the requirement that he be responsible for making changes.

[43] A midyear 2010 PMP was given to Mr. Kurtz dated July 30, 2010. This was not a disciplinary document. However, it restated the failure of the Rexdale distribution center to meet corporate requirements in several areas.

[44] On September 16, 2010, Mr. Kurtz was given a corrective counseling form. It identified that, according to Carquest:

There continued to be multiple performance items that have still not improved and others that are new and contributing to the downward performance of this DC such as; high payroll, freight was behind and the salesforce came in again last week off the street to help the DC catch-up. MCH orders are still behind in being shipped to the stores, RGR has $306,000 in inventory when they should have about $100,000. Teammates are indicating they are speaking of these problems to Tom but the perception is he is not listening to them. Approximately one month ago, Tom was instructed by the DVT to train more for truck drivers in order to get the job done. Upon returning to the DC, it was found that did not happen, one driver is halfway trained while the job needing the driver is not being done properly. Accountability is not happening to drive performance. Teammates who are underperforming are not being held accountable and there is little to no documentation. The PIP indicated a lack of leadership and provided Tom with instructions to become more engaged in the day-to-day operation to better direct his team and improve the facility performance. This is still not happening and the success of the DC depends upon Tom’s becoming engaged.

[45] The form added that: “This serves as a final written warning for performance. As noted in the PIP on April 22, 2010 Tom will not have the option of being placed on another PIP. The above-mentioned items require immediate attention and remarkable improvement as soon as possible, failure to do so will result in immediate termination.”

[46] There was evidence of a subsequent telephone conversation between Mr. Kurtz and Roger Payne, who provided the corrective counselling. Mr. Kurtz claimed that he was told to “keep doing what you are doing”, while Mr. Payne recalls saying that Mr. Kurtz needed to “do what you know you have to do”. As to this conflict, I accept the version provided by Mr. Payne as a more reasonable follow-up to the counselling. To accept Mr. Kurtz’ evidence would be to the effect that the company told him to ignore the content of the form, which makes no logical sense.

[47] Other than the formal performance-related documents to which I have referred, there was evidence, including email correspondence between June 2010 and December 2010, indicating to Mr. Kurtz dissatisfaction on the part of Carquest with various aspects of the distribution center performance.

[48] It is noteworthy that by the end of September 2010, Carquest was actively searching for a replacement for the director of operations. By that time, it appears that Carquest had given up on the prospect of an ongoing employment relationship with Mr. Kurtz. A replacement was hired in December, the month prior to Mr. Kurtz’s termination.

[49] Although there were no written documents to this effect, the testimony of Roger Payne on behalf of the company was that as of December 31, 2010, the Rexdale distribution center was still performing poorly based on a review of the usual metrics. He testified that the distribution center had actually gone down in every metric between July and December 2010, except for payroll which had already been a problem area. His testimony was that the new manager was given a copy of part of the PMP form dealing with the distribution center generally and that the score was 1.63, significantly lower than the 1.89 that had been generated in July 2010.

Discussion:

[50] I fully accept that Carquest had a valid business reason to terminate the employment of Mr. Kurtz with the objective of hiring a director of operations that could improve the Rexdale distribution center performance to the required level.

[51] I am also satisfied that the Gold Standards applied objectively by Carquest to the performance of the individual distribution centers and directors of operations are reasonable. It is not for the court to decide, for example, what level of invoice accuracy is appropriate within the Carquest operation. The evidence established that the standards were not arrived at capriciously but rather on the basis of a review of all the distribution centers, with adjustment from time to time as circumstances required it. The company is large enough that it can set standards based on the performance of a large number of distribution centers, and I accept the evidence that the standards are not established as the high water mark but rather a required minimum standard for performance.

[52] There was no dispute as between the parties that the Gold Standards were communicated to Mr. Kurtz during his tenure at the company, both before and during his work at the Rexdale distribution center.

[53] There was no serious contention on the part of Mr. Kurtz that he was unequipped to handle the task of operating the Rexdale distribution center. He had a successful experience managing the Sacramento operation, albeit a smaller facility without a DCMS system. He knew the company practices and procedures. There may well have been staffing issues to be contended with in Rexdale, but Carquest had every reason to expect that its director of operations would either handle the center’s requirements or alternatively seek the appropriate additional assistance that might be required to ensure that standards were met.

[54] Likewise, there was no real disagreement that Mr. Kurtz was not meeting the standards established by Carquest. He was advised as much in the counselling documents as well as by the comments contained in the independent audits and email communications. Although he expressed shock at the termination of his employment, that appears to have been based on his conviction that he was doing the best he could and working hard, rather than any understanding that he was meeting required standards.

[55] I am not satisfied that Carquest properly warned Mr. Kurtz of his substandard performance and of the likelihood of termination, nor am I satisfied that he was given a reasonable time to correct the problems.

[56] This is not a case where an individual simply had to abide by rules in order to satisfy the employer. As a senior manager, Mr. Kurtz had to make significant changes in many areas of the operation of the Rexdale distribution center. He had to instruct, counsel and ultimately rely on others to put changes into effect. He inherited a center with significant ongoing problems in relation to personnel. The evidence also showed that there was a continuing issue with Mr. Kurtz holding his direct reports appropriately responsible for their failure to perform, and their failure may well have been in allowing first-line employees to perform inadequately. In other words, performance issues with subordinates may well have been the primary cause of failures to meet standards. A resolution of those issues would take time, either to work on correcting the behavior or ultimately replacing individuals involved.

[57] I have referred to the context of this matter and in particular to those problems inherited by Mr. Kurtz. The labor relations issues, DCMS conversion, lack of a reliable conveyor system, and the shortage of storage space, (ultimately solved through a delayed mezzanine construction) are all possible factors in the failure to have standards met. Each of those issues, to a greater or lesser extent, is indicative of long-term problems that needed time, care and attention to resolve.

[58] There was no evidence offered by Carquest as to the impact of the substandard performance of the Rexdale facility on its over-all operations. Obviously, Carquest would have been more profitable if the Gold Standards had been met there. But it was also clear that Rexdale was not the poorest performer amongst the company’s distribution centers. It was therefore difficult to determine the level of seriousness that could be ascribed to Mr. Kurtz’ failure to perform to Carquest’s expectations.

[59] There was no reason offered by Carquest as to why the Standards of Conduct Policy which provides for an initial coaching session followed by two counselling sessions prior to termination of employment was not followed.

[60] The language in the April 22 document, identifying it as a final warning, was obviously inaccurate and misleading. The language in the September 16 document was more foreboding. However, simply providing that the items mentioned required immediate attention and remarkable improvement as soon as possible does not give a proper time- frame for improvement. Clearly the issues were of significance and in many instances were of long-standing. It is unreasonable for the company to simply expect “remarkable improvement” with nothing further offered by way of assistance or strategies for change.

[61] Although it may be said that Mr. Kurtz was given almost four more months to make the required changes, the fact that Carquest had begun a search for his replacement shortly after the document was issued is an indication that the company had written off Mr. Kurtz as a Carquest asset and had no interest in assisting him in solving the existing problems.

[62] As a result, I am not satisfied that the defendant has proved, on a balance of probabilities, that it had just cause for dismissal of Mr. Kurtz and I therefore find that he was wrongfully dismissed and entitled to damages.

What was the proper period of reasonable notice?

[63] At the date of termination, Mr. Kurtz was 50 years old with 5 ½ years tenure. He had a senior management position as distribution manager in the Rexdale distribution center. He holds an MBA degree. His wage package included an annual salary of $98,500 (US), group health, disability and life insurance coverage, personal use of a company car and the potential for a performance bonus.

[64] The plaintiff submits that a reasonable period of notice is in the amount of 16 months and highlights that in addition to the usual factors of age, length of service, character of employment and availability of similar employment, the fact that Mr. Kurtz had been relocated to Canada from his home in California is significant and a reason to increase the notice period.

[65] The defendant submits that a reasonable period of notice is between five and eight months.

[66] In assessing the appropriate notice period, the court must balance the various factors to arrive at an amount of time within which the dismissed employee can notionally find other employment. There needs to be fairness to the employee in assessing a period which provides a reasonable amount of time, and also fairness to the employer in imposing an obligation that could reasonably be contemplated as a cost of doing business. Whether a dismissed employee is actually able to find work within the notice period is not the guiding principle.

[67] In this case, I am satisfied that the plaintiff’s age is not a factor that should significantly increase the period of notice. Depending of course on how long the plaintiff chooses to work, at the date of termination he was slightly past the half-way point in his working life. Mr. Kurtz’ employment tenure with Carquest was modest. However, he was a senior management employee which typically results in an increased period of notice. I am also satisfied that the notice period should be increased as a result of the need for the plaintiff to relocate back to the United States in order to find employment. It is reasonable to assume that a person in Mr. Kurtz position would require a longer period of time to find alternative employment because his work permit did not allow him to be employed in Canada except with Carquest. He was unable to network in the vicinity of his employment and needed time to arrange for his relocation.

[68] Applying all the factors to which I have referred, I assess the reasonable period of notice at eight months.

What is the appropriate amount of compensation during the reasonable notice period?

[69] The plaintiff earned an annual base salary of $98,500 and on that basis, eight months’ pay in lieu of notice amounts to $65,666 (US), the current Canadian dollar equivalent of which is $91,624.

[70] The plaintiff claims the cost of health care and related insurance coverage. However, a more accurate way of calculating damages for breach of the employment contract is to calculate the plaintiff’s actual expenses for the eight months in question. The plaintiff testified that his actual expenses were limited by available funds, and that had healthcare benefits been available through the company’s plan his use would have been greater. While that may well have been the case, my ability to award damages is constrained by the damages actually incurred. It appears from Exhibit 23 that the plaintiff’s out-of-pocket cost for healthcare during the notice period was $699.62 (US), the current Canadian dollar equivalent of which is $979.47.

[71] Mr. Kurtz has requested damages in lieu of personal use of the company car during the notice period. He submits that his personal use was about 50% and estimates the monthly value at $500. First, I am not satisfied that there was sufficient evidence for me to accept his estimate as accurate. I would need some independent basis for the calculation. In the pay stub marked Exhibit 19, the automobile use value which was apparently added to Mr. Kurtz’s income was $1341.10 for 2009. I did not see that amount carried forward to the Canadian T-4 slip or the American income tax returns, but I do accept that amount as what appears to been a taxable benefit in 2009. Applying that same annual amount to 2011, an eight-month personal use benefit for the automobile would amount to $894.06 (US), the current Canadian dollar equivalent of which is $1,251.69.

[72] There is also a claim by the plaintiff for a performance bonus for 2010 and during 2011 up to the end of the notice period. He received a bonus in 2009 of $17,521.42 (US).

[73] The defendant responded that the terms of the management incentive plan shown in Exhibit 72 required that participants be employed by the company on the day the awards were made in order to be eligible and that “all other separations prior to the plan payout date will result in forfeiture of any award under the plan”. Since the payment of the 2010 and 2011 bonuses were after the plaintiff’s termination, the argument is that he would not have been eligible, even if a bonus had been earned.

[74] I am satisfied that the terms of the management incentive plan would have disentitled the plaintiff to a payment of a 2011 bonus which presumably would have been payable in 2012. It is highly unlikely that he would have been entitled to a bonus based on 2011 performance, even if he had been given a period of working notice, since the bonus was based on the employee and the distribution center meeting certain performance criteria. There was no indication in the evidence that Mr. Kurtz and the Rexdale distribution center were on a path to perform at the required level such that the bonus would be earned.

[75] As to the claim for a 2010 bonus, I am satisfied based on the evidence that Mr. Kurtz’s performance scores at the end of 2010 would have resulted in no bonus being payable. The score was under 2.5, according to the metrics used by the defendant, which the plaintiff acknowledged was the floor below which no bonus would be awarded.

[76] As a result foregoing, the claim for a bonus as part of the contract damages for both 2010 and 2011 is dismissed.

[77] As to stock options, Mr. Kurtz claims to be entitled to the amount of at least $2056.17. That amount was shown as the total vested balance available to him as of December 31, 2008 in Exhibit 21. Roger Payne testified for the company that the employee stock ownership plan referred to by Mr. Kurtz is a type of retirement plan, and that whatever Mr. Kurtz’ entitlement was at the date of termination continues to be available to him. As a result, no damage award in relation to that matter is required.

[78] The company also provided what was known as phantom stock awards as a long-term incentive to reward key employees. Entitlement was pursuant to the management incentive plan. As to eligibility, the plan provided that: “if the participant’s employment is terminated, for any reason, prior to the issue date, any award under the plan is forfeited”. As well, the stock awards vest five years from the original date of issue and participants must be employed with the company on the date the phantom stock vests in order to redeem any outstanding shares. In the case of Mr. Kurtz, he became eligible to participate in the phantom stock awards program in 2009 when he assumed the role of director of operations in the Sacramento California distribution center. As such, no stock awards would have vested by the end of the notice period in October, 2011. Therefore, no damage award in relation to the phantom stock awards is appropriate.

Is Mr. Kurtz entitled to reimbursement for costs of relocation back to the United States and post termination accounting and tax costs?

[79] Following the termination of employment, Mr. Kurtz returned to California. He claims damages equivalent to benefits under Carquest’s International Expatriate Policy (“IEP”) to compensate him for moving expenses back to California, and damages for the equivalent of four months housing lease payments based on his departure before the expiry of the lease. As well, he seeks the replacement cost of household goods that he left in Oakville because they did not fit in the rented U-Haul vehicle that he used for the relocation.

[80] Except for any specific contractual requirements, the plaintiff’s damage claim for relocation is outside the normal scope of damages for wrongful dismissal. Put another way, if Carquest had provided eight months advance notice of termination, Mr. Kurtz would have been entitled to all compensation that would otherwise have been payable to him through his ongoing employment. That would not have included relocation expenses, since they would have been incurred post-termination.

[81] There is no dispute that during the time of his employment with Carquest in Ontario, the plaintiff was entitled to rely on the IEP. However, the plaintiff’s claim for repatriation costs and other expenses listed above relates to the period after the termination of his employment by Carquest. A portion of the IEP relates to “repatriation and reassignment”. It includes the employee’s ability to claim return travel expenses including return shipment of household goods. However, it clearly contemplates that the employee is in a continuing relationship with the company. For example, the policy states:

The estimated completion date of any international assignment shall be determined by the responsible office. Each employee should be notified approximately 2 months prior to the scheduled completion of assignment to begin making plans for repatriation.

[82] Similarly, the policy deals with reassignment on return to the United States:

Normally, upon satisfactory completion of a foreign assignment, employees who transferred to a foreign assignment will be returned to their home country or organization for reassignment. The company cannot guarantee continuing employment to an employee returning from a foreign assignment; however, a best effort will be made to provide employment at a company facility in the home country or, as appropriate, elsewhere, upon satisfactory completion of the foreign assignment.

[83] There is no suggestion or implication that the IEP will continue to apply after the employment relationship between employer and the employee ends. Whether the employee, in this case Mr. Kurtz, was terminated for legal cause or on a without cause basis is irrelevant to the application of the IEP. In neither case could Mr. Kurtz be said to have completed his assignment satisfactorily.

[84] Mr. Kurtz himself agreed in cross-examination that Carquest did not promise reimbursement for repatriation to the United States in the event of an unsuccessful completion of his work assignment. That eventuality was never contemplated.

[85] Quite apart from the IEP, I find that Mr. Kurtz suffered no damages as a result of the breach of the lease on his rented home in Oakville which occurred when he moved out four months early. His monthly rental was $3,600, and he therefore owed his landlord $14,400 for the early departure. However, there has been no claim by the landlord against the plaintiff and any such claim would appear to be statute-barred.

[86] For the sake of completeness, I have reviewed the receipts produced by the plaintiff for moving expenses from Ontario to California. These were made Exhibit 22. I have excluded duplications. Expenses which occurred after the plaintiff’s arrival in California, for example for storage and costs incurred later for moving to a different location in California, are not properly part of the relocation expenses, nor are expenses for vehicle registration and license transfer. The total claim is therefore $5,362.68 in Canadian funds and $2,090.77 in US funds (which, at today’s rate of exchange, is the equivalent of $2,927.08 in Canadian funds). The total is therefore $8,289.76 which would have been payable if I had found that the IEP or the common law imposed a repatriation obligation on the defendant.

[87] Mr. Kurtz testified that in order to minimize costs, he arranged to move back to California by renting a U-Haul truck. Some items did not fit: a washer, dryer, recliner chair, patio furniture and floor jack. They were left with a neighbor who had been helpful in the move. Mr. Kurtz has claimed from the defendant the estimated the value of those items at between $1,600 and $1,900. For the same reason that I have not allowed the claim for relocation expenses, I do not accept Mr. Kurtz’s claim for reimbursement of the items left behind. In addition, although I can appreciate the fact that Mr. Kurtz was under financial constraints at the time of move, it should not be the responsibility of the defendant in any event to compensate Mr. Kurtz for the value of items that he chose to leave behind. Finally, I am not satisfied that a proper evaluation was placed before the court.

Was Mr. Kurtz entitled to post-termination accounting costs and tax reimbursement?

[88] During the course of his employment in Canada as part of the IEP, Mr. Kurtz was entitled to the services of a company-paid tax consultant to assist in the filing of his US and Canadian tax returns.

[89] As of the date of termination, the process was underway to arrange for the preparation of the 2010 filings. Those services ended at the direction of the company and the plaintiff received an account from the consultant for $1,500 dated January 12, 2011 for services rendered from October 28, 2010. There was no evidence that Mr. Kurtz paid the account but, if he had done so I would have ordered reimbursement by the company given that the services were rendered during the time of Mr. Kurtz’s employment.

[90] The evidence was that Mr. Kurtz did file his tax returns for the 2010 and 2011 tax year without the assistance of a consultant or other tax preparer. That being the case, he incurred no damages in that regard for which Carquest could be responsible.

[91] One of the terms of Mr. Kurtz’s employment with Carquest in Canada was that he would be no worse off by virtue of Canadian and US income taxes levied than would have been the case if he had continued employment with Carquest solely in the United States. Carquest made required tax payments on behalf of Mr. Kurtz according to its calculations.

[92] In his submissions, Mr. Kurtz claims the sum of “at least $8,278.01”owing to the Canada Revenue Agency for Mr. Kurtz’s outstanding 2009 taxes. This claim arises from the reassessment of his 2009 Canadian tax filing and the disallowance of the claim for moving expenses plus a late filing penalty. There was no evidence of the actual amount still outstanding, if any, with the CRA. However, it appears that the reassessment did create an additional liability which should be paid by Carquest to Mr. Kurtz.

[93] As a result, and as to the 2009 tax reassessment, the plaintiff will have judgment against the defendant in the amount of $8,278.01.

Is vacation pay owing to Mr. Kurtz?

[94] The plaintiff claims unpaid vacation pay in the amount of “at least” eight days.

[95] The parties appear to have agreed that, if unused vacation existed at the date of termination, it should be paid to Mr. Kurtz.

[96] The plaintiff’s claim is based on his understanding that he was entitled to three weeks paid vacation and that eight or nine days remained outstanding as of January 10, 2011.

[97] Carquest established in its evidence that the applicable vacation policy provides for two weeks of paid vacation annually, with no carryover from year to year.

[98] Based on the evidence, including the exhibits setting out company policy, I accept that two weeks of annual vacation was available to Mr. Kurtz. He admits to having taken eight vacation days in 2010, and I therefore find that he is entitled to payment of the equivalent of two days at his base salary of $98,500 (US), which is $757.69 (US) the current Canadian dollar equivalent of which is $1,060.77.

Did Mr. Kurtz reasonably mitigate his damages?

[99] Faced with the breach of his employment contract by the defendant, the plaintiff was legally as well as practically obligated to attempt to minimize his damages by finding reasonable alternative employment. The onus of proving a failure to mitigate lies with the defendant.

[100] In this case, Mr. Kurtz initially made efforts to find alternative employment in Ontario which, despite his visa restrictions, was reasonable since a new job locally would have avoided the need for relocation back to the United States. In fact, he had been interviewed for a position in Canada on four occasions in December 2010, the month prior to his termination.

[101] The plaintiff’s main effort at finding jobs was through Internet searches, mainly through a review of job boards online. He paid monthly fees to be a part of three or four of them, and also contacted people with whom he went to business school. Exhibit 26 consists of about 250 pages of printouts in relation to online postings or applications between January 24, 2011 and November 2, 2011.

[102] The job search was focused on California since he intended to move back there to be closer to family. After his return to California, he testified he had several interviews for distribution center jobs including warehouse management and supervisory positions.

[103] Mr. Kurtz gave evidence that he did not restrict his search by industry or geographical location, except that he did choose not to pursue potential opportunities in Las Vegas, Nevada and Baltimore, Maryland since he felt those locations were not appropriate for his family. He did not apply for jobs that were expected to generate income of $35,000 per year or less. In September, 2012, Mr. Kurtz went into the insurance business as a sales agent.

[104] The defendant takes the position that there was a lack of effort demonstrated by the Internet searches and notes the failure to pursue the Baltimore and Las Vegas opportunities.

[105] The defendant notes that Mr. Kurtz had an overlap between employment insurance benefits in Canada and unemployment insurance benefits received in the United States. It submits that Carquest should receive a credit of $27,000 mitigation income being the amount of US benefits received.

[106] Based on the evidence provided by the plaintiff, I am satisfied that reasonable efforts were made to find alternative income. It does not appear that the search was unduly restricted, and I do not find fault with the plaintiff’s failure to follow through on two possible opportunities.

[107] No evidence was led about the impact of a wrongful dismissal award in Ontario on unemployment insurance received in the United States. It may well be that a repayment obligation will exist as is the case in Canada. It may also be that the calculation of such an overpayment, if required, will be reduced by virtue of the total length of unemployment. Faced with those uncertainties, I am not prepared to credit the defendant for US unemployment insurance benefits received by the plaintiff as equivalent to mitigation income.

[108] Therefore there will be no reduction in the damage award based on alleged failure to mitigate.

Did Carquest’s conduct justify an award of “moral damages”?

[109] So-called moral damages may be awarded when the manner in which a termination of employment occurs caused foreseeable injury to the dismissed employee. Employers must behave in accordance with a standard of good faith and fair dealing. Typically the injuries are in the nature of mental distress.

[110] In this case, the plaintiff alleges that the termination shook his confidence, was embarrassing, and in his view was unwarranted. He testified that he had many sleepless nights after the termination, and felt emotionally drained and helpless. The plaintiff also alleges that his wife’s medical condition, which had existed prior to the transfer to Ontario, made the continuation of health care coverage critical and, when it was cancelled as a result of the termination of employment, mental distress resulted. Private healthcare coverage on the plaintiff’s return to the United States was not affordable.

[111] There was no medical evidence in support of the moral damages claim.

[112] The defendant denies any conduct that failed to meet a standard of good faith and fair dealing.

[113] It is beyond dispute that losing one’s job can be upsetting, particularly if it is unexpected. I accept that Mr. Kurtz experienced such feelings. The financial uncertainty that comes from losing one’s job is an understandable cause of stress which in this case was exacerbated by Mrs. Kurtz’ need for healthcare insurance coverage.

[114] I am not satisfied however, that the method of termination adopted by the company was such as would justify a moral damage claim.

[115] On the date of termination, the plaintiff was called into a meeting and handed a prepared document confirming the termination of employment with a draft release attached. He was given an option of accepting the proposed terms or being terminated for cause. Management suggested that the plaintiff seek out legal counsel. He was then sent home in a cab with the defendant’s undertaking to forward personal items later.

[116] There is nothing in the matter of termination or in the circumstances surrounding the termination that justify an award of moral damages. There is no conduct that was untruthful, misleading or unduly insensitive.

[117] As result, the plaintiff’s claim for moral damages is dismissed.

Did Carquest’s conduct justify an award of punitive damages?

[118] Punitive damages, as the phrase implies, are designed to punish the wrongdoer independently of compensatory damages. They are awarded in exceptional cases where there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behavior.

[119] In this case, the plaintiff alleges that the defendant’s conduct justifies an award of punitive damages. As a result of the termination, it denied the plaintiff access to the IEP which would have reimbursed relocation expenses for his return to the United States as well as healthcare insurance. The company had been searching for a replacement for the plaintiff from late September 2010, some four months before the termination, and had hired a replacement in early December 2010.

[120] The defendant denies that its behavior prior to or upon the termination of Mr. Kurtz was a departure from standards of ordinary decent behavior. It acted within what it considered to be its contractual rights in terminating the employment of Mr. Kurtz with legal cause after identifying deficiencies by way of warnings.

[121] I find that there is nothing in the conduct of the employer that remotely approaches the type of misconduct that would justify an award of punitive damages. An employer is entitled to approach the termination of an employee in such a way that its own interests are protected. There is nothing reprehensible about the recruitment of a replacement without notice to the employee. In fact, it would be the rare case of a termination for cause where the employee was given advance notice. Whether the timing of the termination was delayed in consideration of Mr. Kurtz and his family, as the employer testified, to come after the Christmas holiday, or whether the timing was dictated by other business considerations, is irrelevant.

[122] Therefore the claim for punitive damages is dismissed.

Should Mr. Kurtz reimburse Carquest for taxes paid on his behalf?

[123] As I have noted, the employment contract between the parties provided that, while working in Canada, Mr. Kurtz would be no worse off by virtue of Canadian and US income taxes than would have been the case if he had continued employment with Carquest in the United States.

[124] Carquest remitted to the Canada Revenue Agency the equivalent of source deductions for Mr. Kurtz as if he was a Canadian employee. It also remitted source deductions to the Internal Revenue Service in the United States.

[125] Based on the tax returns filed, which were made exhibits, it appears that Mr. Kurtz received more favorable US tax treatment by virtue of working in Canada than would have been the case if he continued working in the United States. For 2009, he received a U.S. federal refund of $11,144 and a state refund of $7,964 for a total of $19,108. The company calculated the hypothetical liability for taxes as if Mr. Kurtz had been employed in the United States only in which case he would have received a refund of $4,804. That information was forwarded to Mr. Kurtz in December 2010. As a result, Carquest seeks reimbursement from Mr. Kurtz in the amount of $14,304 (US funds) the Canadian dollar equivalent of which is presently $20,025.60.

[126] Carquest also seeks a similar order for the 2010 tax year.

[127] There is no evidence of the actual amount of Mr. Kurtz’ refund received as a result of the 2010 US filing, although the tax form indicates an expectation of a federal refund of $10,114.79. The defendant argues that, using the same proportion as in 2009, a state refund of about $7,029 would have been likely, for a combined total of about $17,143. Following the same pattern as in 2009, Carquest submits that Mr. Kurtz owes $12,873.60 (US funds).

[128] For his part, Mr. Kurtz testified that his 2010 US tax situation was under review for the third time and, as of the date of trial, he had not received any refund.

[129] The defendant’s calculations also indicated that a 2009 income tax refund from the CRA would be made to Mr. Kurtz which should be refunded to Carquest. However, I have already noted that it appears from Mr. Kurtz’s notice of reassessment that the disallowance of the moving expenses created a tax liability rather than a refund credit. Carquest has conceded that the evidence does not support its claim for a reimbursement of any amount based on a refund of taxes paid in Canada in 2010.

[130] Based on the evidence, it appears that Mr. Kurtz will be better off having worked in Canada than the United States, if he is allowed to keep the federal and state tax refund from 2009. That was not a reasonable expectation based on the company policy. I am satisfied that the calculation made by the tax consultant on behalf of the defendant, which allows Mr. Kurtz to keep a portion of the tax refund, was the equivalent of the situation that would have existed had he been employed only in the United States.

[131] As result, there will be a judgment in favour of the defendant by way of counterclaim in the amount of $14,304 (US funds) the Canadian dollar equivalent of which is presently $20,025.60.

[132] There is virtually no evidence of the corresponding situation in 2010: no evidence of the state refund claimed, no evidence of any refund having been paid, no notice equivalent to the CRA Notice of Assessment, and no calculation by a tax consultant or accountant. As result, I am not prepared to speculate as to the possible tax refund that might have been received by Mr. Kurtz and I therefore make no order on that basis for reimbursement.

Summary:

[133] Based on my findings set out above, there will be a declaration that the plaintiff was wrongfully dismissed.

[134] The plaintiff will have judgment against the defendant as follows:

a. Eight months’ pay in lieu of notice in the amount of $65,666 (US), the current Canadian dollar equivalent of which is $91,624.

b. Reimbursement of out-of-pocket costs for healthcare during the notice period of $699.62 (US), the current Canadian dollar equivalent of which is $979.47.

c. An eight-month personal use benefit for the automobile in the amount of $894.06 (US), the current Canadian dollar equivalent of which is $1,251.69.

d. The amount of $8,278.01, being the additional amount of Canadian tax payable based on the 2009 tax reassessment.

e. An amount in lieu of two days’ vacation at the plaintiff’s base salary of $98,500 (US), which is $757.69 (US) the current Canadian dollar equivalent of which is $1,060.77.

[135] The defendant will have judgment against the plaintiff by way of counterclaim in the amount of $14,304 (US funds) the Canadian dollar equivalent of which is presently $20,025.60.

[136] I am prepared to receive submissions as to the applicable rate of prejudgment interest, any currency conversion issues and any arithmetical calculation issues based on the timetable set out below as to costs.

Costs:

[137] I encourage the parties to discuss the resolution of the costs issue and reach an agreement accordingly.

[138] In the event that no agreement can be reached, costs submissions may be made in writing, according to the following schedule:

The plaintiff is to serve and file written costs submissions and a bill of costs on or before January 22, 2016.

The defendant is to serve and file written costs submissions and a bill of costs on or before February 5, 2016.

The plaintiff is to serve and file any responding submissions on or before February 19, 2016.

[139] If no submissions are received by February 19, 2016, I will assume that costs have been resolved.

Reid J.

Released: December 21, 2015

COURT FILE NO.: 11-26113

DATE: 20151221

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

BETWEEN:

THOMAS KURTZ

Plaintiff

– and –

CARQUEST CANADA LTD., GENERAL PARTS, INC. AND GENERAL PARTS INTERNATIONAL, INC.

Defendants

REASONS FOR JUDGMENT

Reid J.

Released: December 21, 2015