CITATION: Scharff v. Sears Canada Inc., 2017 ONSC 6757
COURT FILE NO.: CV-15-537027
DATE: 20171109
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL SCHARFF
Plaintiff
– and –
SEARS CANADA INC.
Defendant
Deborah Hudson, Ozlem Yucel, for the Plaintiff
Robert C. Taylor, for the Defendant
HEARD: June 19, 20, 21 and 22, 2017
LEDERER J.
orally
[1] This is an action for wrongful dismissal. Pursuant to an order of Mr. Justice Archibald it proceeded as a summary trial. Its conduct was governed by the provisions of Rule 76.12 of the Rules of Civil Procedure. As the rule requires, evidence was adduced through affidavits. Generally, the time limit set for each party to examine the deponents of the affidavits they had served was extended beyond the 10 minutes allowed by the rule. At the conclusion of the evidence the parties were permitted 1 ½ hour to present their submissions. The rule directs that this be done within 45 minutes.
[2] The rationale for the relaxation of the rule was the understanding that the resolution of the action would depend on the credibility of those who gave evidence. This being so, it would be important that the court have the ability to assess the evidence as provided by witnesses professing a different perspective and recollection of what transpired, what was said and how documents relied on should be understood. As it is, the decision does not turn on these differences.
[3] The rule also places demands on the court. It requires that the judge grant judgment after the conclusion of the summary trial. It does not say “immediately after” although this may be the intent. Clearly the impetus is that this be done expeditiously, as quickly as is reasonably possible. Accordingly, I feel compelled to provide these reasons orally; in this case, on the same day and shortly after the evidence and submissions of counsel were completed.
[4] The plaintiff, Michael Scharff, has specialized knowledge and expertise in the relationship between retail selling and the opportunities presented by the various channels offered by the internet and other new and associated technologies. The defendant, Sears Canada Inc., required the assistance of someone experienced in these areas. On November 17, 2014, Sears Canada Inc. retained Scharff Advisors Inc. and through it obtained the services of Michael Scharff as a consultant. He began providing these services on December 1, 2014. On February 17, 2015, the parties entered into a further consultancy contract which extended the arrangement until November 17, 2015. On January 3, 2015, the individual responsible for e-commerce at Sears Canada Inc. had resigned. A replacement was needed. At first Michael Scharff was not interested. In or around March 2015, he was offered full-time employment with another company. He advised Becky Penrice, at the time Senior Vice-President of Human Resources that he had accepted a full-time job and outlined a work schedule directed to transition. Michael Scharff developed doubts about this new position. On April 2, 2015, he sent an email to Ron Boire, at the time the Chief Executive Officer of Sears Canada Inc., a man he had worked with in the past. Michael Scharff indicated a willingness to consider full-time employment with Sears Canada Inc. As early as this initial inquiry, Michael Scharff made it known that he was interested in an arrangement which would allow him to work half-time in Toronto and half-time in San Francisco where he lived with his family.
[5] I pause to observe that this desire, the role it played in the relationship between Michael Scharff and Sears Canada Inc. and the company’s determination that this was or would be an unsatisfactory arrangement are at the centre of this action.
[6] The company welcomed the initiative. Becky Penrice responded. In an email dated April 3, 2015 she wrote:
So pleased you are open to joining Sears Canada Inc. full time. How could you resist working with such awesome people! I will work on some numbers and have something for you to review in the next day or so.
[7] Negotiations proceeded quickly. Within 15 minutes of the delivery of the email from Becky Penrice, Michael Scharff delivered a response outlining “draft thoughts” on a compensation package (numbers) and “related terms.” This is where the different perspectives begin. Becky Penrice finds it surprising that these “draft thoughts” did not refer to the desire of Michael Scharff to divide his time between Toronto and San Francisco even though she was aware that he had made this known the day before in the expression of interest he had delivered to the Chief Executive Officer. As I perceive it, it is not surprising that the terms outlined by Michael Scharff dealt with “numbers” because the email Becky Penrice had sent indicated that was the issue she would be considering “in the next day or so.” There was a reason for this. The process of considering individuals for senior positions at Sears Canada Inc. included the early approval of the compensation package by the Human Resources and Compensation Committee, the responsible committee of the Board of Directors.
[8] To add to the confusion, Becky Penrice advised the court that in the documents and other materials the term “Board” is used interchangeably with direct references to the Human Resources and Compensation Committee or, as represented by its initials “HRCC”. In this case the approval of the compensation to be offered to Michael Scharff was presented to the HRCC, by Becky Penrice and approved by it, on April 8, 2015. On the same day, within hours of the approval, Becky Penrice sent a further email to Michael Scharff advising that there would be an offer ready for him to review shortly (“tomorrow(ish)”) and explaining that the “Board approved moving forward with an offer and we have terms agreed”. This time it is the perception of Michael Scharff that raises concern. He says he understood this to indicate that “all terms of my employment including remuneration and the work location issue” had been approved by the Board of Directors of Sears Canada Inc. How could this be when no draft agreement had been presented and in circumstances where those he was directly communicating with had yet to mention or refer to his plan to divide his time between Toronto and San Francisco?
[9] For her part Becky Penrice said: “I was referring to the Board’s informal approval of the draft terms which had been discussed up to that point.” This seems a more sensible understanding. Even so in addressing the “work location issue,” as it was understood at the time, evidence led on behalf of Sears Canada Inc. goes beyond what seems reasonable. Becky Penrice notes “the Board was still unaware of the Plaintiff’s request to work not more than two weeks in Toronto much less having agreed to it.” This may or may not have been so but it leaves unanswered the question of why the Board did not know. Becky Penrice seemingly ascribes this absence of knowledge to the apparent failure of Michael Scharff to raise it. Why should it be seen in this way? The Chief Executive Officer knew. Surely, if it was important to the Board to know, it was reasonable for Michael Scharff to have presumed the Chief Executive Officer would have passed the information on. As I see it, it does not matter. The simpler and fairer view is that the discussions had not proceeded to the point that the question of where Michael Scharff would work and for what periods of time had come up for review.
[10] There is one important observation that arises from this exchange. In expressing her view Becky Penrice described the issue from the perspective that Michael Scharff wished to limit his time in Toronto to not more than two weeks per month. This is not surprising. It is how Michael Scharff described his wishes. What is of significance is that no one, at this time or any time until the last moments of Michael Scharff’s employment with Sears Canada Inc. raised the countervailing view that Michael Scharff be required to work full time in Toronto. There was room to find other options between these two alternatives. An understanding of the legal premises on which this decision is to be made is founded on that fact and the distinction between these two perspectives.
[11] The promised draft agreement, at this stage referred to as an offer, was delivered to Michael Scharff on April 8, 2015. He reviewed and proposed changes associated with the compensation package. They affected his benefits, particularly medical coverage and “life benefits” (clause 2.5) and reimbursement for travel expenses and for an apartment (“reasonable lodging”) he was to rent in Toronto (clause 2.3). On April 9, 2015, Michael Scharff received a revised draft. It made the changes he requested with respect to the benefits he was to receive (clause 2.5). He wanted, and with the changes was to have available, health care benefits in the United States.
[12] The clause dealing with travel and the apartment rental as it appeared in the first draft (April 8, 2015) stated:
Sears will reimburse you for your reasonable and actual out-of-pocket business expenses, including commuting expenses you incur for travel (including but not limited to meals and transportation to and from the airport) until such time [as] you move your primary residence and/or centre of vital interest to Canada. Sears will reimburse you for your reasonable lodgings in Toronto, up to a maximum of $3000 USD (net) per month until such time [as] you move your primary residence and/or centre of vital interest to Canada.
[Emphasis added]
[13] In response to the comments made by Michael Scharff, the revised draft (April 9, 2015) removed the underlined words. Presumably, this made it clear that Michael Scharff did not intend to move and his understanding that he did not intend to work full time in Toronto.
[14] Michael Scharff went through the April 9, 2015 redraft and provided a further set of proposed changes. This redraft was sent to Sears Canada Inc. on April 12, 2015. There were two versions of this draft: one showing the proposed changes (“redlined”) and a copy with the changes in place (“clean”). These changes moved beyond compensation (salary and benefits). In the email that accompanied these documents Michael Scharff explained the purpose behind these “edits”:
Here is a quick summary of the major edits, there are a few additional smaller edits as well. Most of these are to ensure there is clarity on my role/location and also to protect me in the event a future management team has a different view than that held by Ron (not that I expect a new CEO anytime soon, but history would suggest I should be cautious).
[Emphasis added]
[15] The underlined portion confirms the changing focus of the negotiations and underscores the significance of the amendment already made to the clause dealing with medical benefits, travel and lodging. As will become clear later in these reasons, the last sentence was strangely prescient and the expectation that there would be no new CEO “soon” not realized. The Chief Executive Officer did leave shortly thereafter and was replaced.
[16] The redline draft proposed a further amendment to clause 2.5 directed to clarifying the provision of medical benefits in the United States. It added the sentence:
In order to assist with US benefit costs for you and your family, you will be reimbursed for the cost of suitable coverage for US medical and life benefits up to a maximum of $2500 USD (net) per month during the term of this Agreement.
[17] This stands as a further indication that it was not the intention of Michael Scharff to work full-time in Toronto.
[18] To the contrary, Michael Scharff proposed a change that would allow him to terminate the contract if he were required to work at the Toronto office of Sears Canada Inc. more than two weeks per month. Section 4 of the draft agreement is titled “Cessation of Employment”. Section 4.3 in the agreement, as sent by Sears Canada Inc. to Michael Scharff, dealt with his entitlement should he be terminated “without ‘cause’ ”. In his redlined draft Michael Scharff added a provision which made these benefits available should he decide to terminate his employment for “good reason”. Clause 4.6 as found in the redlined version provided by Michael Scharff defines what, for the purposes of the agreement, is meant by “good reason.” Only one of the events which are said to represent “good reason” is relevant. It says:
Under, Mr. Scharff’s Employment Agreement “good reason” means:
• a mandatory relocation of Mr. Scharff’s employment to Canada or any other location not his primary residence in California, except for travel reasonably required in the performance of his duties and responsibilities. For the avoidance of doubt, Mr. Scharff shall be required to spend up to two weeks per month in the Sears Canada Toronto offices or more as mutually agreed upon.
[19] In other words, had this term become part of a contract of employment and Michael Scharff was required to relocate his employment anywhere other than California, more specifically if he were required to spend more than two weeks per month in Toronto (unless otherwise agreed to) he would be entitled to leave on his own accord and receive the same payments and benefits as if he had been terminated without cause.
[20] On April 13, 2015, the day after the redline version was sent to Sears Canada Inc., and, it would seem, after some further discussion, the Vice-President, Human Resources- Corporate, Sam Pisani responded with an email:
Hi Michael – as a follow-up to our conversation, enclosed please find the updated agreement. Upon review, I have kept section 4.6 within the agreement referencing the definition of “good reason”.
In regards to the TIP language, although I have not got final sign off from legal re. language, the enclosed is an excerpt re. termination and the payout of any crystalized value. This has been approved by the board, but just waiting final language to be approved
Let me know if you have any questions… but I think we are all good now.
[21] This was followed by a further email from Sam Pisani a half an hour later (the first email at 3:01 pm, the one that follows at 3:32 pm):
Hi Michael – as a follow up to our discussion, this note is to confirm that while employed with Sears Canada you will have the option of working from your home office in San Francisco up to 50% per month and the remaining time out of our Toronto based office. In addition, Sears will reimburse you for costs you incur regarding the preparation of your US and Canadian taxes up to a maximum of $10,000 per year.
Thanks
[22] Within five minutes, this was followed by another email, this one from Becky Penrice. It contained only one word:
Agreed
[23] On its face these emails, Sears Canada Inc. was agreeing to Michael Scharff’s proposal. Section 4.6 was left as included in the agreement and it was accepted that he would have the option of working in San Francisco up to half of his time, each month. Later the same day Michael Sharff sent an email to Sam Pisani asking if he should sign immediately or upon his attendance in Toronto “next week”. In response he was asked to sign the agreement, scan it and send it back. The following day (April 14, 2015) Michael Scharff did as he was asked. He signed the agreement and sent it back.
[24] Despite appearances, this was not the end of the process. Counsel on behalf of Sears Canada Inc. pointed to what he referred to as a condition precedent to the formation of the contract. Clause 1 of the document, in all the drafts, provides, in part:
The effective date of this Agreement and your first day in this position is May 1, 2015 (the “Effective Date”). This offer and the agreement arising from this offer are subject to the approval of the Human Resource and Compensation Committee and the Board of Directors of Sears Canada Inc.…
[25] This agreement was never taken to the Board of Directors, as distinct from the HRCC. It was, however, considered by the committee. One might wonder what the point was in having Michael Scharff sign an agreement that was yet to be approved by the responsible committee of the Board of Directors. The rationale provided was that the HRCC was to approve not negotiate. It required the signature so that it could be confident that, with its approval, there would be an agreement and not further demands. It was dealt with by what was referred to as an “email meeting”, that is through an email exchange involving the Vice President, General Counsel and Corporate Secretary of Sears Canada Inc. (Franco Perugini), the Chief Executive Officer (Ron Boire) and the three members of the HRCC. This took place on April 14, 2015. It began with Franco Perugini presenting the signed “Conditional Employment Agreement” to the HRCC. Initially, the Chairman of the Board of Directors who was a member of the HRCC indicated his approval (11:43 am). Later, he reconsidered (3:35 pm):
I did not realize he does not have to work more than 10 days a month in Canada.
[26] He then quoted the last lines of clause 4.6 as placed in the agreement through the redlining undertaken by Michael Scharff:
For the avoidance of doubt, Mister Scharff shall be required to spend up to two weeks per month in the Sears Canada Toronto offices or more as mutually agreed upon.
[27] An email exchange began. The Chief Executive Officer explained the circumstances:
Every other week is the minimum but practically it will be more often. We will also most likely need other Omni Channel talent that is not available in Toronto (tech, engineering etc.) which we will need to be flexible on. The lack of digital talent in CA was a major topic at the last HRCC board meeting with all members saying it was difficult to impossible to find outside of Vancouver.
We will manage this but the digital talent gap here and across Canadian retail is very high.
[28] The Chairman of the Board was not convinced:
I have no problem with him working from USA when you want him to, but this allows that he never has to spend more than 10 days in Canada. So if there is a problem and then he is only coming to Canada 10 days a week, I think we are in a bad place.
Why not eliminate the clause?
[29] The Chief Executive Officer tried another tack:
Let’s just add a qualifier that management may require additional time in Canada or other appropriate locations as may be reasonably required…
Franco, thoughts?
[30] The General Counsel and Corporate Secretary advised that this was possible:
We can add that qualifier if all members of the HRCC agree.
[31] The Chairman of the Board observed:
And he will then have to agree.
I would just remove the clause.
[32] The General Counsel and Corporate Secretary advised:
I just spoke to Ron. We will proceed by presenting a revised agreement to Michael with that clause removed. Do we have the approval from all members to proceed that way?
The approval of each of the three members of the HRCC was received.
[33] Before going on, I note that nowhere in this exchange was it suggested that Michael Scharff be required to work full time in Toronto. The objection was that, by the term of the contract as proposed, he would never be required to be in Toronto more than two weeks per month.
[34] What remained was to communicate to Michael Scharff the rejection of the agreement as proposed. This task was left to Becky Penrice. In her affidavit, and before the court, she testified that following the meeting she sent an email to Michael Scharff. The time posted on the email is 3:18 p.m. This is before the meeting ended. In fact, it is 17 minutes before the Chairman of the Board of Directors “reconsidered” his approval of the contract. Nonetheless, Becky Penrice was insistent that the email had only been sent upon conclusion of the “email meeting” and the decision of the HRCC had been taken. After some questioning by the Court she acknowledged that it was possible that she and the other members of the staff foresaw the outcome and began to act on the refusal before the decision was made. Given that the reconsideration had not been raised, this would not be consistent with her stated proposition that the change put forward by Michael Scharff confirming he would not be required to work more than two weeks per month in Toronto was placed before the HRCC as something that was not unreasonable. Becky Penrice said she was not surprised when Michael Scharff put forward this request.
[35] In the end, nothing turns on this confusion concerning the time of the email. I note only that it is another demonstration that the evidence in this trial was shaped by the perspective of the witness and not consistent with an overall or comprehensive understanding of the circumstances as they developed.
[36] In the email Becky Penrice said:
Hi Michael, hope all is well and congrats on the new role! We are so excited to have you join us. I need to review one thing with you at some point tomorrow. Let me know when you might have a few free minutes.
[37] They spoke the next day (April 15, 2015). At the outset of the trial, in their opening statements and conversations with the court, counsel suggested that the substance of this phone call was central to the case and a matter of controversy between them. In the end there was a little more smoke and a little less fire. The disagreement was not clear-cut. Michael Scharff does not recall what specifically was said or took place. Becky Penrice was clear in her recollection. The “one thing” she had to review with Michael Scharff was the refusal of the HRCC to accept clause 4.6 as proposed in the redlined version of the agreement. Becky Penrice recalled that she told Michael Scharff that “... the HRCC had not agreed to have the language in Section 4.6 that allowed the plaintiff to work no more than two weeks per month in Toronto.” She went on: “I explained Mr. Boire’s perspective that the clause was restrictive for everyone and it was not in Sears’ interest or his interest.” Becky Penrice continued both in her affidavit and in her evidence before the court: “I then asked, ‘okay, so are we good to go?’ ”. The Plaintiff replied “yes, good to go”.
[38] In the absence of any specific recollection from Michael Scharff it is difficult to ignore this evidence. I point out, however, it is inconsistent with the position that Michael Scharff took, and continued to take throughout his interaction with Sears Canada Inc. The substance of what is being said by Becky Penrice has to be examined. All that she said, and in fact all that happened, is that the HRCC was unprepared to accept that the maximum amount of time Michael Scharff would spend in Toronto was two weeks out of every month. It is important to note that this request for flexibility was expressed as being in the interest of Michael Scharff. No one suggested that Michael Scharff would be required to be in Toronto full time.
[39] The change to Section 4.6 was the only change to the draft Employment Agreement Becky Penrice discussed with the plaintiff. I will return to this statement later in these reasons.
[40] Franco Perugini redrafted the agreement. He removed the last sentence of Clause 4.6. This was the sentence objected to by the Chairman of the Board of Directors. He went further. He made another change. In the sentence immediately preceding the one that was removed, the sentence which introduces the relocation of Michael Scharff as providing “good reason” for Michael Scharff to terminate his employment, Franco Perugini changed the word “employment” to “residence” so that it read:
…a mandatory relocation of the Mr. Scharff’s residence to Canada or any other location not his primary residence in California, except for travel reasonably required in performance of his duties and responsibilities [emphasis added].
[41] This was done without instruction. In his evidence Franco Perugini said he made the change in order that the clause be consistent. As amended it reflected his understanding of the intention of the HRCC. His affidavit is more revealing:
Out of an abundance of caution and to avoid any argument that requiring the Plaintiff to work in 4 weeks per month in Toronto would be considered a mandatory relocation of his employment to Toronto thus arguably giving him “good reason” for him to resign pursuant to section 4.6 of the Conditional Employment Agreement, triggering a 12 month termination payment, I change the word “employment” to “residence”.
[42] He continued:
I believe this change was completely consistent with the decision of the Board that the Plaintiff work full-time in Toronto and the plaintiff’s acceptance of that condition. Furthermore, I was authorized by the Board to make non-material changes which this change was.
[43] The problem with this is self-evident. There is nothing in what the HRCC did that suggested anything other than increased flexibility such that Michael Scharff could not restrict his time in Toronto to a maximum of two weeks out of every month. The change was substantial and material. As perceived by Franco Perugini the change made it clear that it was only if Sears Canada Inc. insisted that Michael Scharff reside in Toronto that he would, under the agreement, have “good reason” to terminate his employment. The company could insist that he work full-time in Toronto. He would be free to go home to California for the weekends. Accepting the conversation that took place between Michael Scharff and Becky Penrice was, as reported by her, nothing was said that would have led Michael Scharff to believe that he was committing to working full-time in Toronto.
[44] For her part, Becky Penrice did not appear to think there was anything unreasonable in expecting an employee to work full time in Toronto and commute to California for the weekend. After all, they had other employees who commuted to the United States when the work week was over. In fact there were two: one who travelled to New York and another who did so, briefly, to Texas but then moved to one of the Carolinas. Quite apart from shorter travel time, with the exception of Texas these people moved within the same time zone. She noted that they could leave early and come in later. At best, this seems to have been an informal proposition.
[45] The concern gets more problematic. While counsel for Sears Canada Inc. was insistent that the approval of the HRCC was a condition precedent to the acceptance of the contract, the contract was not taken back to them to determine whether Michael Scharff should be required to work full-time in Toronto. Had this been the position and had Michael Scharff been so advised, it is not difficult to project he would not have accepted the position. It is worthwhile remembering the cautionary note raised by the Chief Executive Officer within the email exchange that comprised the meeting of the HRCC. Technology talent with the skills offered by Michael Scharff was not easy to find. To my mind, it is less than certain what the HRCC might have done.
[46] There is yet another complication. Becky Penrice indicated that at the conclusion of her telephone conversation with Michael Scharff, respecting the decision of the HRCC, she told him that the Chief Executive Officer would “sign off on the agreement with Section 4.6 amended to conform with the decision of the HRCC”. She asked if he wanted a copy. He said he would pick up a hard copy when he was next in Toronto. Again, accepting the conversation was as recalled by Becky Penrice, Michael Scharff had no reason to believe that anything had changed other than his ability to rely on a maximum of two weeks out of every month in Toronto. He did not do so. He should have. If he had read the contract he might have seen the change he was otherwise unaware of. I point out the change was to one word in a detailed contract. To my mind, the more egregious error was in the failure of the representatives of Sears Canada Inc. to point out the change. As it is, the agreement is not a binding contract. Michael Scharff never signed it. Instead, as related by Franco Perugini, he took the version that had been signed by Michael Scharff, removed the signing page and attached it to the version that included the withdrawal of the clause that was of concern to the HRCC and the further amendment made by Franco Perugini changing the word “employment” to “residence”. This was referred to by Franco Perugini as “slip sheeting” and seen by him as an acceptable way of completing the contract. It was not. In cross-examination and questions asked by the court he acknowledged that this practice is adopted between lawyers when the parties have agreed and it is difficult, perhaps because of the large number of documents involved in some forms of commercial transaction, to have the responsible people sign again every time a change is made. Michael Scharff is not a lawyer, he was not represented and, in any event, the final change from “employment” to “residence” was not reviewed with him.
[47] As part of the preparation to have Michael Scharff become a full-time employee of Sears Canada Inc. it was necessary that an application be made for the appropriate work permit. A lawyer experienced in immigration matters was retained to assist. By letter dated May 27, 2015, that lawyer sent a copy of the “work permit package” to Michael Scharff. It included a copy of the Employment Agreement as signed by the Chief Executive Officer with the “slip sheeted” copy of the signature of Michael Scharff. As perceived by the representatives of Sears Canada Inc. this presented a further opportunity for Michael Scharff to have read the changed contract. In his evidence Michael Scharff said he looked through the package but acknowledges he did not read the employment agreement with any care. Why would he? As far as he could have known the only change was the removal of the maximum of two weeks out of every month in Toronto. It does not matter. As it happens, through an error the copy of the agreement being used by the immigration lawyer did not contain the last change added by Franco Perugini. The word “employment” remained.
[48] Both sides rely on actions taken by the other following the meeting of the HRCC and the telephone conversation between Becky Penrice and Michael Scharff. Michael Scharff sent an email to Sam Pisani which said, in part:
Hi Sam
Just spoke with Becky and approved the last change on the agreement. I’m talking with the re-lo folks at 2pm today.
[49] The key words are “re-lo folks”. “Re-lo” refers to relocation. As understood by Becky Penrice this should be taken as a demonstration that Michael Scharff was preparing to relocate to Toronto. Not surprisingly Michael Scharff sees it differently. The “re-lo folks” are the people responsible for assisting employees in locating apartments. He would need one for his two weeks per month. In her affidavit, Becky Penrice states:
Sears would never have arranged for the lease of a full-time furnished condominium if he was only working less than two weeks each month in Toronto.
[50] To the court she acknowledged this was a matter of economics. If it was cheaper to rent an apartment for a month then to put an employee in a hotel for two weeks, the company might well see its way to leasing an apartment. I return to a comment made at the outset of these reasons. Much of the to and fro of the evidence reflects on different perspectives on the same facts. In the end these differences do not matter.
[51] For his part, Michael Scharff relies on the fact that in the period following the decision of the HRCC he was permitted by Sears Canada Inc. to arrange for not one but two spaces to be available for him to work while in San Francisco. Why would the company allow for this if he was required to be full-time in Toronto? At first it was suggested that this was temporary and in keeping with the fact that Michael Scharff would not have a place to stay in Toronto as he began work. Later it became clear that the arrangements to make use of this space were only put in place after the lease of his apartment in Toronto became effective. In his submissions counsel for Sears Canada Inc. relied on the fact that these arrangements were not renewed. This is hardly surprising. By then Michael Scharff had been terminated.
[52] The issue came to a head in late July 2015. By then Michael Scharff’s prescience rather than his expectation that the executive team would remain in place had been realized. The Chief Executive Officer resigned. Michael Scharff was on vacation. He returned but planned, and believed he had approval to leave again. Be that as it may, in the new regime Michael Scharff was to report to the Senior Vice-President and Chief Marketing Officer (Rob Shields). He delivered a schedule for the fall. Rob Shields responded with an email dated July 22, 2015. In part it states:
Re the schedule that you have attached, to be clear, I did indicate to you that given the tremendous workload, very poor e-comm results and massive turnaround efforts, I do require you to be here every week five days a week, full time. I and this company need you here as a leader to work with the team(s) peers and executive to realize the plans that were put in place at the beginning of the year (including the one you put in place for e-commerce) which are currently not being met. We need to adjust and do so fast. We owe it to our 20,000 employees.
[53] This was the first time anybody indicated to Michael Scharff that he would be required to work full time, in Toronto. On the same day, Michael Scharff responded. With respect to the question of his schedule he said:
Work schedule. This will require some more conversation and we’ll likely need to bring Becky and Brandon into the discussion I know you understand my reasons for not being in the office full-time (although I am working full-time). This was a critical component of my accepting the role at Sears and was included in my contract (which was reviewed and approved by our board of directors). As discussed, I certainly am willing to be flexible and see what we can develop that will meet the needs of the business and my personal needs.
[54] It is clear from this that Michael Scharff was prepared to be flexible in considering how the needs of the company could be accommodated. He concluded the email with the following:
Finally, I just want to say that I am fully committed to my role in helping lead the success of Sears Canada. I realise this is a bit of a challenging time for the company, but I am confident we can find a way to work through these issues. I believe you and I have the foundations of a good relationship and a common set of goals and values from which to build on.
[55] The following day (July 23, 2015), Becky Penrice spoke by telephone with Michael Scharff. In her affidavit she indicates that she confirmed that upon his return Michael Scharff was instructed to attend for work in Toronto full-time as required by his Employment Agreement. Presumably, in saying that she was relying on the agreement to which his signature was “slip sheeted.” He had not signed the changes. Her discussion with Michael Scharff, following the meeting of the HRCC did nothing other than tell him he was unable to rely on a maximum of two weeks per month in Toronto. As reported in her affidavit, Becky Penrice says that Michael Scharff refused to follow her instruction. What she does not say there, but confirmed in her evidence, was that Michael Scharff indicated a desire to discuss the situation in order to find a solution to the problem. Her understanding was that he might agree to a further day or two in Toronto. There is nothing that suggests that this amounted to the kind of conversation intended by Michael Scharff or one that explored the boundaries of what was reasonable and possible. In his affidavit Michael Scharff refers to this as “their new issue” and goes on to say “I expressed interest in trying to resolve the matter when I return to Toronto, while continuing to take the position that I would not work in Toronto full-time.” It was only at this time, on July 24, 2015, that Michael Scharff was given and reviewed the contract as amended by Franco Perugini, including the change from “employment” to residence.
[56] On Monday July 27, 2015, Sears Canada Inc. by letter from Franco Perugini, terminated Michael Scharff:
Dear Michael
This will confirm your telephone conversation of July 23, 2015, with Becky Penrice, in which you confirmed that on your return from vacation you are refusing to attend for work in Toronto full-time, as directed and as required by your employment agreement, in order to discharge your duties as Executive Vice-President, Omni-Channel.
This constitutes cause for your dismissal without prejudice to Sears relying on other grounds for cause. Your employment is hereby terminated effective immediately.
To avoid inconvenience we are notifying you now so that, when your vacation is over, you do not make arrangements to travel to Toronto. We will courier to your home in San Francisco any personal effects.
Please contact me or Becky if you have any questions.
Yours truly
[57] At the trial no further ground of cause was relied on. The cause relied on is the failure of Michael Scharff to agree to work full-time in Toronto. In asserting this cause the letter relies on the agreement with the changes and the “slip sheeting”. At trial, counsel for Sears Canada Inc. acknowledged this was not a binding contract.
[58] There is one issue that is determinative of the result of this trial. In the circumstances does the failure Michael Scharff to agree to work full-time in Toronto constitute cause?
[59] It does not.
[60] I start with the question of whether there was any contract which bound the parties. There was no written contract. Sears Canada Inc. did not accept the inclusion of the last sentence of clause 4.6 as placed in the redlined version prepared by Michael Scharff. Absent that approval the condition precedent referred to in clause 1 of the draft employment agreement was not met. On the other hand, the version of the agreement that was signed by the Chief Executive Officer was not put to and not signed by Michael Scharff. It does not matter what was discussed as between Michael Scharff and Becky Penrice on April 15, 2015. In the absence of seeing the agreement it cannot be assumed that Michael Scharff would understand the full implications of the outcome. This is underscored by the fact that the final change as made by Franco Perugini was not reviewed with him. Absent that change all that he was told was that Sears Canada Inc. would not accept a contract which provided that he had no obligation to attend in Toronto beyond two weeks every month. Based on the discussion with Becky Penrice there was no indication that the contract was intended to call for Michael Scharff to attend in Toronto full-time.
[61] Having said this there was a contract. In the circumstances it stands as an oral contract. What were its terms? Michael Scharff commenced work as an employee of Sears Canada Inc. He did so believing the written contract he had signed was binding. For its part the company took him on as an employee understanding it was bound by the contract that had been signed by the Chief Executive Officer and to which the name of Michael Scharff was “slip-sheeted”. Many of the terms, in fact most of them are the same and were acted on. Michael Scharff was paid pursuant to terms which are found in found both versions of the contract. The provisions found in section 4 which deal with termination were agreed to. In particular section 4.5 as proposed by Michael Scharff remained in the contract as executed by the Chief Executive Officer. It defines cause:
Under this employment agreement, “cause” is limited to Mister Scharff’s:
• willful refusal without proper legal causes to perform, or gross negligence in performing, his duties and responsibilities;
• material breach of fiduciary duty to us through the misappropriation of Company funds or property or through fraud; or
• material breach or default of his obligations or agreements under his employment agreement or any other agreement with us containing restrictive covenants or wilful failure to follow in any material respect the lawful directions or policies of the Board.
[62] Cause is a defence to an action for wrongful dismissal. The onus of demonstrating cause falls to the defendant, the employer (Brien v. Niagara Motors Ltd. 2008 CanLII 41823 (ON SC), [2008] O.J. No. 3246 (S.C.J.) at paras. 229 and 233 and Santos v. Honda of Canada Mfg., [2002] O.J. No. 4852 (S.C.J.) at paras. 26).
[63] Counsel for Sears Canada Inc. was adamant that, if there was a contract, it was incumbent on the court to determine what it provided in respect of the location or locations at which Michael Scharff was obliged to work. I do not agree. What is clear is that from the outset Michael Scharff indicated that he was unprepared to work full time in Toronto. There is no contractual term requiring him to do so. To the contrary, until the email from Rob Shields of July 22, 2017, there was no communication between Sears Canada Inc. and Michael Scharff which referred to, considered, demanded or discussed such a requirement. Every one of these points of contact between the parties referred to Michael Sharffe’s desire that he not be compelled to come to Toronto more than two weeks per month and, starting with the refusal of the HRCC the refusal of Sears Canada Inc. to accept that limitation. When it became apparent that the company was going to demand Michael Sharffe work full time in Toronto he indicated a willingness to look for an accommodation. The company refused. It abruptly terminated him without any substantive discussion.
[64] It cannot be that knowing that an employee has accepted employment on the basis that he will not have to be in Toronto full time, an employer can demand it and when the employee refuses, rely on that refusal as cause. The problem as it developed is not difficult to see. The company proceeded on the understanding that the agreement it had signed and “slip sheeted” the signature of Michael Scharff was binding. It was not. “Slip sheeting” without the consent of the other side does not make a contract binding. It would be all the more problematic in a circumstance where the other side was not represented by a lawyer. In this case it would still not be effective because the agreement as “slip sheeted” contained a change that had not been reviewed with Michael Scharff. The change of the word “employment” to “residence” was material. As revealed in his affidavit, the only reason Franco Perugini said it was not material was his understanding that, as it stood, with the last sentence of clause 4.6, as drafted by Michael Scharff removed, Michael Scharff was obliged to work full time in Toronto and that Michael Scharff had accepted that condition. He was not and he did not.
[65] To be clear it was open to Sears Canada Inc. to decide that for the job to be done effectively, it required Michael Scharff to work full time in Toronto and if he refused to terminate him. What it cannot do is say that the refusal is cause and on that basis refuse to pay what the law requires.
[66] Understood in this way there was no cause as defined by section 4.5 of the agreement. There was no refusal to perform. There was a refusal to be in Toronto full time, a willingness to perform and a desire to look for an accommodation that would be satisfactory to the employer. There was no suggestion of gross negligence, misappropriation of funds or fraud. There was no breach of any obligation under his employment agreement or to follow any lawful direction of the company. In this case the direction to work full time in Toronto was not lawful. Under the agreement it was understood that Michael Scharff would not work full time. Even in the version signed by the Chief Executive Officer there was no such requirement. What was apparent was that Michael Scharff could not refuse to work more than two weeks per month on those occasions when he was required to be in Toronto longer. That is a long way from working full time in Toronto.
[67] Counsel for Sears Canada submitted this is all wrong. He points to clause 1.2 of what he said was all of the versions of the employment agreement. It says:
You will initially be employed at the Sears Toronto location, however, Sears may, upon reasonable mutual agreement, appoint another work location in the future.
[68] On behalf of Sears Canada Inc. it was said that this is among the clauses which find their way into any accepted oral agreement because no objection was taken to it. Once clause 4.6, as placed in the redlined version, was amended, there was no requirement that Michael Scharff would be in Toronto for no more than two weeks per month. Clause 1.2 becomes the default position and, pursuant to its terms, Michael Scharff is required to be in Toronto.
[69] This proposition cannot stand. First, contrary to the submission of counsel, Michael Scharff did not agree to this provision. In his redlined version he proposed it to be changed, as follows:
You will initially be employed at Sears Toronto location and your office or a mutually agreed-upon location in San Francisco , however, Sears may, upon reasonable mutual agreement, appoint another work location in the future.
(The underlined portion is the redlined portion)
[70] The redlined portion was removed for the subsequent version, including the one that was signed on behalf of the company and “slip sheeted.” There was no evidence as to who, or the basis on which this removal took place. There was no evidence that this redlined section was of any concern to the HRCC or raised by them. It would be too easy and not accurate to say this was done so that this section would conform to the revised s. 4.6. Leaving it as it was redlined (as it was apparently accepted by the HRCC) would be consistent with the view that all that the HRCC objected to was that Michael Scharff could not be compelled to come to Toronto for more than two weeks in any given month. In such circumstances it would be acknowledged, as the redlined version did, that Michael Scharff, while from time to time being called to stay longer in Toronto would nonetheless still be spending time in San Francisco. In short this was an unauthorized change.
[71] Second, even if the HRCC did support the change there is no suggestion in the evidence of Franco Perugini or Becky Penrice that Michael Scharff was ever advised of this change or asked to approve it. If he did say “Good to go” it is not on the basis that he was informed of this change. Clause 1.2 cannot be relied on as something that Michael Scharff agreed to as a default position much less that the redlined version demonstrates a term to which the company through the HRCC objected to.
[72] For the reasons reviewed herein I find that Michael Scharff was wrongfully dismissed.
[73] Among the provision found in all versions of the contract are those that deal with termination of Michael Scharff by Sears Canada Inc. Included in this is the understanding that if terminated Michael Sharff would be entitled to:
… the greater of (i) twelve (12) months consisting of your base salary, benefits (which is inclusive of all termination and severance pay to which you would be entitled in accordance with the applicable Employment Standards legislation); or (ii) two (2) weeks’ notice (or pay in lieu of notice all of your flexible benefits or a combination thereof) for each completed year of service to a maximum of seventy-eight (78) weeks of base pay (which is inclusive of all termination severance pay to which you would be entitled in accordance with the applicable Employment Standards legislation). You would be entitled to continue in the Sears pension plans in accordance with the applicable Employment Standards legislation.
[74] What this makes clear is that the rights of Michael Scharff should he be terminated were agreed to as part of his employment contract. This term is part of the “oral contract” which bound the parties. Any award made to Michael Scharff should be determined based on the contract and not common law. This being so the parties, to their credit have agreed what damages would to be this basis I awarded damages to Michael Scharff in the amount of Canadian dollars required to purchase $765,395.38 in United States currency at a bank in Ontario listed in Schedule I to the Bank Act (Canada) at the close of business on the first day on which the bank quotes a Canadian dollar rate for purchase of United States currency before the day payment of these damages is made.
[75] No submissions were made as to costs. If the parties are unable to agree, I may be spoken to.
Lederer J.
Released: November 9, 2017
CITATION: Scharff v. Sears Canada Inc., 2017 ONSC 6757
COURT FILE NO.: CV-15-537027
DATE: 20171109
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL SCHARFF
Plaintiff
– and –
SEARS CANADA INC.
Defendant
REASONS FOR JUDGMENT
Lederer J.
Released: November 9, 2017