COURT FILE NO.: CV-18-598494

DATE: 20190927

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Wayne Groves

Plaintiff

– and –

UTS Consultants Inc.

Defendant

Kumail Karimjee for the Plaintiff

Orie Niedzviecki for the Defendant

HEARD: March 5, 2019

REASONS FOR JUDGMENT

nishikawa J.

Overview

[1] The Plaintiff, Wayne Groves, was the founder and president of the Defendant, UTS Consultants Inc. (“UTS”). In November 2014, Mr. Groves, his spouse and a third shareholder sold all of their shares in UTS to Oakville Enterprise Corporation (“OEC”). Mr. Groves entered into an employment agreement with UTS and continued to work for the Defendant as a senior manager. In September 2017, UTS terminated Mr. Groves’ employment without cause.

[2] Mr. Groves brings this motion for summary judgment in his action for wrongful dismissal against UTS. UTS brings a cross-motion for summary judgment dismissing the Plaintiff’s claim and for recovery of an overpayment of vacation pay.

[3] The issue on this motion is the enforceability of a release and a termination provision in the employment agreement between UTS and Mr. Groves, and whether those provisions displace the presumption that the Plaintiff is entitled to common law reasonable notice.

[4] For the reasons that follow, I grant the Plaintiff’s motion for summary judgment. I dismiss the Defendant’s cross-motion for summary judgment.

Factual Background

A. The Parties

[5] The Plaintiff, Wayne Groves, founded UTS in 1992 and served as its President until his termination in 2017. Mr. Groves is a member in good standing of the Ontario Association of Certified Engineering Technicians and Technologists.

[6] The Defendant, UTS, is a corporation registered as 1223099 Ontario Limited, operating as UTS Consultants Inc. UTS is engaged in the business of telecommunications. In November 2014, the shares of UTS were purchased by OEC, a company related to Oakville Hydro Corporation.

B. The Share Purchase Agreement

[7] In May 2014, OEC approached Mr. Groves about acquiring an interest in UTS. UTS was not actively seeking a purchaser at the time.

[8] On July 29, 2014, the parties entered into a Letter of Intent (the “LOI”). The LOI provided a purchase price for the shares based on a formula tied to EBITDA (earnings before interest, tax, depreciation and amortization). The LOI also required that the operating shareholders of UTS, Mr. Groves and Clayton Jamison Uyede, enter into employment agreements with UTS after the sale.

[9] After six months of negotiations, Mr. Groves, his spouse, Julie Groves, and Mr. Uyede entered into a Share Purchase Agreement with OEC (the “SPA”). The parties agree that all of the relevant agreements are dated November 3, 2014 but were not signed until November 5, 2014.

[10] Pursuant to the SPA, OEC acquired all the shares of UTS. The purchase price was $6 million, with an “earn out” amount of $2 million. There is a separate proceeding between the parties about the earn out provision. The parties agree that the earn out litigation is unrelated to this matter.

[11] Mr. and Ms. Groves received $2,375,678.99 in exchange for their shares.

[12] Article 8(g) of the SPA provides for “the resignation of Julie Groves as an employee of the Corporation.” The SPA did not provide for Mr. Groves’ resignation as an employee.

[13] On November 5, 2014, Mr. Groves signed a “Resignation” stating that he resigned “as an officer and director of the above corporation, such resignation to take effect immediately.” The Resignation was addressed to UTS and the directors and shareholders thereof.

C. The Release

[14] In connection with the sale of UTS, Mr. Groves and Ms. Groves also signed a release (the “Release”), releasing UTS and the purchaser from:

all claims, demands, actions, causes of action, debts… which the undersigned in any capacity whatsoever (including, without limitation, as officer, director, shareholder, employee, creditor or otherwise) had, now has or hereafter can, shall or may have, for or by reason of or in any way arising out of, relating to or in connection with, any cause, matter or thing whatsoever existing up to the present time and, without limiting the generality of the foregoing, arising from: (1) the undersigned having been an officer, director, shareholder, employee or creditor of the Corporation, or (2) any Claims for unpaid remuneration, termination or severance pay.

D. The Employment Agreement

[15] On the same date, UTS provided Mr. Groves with a letter of employment (the “Employment Agreement”), which Mr. Groves signed. The terms of the Employment Agreement included the following:

• (i) Annual base salary of $120,000;
• (ii) Four weeks’ vacation;
• (iii) Provision of a company car or car allowance;
• (iv) Eligibility to participate in a variable compensation plan; and
• (v) An entire agreement clause.

[16] The Employment Agreement also contained a termination provision (the “Termination Provision”) which stated as follows:

This agreement may be terminated in the following manner in the specified circumstances:

b) By the Company at any time for cause without notice or pay in lieu;

c) By the Company at any time without cause provided that the Company provides you with notice in writing or pay in lieu of notice (as salary continuation) or some combination thereof equal to four (4) weeks base salary for each year of service that you have with the Company calculated from the date of this letter (and, for greater certainty, excluding any period of service you had with the Company prior to the date of this letter) with a guaranteed minimum notice or pay in lieu of notice equal to three (3) months base salary; provided that the maximum notice period or pay in lieu of notice that you will receive shall in no circumstances exceed twelve (12) months. Notwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the Employment Standard Act (Ontario). In addition, the severance package will also include continuation of medical and dental benefits during the severance period. Any variable pay owing to you will be prorated for the year’s service and paid at the time of termination. For greater certainty, you agree that for purposes of calculating any entitlement which you may have arising from the termination, without cause, of your employment with the Company, any prior service with the Company is excluded and you hereby waive and release any prior service entitlements.

[17] Mr. Groves was also required to sign a non-competition, non-solicitation and confidentiality agreement (the “Non-Competition Agreement”). Mr. Groves was represented by counsel throughout the transaction, who also reviewed and negotiated the Employment Agreement and the Non-Competition Agreement.

E. The Termination

[18] On September 26, 2017, UTS terminated Mr. Groves’ employment without cause. Scott Mudie, Chief Operating Officer of OEC, and Simon Abbott, Vice President of Human Resources, met with Mr. Groves at OEC’s office in Oakville, not the UTS office, to inform him of the termination. In the meantime, the locks were changed at the UTS office and Mr. Groves’ departure was announced to UTS staff.

[19] At the time of the termination, UTS provided Mr. Groves with a letter setting out the terms of severance that it was offering, on a without prejudice basis, and in exchange for Mr. Groves’ signing a release. This included the following:

• UTS would continue to pay Mr. Groves at the regular rate of remuneration for a period of thirteen weeks, ending on December 26, 2017;
• UTS would continue to provide Mr. Groves all benefits to which he was entitled during his employment for a period of thirteen weeks;
• Variable pay for the calendar year 2017 pro-rated for the period up to three weeks after the date of termination of employment (for a sum of $30,103.00); and
• Outstanding vacation pay.

[20] Mr. Groves did not accept the offered terms or sign the release. UTS paid Mr. Groves $31,536.85, representing three months notice from September 26, 2017 to December 26, 2017, and continued his medical and dental benefits during that time.

Issues

[21] The motions for summary judgment raise the following issues:

(a) Are the terms of the Release and Employment Letter enforceable?

(b) What constitutes reasonable notice of termination?

(c) To what damages is the Plaintiff entitled?

(d) Has the Plaintiff taken reasonable steps to mitigate his damages?

(e) Did the Defendant act in bad faith in the manner of termination?

Analysis

A. Principles Applicable to Summary Judgment

[22] Rule 20.04(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 [Rules] states that a court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.

[23] The Supreme Court of Canada has held that “summary judgment must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims:” Hryniak v. Mauldin, 2014 SCC 7, 1 S.C.R. 87, at para. 5 [Hryniak]. An issue should be resolved on a motion for summary judgment if (i) the motion affords a process that allows the judge to make the necessary findings of fact and (ii) apply the law to those facts, and (iii) is a proportionate, more expeditious and less expensive process to achieve a just result than going to trial: Hryniak, at para. 49.

[24] On a motion for summary judgment, the judge must first determine whether there is a genuine issue requiring a trial based only on the evidence before him or her, without using fact-finding powers. If there appears to be a genuine issue requiring a trial, the judge should then determine if the need for a trial can be avoided by using the powers under Rules 20.04(2.1) and (2.2): Hryniak, at para. 66.

[25] The court is entitled to assume that the record contains all the evidence that the parties would present if the matter proceeded to trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, 242 A.C.W.S. (3d) 794, at paras. 26-27, aff’d 2014 ONCA 878, 247 A.C.W.S. (3d) 549, leave to appeal to SCC refused, 36341 (9 July 2015).

[26] The Court of Appeal for Ontario has stated that dismissal without cause cases are suited to summary judgment: Arnone v. Best Theratronics Ltd., 2015 ONCA 63, 329 O.A.C. 284, at para. 12. In this case, both parties seek summary judgment and agree that the process allows the court to make the necessary findings of fact and to apply the law to those facts.

B. Are the Employment Agreement and Release Enforceable?

1. Principles Applicable to the Interpretation of Employment Contracts

[27] The principles enunciated by the Supreme Court of Canada in Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986 [Machtinger], apply to the interpretation of termination provisions in employment contracts. Employment agreements are to be interpreted having regard to their unique nature, and having regard to the fact that work is fundamental to an individual’s identity, self-worth and well-being: Machtinger, at p. 1002.

[28] In Wood v. Deeley, 2017 ONCA 158, 134 O.R. (3d) 481 [Wood], at para. 28, Laskin J.A. summarized the considerations relevant to the interpretation and enforceability of termination clauses in employment agreements as follows:

• When employment agreements are made, usually employees have less bargaining power than employers. Employees rarely have enough information or leverage to bargain with employers on an equal footing;
• Many employees are likely unfamiliar with the employment standards in the ESA and the obligations the statute imposes on employers. These employees may not seek to challenge unlawful termination clauses;
• The ESA is remedial legislation, intended to protect the interests of employees. Courts should thus favour an interpretation of the ESA that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible,” over an interpretation that does not do so;
• Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship;
• A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Employees should know at the beginning of their employment what their entitlement will be at the end of their employment; and
• Faced with a termination clause that could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee.

Wood, at para. 28 (citations omitted).

[29] The Defendant submits that in this case, certain of the above considerations are less relevant since the Employment Agreement was negotiated in the context of the SPA and Mr. Groves was represented by legal counsel at all times.

[30] In Machtinger, at p. 998, the Supreme Court held that an employee’s common law right to reasonable notice of termination without cause should not be displaced in the absence of clear language to the contrary. The Court of Appeal has similarly held that in order to displace the presumption of reasonable notice, termination clauses must achieve a “high level of clarity:” Ceccol v. Ontario Gymnastics Federation, (2001) 2001 CanLII 8589 (ON CA), 204 D.L.R. (4th) 688, 149 O.A.C. 315 (Ont. C.A.), at para. 45.

[31] The burden of demonstrating that an employment contract displaces the right to reasonable notice is on the party seeking to rely upon it: Machtinger, at p. 998.

[32] If a termination provision would potentially allow the employer to violate the ESA, then the termination clause is void and unenforceable and an employee is entitled to common law reasonable notice: Covenoho v. Pendylum Ltd., 2017 ONCA 284, 281 A.C.W.S. (3d) 554, at para. 7. Once a contractual limitation to notice entitlements is found to be void, it is void for all purposes: Machtinger, at p. 1001.

2. The Termination Provision in the Employment Agreement

[33] The Plaintiff submits that the Employment Letter fails to comply with the ESA because the Termination Provision:

(i) purports to waive termination pay and severance pay entitlements under the ESA;

(ii) provides for termination pay and severance pay to be determined based on “base pay” only;

(iii) permits termination without notice for just cause, as opposed to the ESA standard of wilful misconduct; and

(iv) has no provision for severance pay if pay in lieu of notice is provided.

[34] UTS submits that Mr. Groves resigned in November 2014 and was re-hired pursuant to the Employment Agreement, and does not meet the requirements of s. 64 of the ESA, since he has not been employed by UTS for more than five years. UTS maintains that the Termination Provision is valid because it provides more than Mr. Groves would be entitled to under the ESA.

[35] It is undisputed that UTS has a payroll of over $2.5 million and would qualify as a severance payor under s. 64 of the ESA.

(a) Waiver of severance and termination entitlements under the ESA

[36] Section 5(1) of the ESA provides as follows:

Subject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.

[37] The enforceability of a termination provision comes down to the language used in the provision. In Machtinger, the Supreme Court held that an employment contract that attempts to contract out of the statutory minimum notice period by providing lesser benefits is void. An employment agreement that incorporates the legislated minimum notice period is valid: Machtinger, at p. 1004.

[38] Section 9(1) of the ESA reads:

If an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and his or her employment with the seller shall be deemed to have been employment with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment.

[39] The Court of Appeal interpreted both ss. 5(1) and 9(1) of the ESA in Kerzner v. American Iron Metal Company Inc., 2018 ONCA 989, 299 A.C.W.S. (3d) 756 [Kerzner]. As here, the employee in that case sold his shares in a company and entered into successive employment contracts with the purchaser and subsequent entities. The Court of Appeal held that the termination provision at issue was null and void because it provided for termination pay that was less than the employee’s ESA entitlements. The Court of Appeal rejected the employer’s argument that the employee had waived his common law and statutory entitlements by signing a new employment agreement and release in exchange for consideration under a share purchase agreement.

[40] In this case, the Termination Provision provides a minimum of three months and a maximum of twelve months pay in lieu of notice. It states: “[f]or greater certainty, you agree that for purposes of calculating any entitlement which you may have arising from the termination, without cause, of your employment with the Company, any prior service is excluded and you hereby waive and release any prior service entitlements.”

[41] The Termination Provision does not comply with the ESA. Contrary to s. 9 of the ESA, it states that prior service is excluded for the purposes of calculating “any entitlement,” which would include severance and termination pay under the ESA. Mr. Groves’ pre-sale employment service could not be waived or released for the purpose of calculating ESA entitlements. Rather, UTS was required to count his pre-2012 service in calculating his ESA entitlements on termination: Kerzner, at paras. 34-35; Ariss v. NORR Limited Architects & Engineers, 2019 ONCA 449, 306 A.C.W.S. (3d) 98, at para. 38 [Ariss].

[42] Subsection 65(1) of the ESA provides the manner of calculating severance pay, and states:

Severance pay under this section shall be calculated by multiplying the employee’s regular wages for a regular work week by the sum of

(a) the number of years of employment the employee has completed; and

(b) the number of months of employment not included in clause (a) that the employee has completed, divided by 12.

[43] Accordingly, based on his years of service, Mr. Groves would be entitled to 24.75 weeks of severance pay. As an employee with over eight years of service, pursuant to s. 57(h) of the ESA, Mr. Groves would also be entitled to eight weeks of termination pay, for a total of 32.75 weeks.

[44] Based on its calculation of three years of service from November 2014 to September 2017, UTS provided Mr. Groves with 12 weeks notice. This fell short of his entitlement to 32.75 weeks notice under the ESA.

What is the Effect of the Resignation?

[45] As noted above, UTS takes the position that Mr. Groves commenced his employment in November 2014. Mr. Groves maintains that he was an employee of UTS throughout the entire period from 1991 to 2017. Mr. Groves submits that he resigned from his position as a director and officer of UTS in November 2014, but not as an employee. He states that in addition to his position as President of UTS, he was employed as a “Project Manager” and kept this position throughout.

[46] The employer bears the burden of proving on clear and unequivocal evidence that an employee resigned: Kieran v. Ingram Micro Inc., 2004 CanLII 4852 (ON CA), [2004] O.J. No 3118, 132 A.C.W.S. (3d) 706 (Ont. C.A.), at para. 27.

[47] In support of its position, UTS relies on the “Resignation” signed by Mr. Groves, which states that he resigned from his position as director and officer. Mr. Groves then signed the Employment Agreement, which states that his employment with UTS “commences on November 3, 2014.” Mr. Groves did not advise anyone from UTS that he had an additional position as a Project Manager. Before the sale, he was receiving only one paycheque.

[48] In Cosentino v. Sherwood Dash, 2014 ONCA 843, 247 A.C.W.S. (3d) 368, at para. 4 [Cosentino], the Court of Appeal found that it was untenable for the plaintiff to argue that he resigned as director and officer but not as employee. In that case, “the only reasonable interpretation… is that the appellant resigned from his position with the respondent:” Cosentino, at para. 2. However, unlike here, the plaintiff in that case was not required to continue his employment with the defendant after the sale.

[49] By contrast, in this case, it was always contemplated that Mr. Groves would continue to work for UTS. The LOI stated that as part of the transaction, OHC would require Mr. Groves and Mr. Uyede to enter into employment agreements with UTS. The vendor’s representations and warranties in the SPA included a clause that “no employees intend to leave the employ of UTS as a result of the transactions contemplated.” The SPA specifically provided for the resignation of Julie Groves as an employee of UTS, but not that of Mr. Groves as an employee. Until Mr. Groves’ termination, there was no interruption in his service.

[50] In addition, after his termination, Mr. Groves was provided with a Record of Employment and pension document that stated that his employment commenced in January 1991. He was not provided with a Record of Employment after his resignation in 2014.

[51] On cross-examination, Mr. Mudie admitted that Mr. Groves had not resigned from his employment:

Q: There’s no dispute that he resigned as an Officer and Director. And you’ll agree that there was no resignation of Mr. Groves as an employee. In fact, he had to represent that to the best of his knowledge, no employees intended to leave?

A: That is correct.

Q: And I think you agree that resigning means choosing to leave your employment?

A: Yes (Nodding).

[52] While I do not accept Mr. Groves’ position that he continued to occupy a position as “Project Manager” that he never mentioned to UTS, to the extent that he did resign, it was from the roles of director and officer. Even though he kept the title of “President,” he no longer had the authority or responsibilities of a director or officer.

[53] UTS has not discharged its burden of proving on clear and unequivocal evidence that Mr. Groves resigned. The resignation did not sever the employment relationship between Mr. Groves and UTS. It was “an entirely artificial attempt to create an interruption in employment when in fact there was none:” Ariss v. NORR Limited Architects & Engineers, 2018 ONSC 620, 291 A.C.W.S. (3d) 543, at para. 95, aff’d 2019 ONCA 449, 306 A.C.W.S. (3d) 98. The Resignation and subsequent Employment Agreement are more accurately viewed as a new employment contract continuing Mr. Groves’ employment.

[54] In any event, irrespective of any resignation, s. 65(2) of the ESA provides that non-continuous service must be included in quantifying severance pay. Subsection 65(2) of the ESA states:

All time spent by the employee in the employer’s employ, whether or not continuous and whether or not active, shall be included in determining whether he or she is eligible for severance pay under subsection 64(1) and in calculating his or her severance pay under subsection (1).

[55] Accordingly, the Termination Provision is void, since it does not comply with the ESA.

(b) Termination and severance pay based on base salary

[56] Pursuant to s. 60 of the ESA, an employer cannot reduce wages or alter any other term or condition during the notice period. Employees are entitled to their regular wages and the continuation of all employee benefits. Pursuant to s. 61, where an employee is provided with termination pay in lieu of notice, they must receive all entitlements required by s. 60, which includes all wages and benefits without reduction or alteration: North v. Metaswitch Networks Corporation, 2017 ONCA 790, 417 D.L.R. (4th) 429, at paras. 10-12 [North].

[57] The Termination Provision states that pay in lieu of notice would be calculated using “base salary.” It does not include in this calculation variable pay, pension contributions or vacation pay, which constitute a form of wages or benefits which must be maintained during the notice period. This is in breach of ss. 1(1), 57, 60 and 61 of the ESA: North, at paras. 10-12. Variable compensation constitutes a form of wages and a term of employment that could not be altered during the notice period: Bain v. UBS Securities Canada Inc., 2018 ONCA 190, 289 A.C.W.S. (3d) 550, at para. 24.

(c) Just cause

[58] A single breach of the ESA is sufficient to invalidate a termination provision: Cormier v. 1772887 Ontario Ltd., 2019 ONSC 587, 302 A.C.W.S. (3d) 767 [Cormier]. Since I have found that the Termination Provision is contrary to the ESA and since Mr. Groves was not terminated for cause, I need not consider whether the ability to terminate for cause without notice or pay in lieu of notice also violates the ESA. I note, however, that in Plester v. PolyOne Canada Inc., 2011 ONSC 6068, 216 A.C.W.S. (3d) 654, at paras. 53-56, aff’d, 2013 ONCA 47, 225 A.C.W.S. (3d) 1024, the court held that the ESA requires that notice and severance be paid unless the employer can demonstrate “wilful misconduct… that is not trivial and has not been condoned by the employer.”

(d) “Salary continuation”

[59] Similarly, I need not consider whether the Termination Provision breaches the ESA because it allows for the payment of four weeks per year of service as “salary continuation.” Nonetheless, I note that in Wood, at paras. 60-69, the Court of Appeal held that under the ESA employees are entitled to receive severance pay in a lump sum and are not required to work in order to receive it.

(e) Saving clause

[60] Relying on the Court of Appeal’s decision in Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169 [Amberer], UTS submits that even if the Termination Provision breaches the ESA, it contains a “saving clause” that would permit this court to apply it. In Amberber, the Court of Appeal “read up” a termination provision to comply with the ESA because the provision was capable of an interpretation that would be in compliance with the ESA: Amberber, at para. 54.

[61] In this case, the Termination Provision states that “[n]otwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the [ESA].”

[62] When the employer has sought to contract out of the ESA, a saving provision cannot be used to rewrite the express language in an agreement to cause it to comply: Rossman v. Canadian Solar Inc., 2018 ONSC 7172, 300 A.C.W.S. (3d) 69, at paras. 67-70. The Termination Provision cannot be interpreted to comply with the ESA because, contrary to s. 9(1), it specifically precludes an interpretation that would include Mr. Groves’ prior service with UTS. As a result, the saving clause does not assist and the Termination Provision cannot be read up in order to bring it into compliance with the ESA.

3. The Release

[63] UTS also relies upon the terms of the Release, in which Mr. Groves agreed to release UTS from all claims which he had arising from “having been an officer, director, shareholder, employee or creditor” of UTS, or any claims “for unpaid remuneration, termination or severance pay.”

[64] In respect of termination and severance pay under the ESA, the Release suffers from the same defects as the Termination Provision. Mr. Groves could not release his prior service for the purposes of calculating termination and severance pay under the ESA: Kerzner.

[65] That leaves the issue of whether, by virtue of signing the Release, Mr. Groves released any claim to common law notice. In Kerzner, the Court of Appeal did not interfere with the motion judge’s decision that the employee waived common law entitlements for service prior to the execution of the release. See also Ariss, at para. 39.

[66] In Kerzner, however, the release did not specifically waive the employee’s ESA entitlements. In this case, the language of the Release is broader than the provision in Kerzner. The Release states that it releases and discharges “any claims” for “termination or severance pay” which are not common law entitlements, but rather entitlements under the ESA. Given that this violates the ESA, it is null and void for all purposes: Cormier, at paras. 87-88.

[67] In Kerzner, the Court of Appeal rejected the application of Biancaniello v. DMCT LLP, 2017 ONCA 386, an argument that UTS puts forward here, as addressing the scope of a release that was otherwise permissible: Kerzner, at para. 36.

[68] Moreover, based on the evidence, I find that Mr. Groves did not release his claim to common law notice. Based on the terms of the SPA, he understood that his employment with UTS would continue. There was no break in service, and none was contemplated. Had the employment relationship with UTS been clearly severed, Mr. Groves may have turned his mind to what claims or entitlements he was foregoing by signing the Release. Given that Mr. Groves’ resignation was a formality, I find that he did not agree to forego his entitlement to common law reasonable notice.

[69] UTS takes the position that the amount paid to Mr. Groves under the SPA included consideration for his years of service before the sale and foregoing termination and severance. However, Mr. Mudie admitted on cross-examination that the money paid to Mr. Groves in exchange for shares was not treated as employment-related payments that would ordinarily be subject to statutory withholdings. Mr. Mudie also admitted that the purchase price was determined according to a formula that was based on UTS’s profitability. Also, there was no difference in the per share price paid to Mr. Groves and Mr. Uyede, despite the fact that Mr. Groves had significantly more years of service.

[70] In any event, the amounts paid to Mr. Groves for his shares cannot have been in exchange for a waiver of his ESA entitlements, since parties cannot contract out of ESA obligations: Kerzner, at para. 34.

C. What Constitutes Reasonable Notice?

[71] The Plaintiff, relying on cases where long-serving employees have been awarded notice from 26-36 months, submits that 28 months would constitute reasonable notice in this case.

[72] The Defendant submits that if Mr. Groves’ prior service is included, he is entitled to no more than 18 months reasonable notice.

[73] Since this motion was heard, the Court of Appeal released its decision in Dawe v. The Equitable Life Insurance Company of Canada, 2019 ONCA 512, 435 D.L.R. (4th) 573 [Dawe]. The Court of Appeal reaffirmed its decision in Lowndes v. Summit Ford Sales Ltd. (2006), 2006 CanLII 14 (ON CA), 206 O.A.C. 55 (Ont. C.A.) [Lowndes] that while there is “no absolute upper limit or ‘cap’ on what constitutes reasonable notice, generally only exceptional circumstances will support a base notice period in excess of 24 months” (Lowndes, at para. 11). In Dawe v. Equitable Life, Gordon J. had found the plaintiff to be at “the extreme high end of each of the Bardal factors” and awarded 30 months reasonable notice: Dawe v. The Equitable Life Insurance Company of Canada, 2018 ONSC 3130, 294 A.C.W.S. (3d) 310, at para. 36.

[74] Having regard to the Bardal factors, including Mr. Groves’ age and skills, his role and responsibilities at UTS, the length of his employment and the availability of comparable or suitable employment, I find that the appropriate reasonable notice period is 24 months.

[75] Mr. Groves is currently 65 years of age and was employed by UTS for a period of 27 years. All of the Plaintiff’s experience is in civil engineering consulting for telecommunications and hydroelectric companies. Older employees are typically entitled to a longer notice period because they have more difficulty finding work than others: McKinney v. University of Guelph, 1990 CanLII 60 (SCC), [1990] 3 S.C.R. 229, 76 D.L.R. (4th) 545, at para. 92. Mr. Groves was the founder and President of UTS and was responsible for carrying out all operations including client development, marketing and consulting services. Mr. Groves is subject to the Non-Competition Agreement for a period of five years from the signing of the Employment Agreement to November 2019. This limits his employment or business prospects. See Budd v. Bath Creations Inc., [1998] O.J. No. 5468, at para. 37; Mikelsteins v. Morrison Hershfield Limited, 2018 ONSC 6952, 299 A.C.W.S. (3d) 333, at para. 13 [Mikelsteins]; Dimmer v. MMV Financial, 2012 ONSC 7257, 224 A.C.W.S. (3d) 96, at para. 99.

[76] While it is true that UTS was Mr. Groves’ company, where he worked for over 25 years, I find that the Plaintiff has not demonstrated exceptional circumstances warranting a notice period in excess of 24 months.

D. To What Damages is the Plaintiff Entitled?

[77] In quantifying damages, the proper approach is to put the plaintiff in the same financial position that he or she would have been in had reasonable notice been given. This would include all compensation and benefits to which the employee would have been entitled during the period of reasonable notice: Paquette v. TeraGo Networks Inc., 2016 ONCA 618, 269 A.C.W.S. (3d) 495, at para. 16 [Paquette]. The court will typically include all compensation and benefits that the employee would have earned during the notice period.

[78] In this case, I have determined that Mr. Groves is entitled to a reasonable notice period of 24 months. He should therefore receive his salary, benefits, variable compensation and vehicle allowance for this period of time.

[79] Mr. Groves’ annual salary at the time of his termination was $124,236.06. He is thus entitled to common law reasonable notice in the amount of $248,472.12.

1. Variable Compensation/Bonus

[80] The Plaintiff claims a bonus for both the period during which he was employed and for the notice period.

[81] The Court of Appeal has held that “[d]amages for wrongful dismissal may include an amount for a bonus that the employee would have received had he continued in his employment during the notice period, or damages for the lost opportunity to earn a bonus. This is generally the case where the bonus is an integral part of the employee’s compensation package:” Paquette, at para. 17.

[82] Where a bonus is a non-discretionary and integral part of the employee’s compensation package, damages for wrongful dismissal should include both the bonus actually earned before being terminated and the bonus that would have been earned during the notice period: Paquette, at paras. 16-18.

[83] In order to determine whether a former employee is entitled to compensation for a bonus, the court employs a two-step test. First, the court will determine the employee’s right at common law. Where the bonus is an integral aspect of the employee’s compensation, the employee has a common law entitlement to the bonus. Second, the court will ask whether something in the bonus plan removes the common law entitlement: Paquette, at paras. 30-31.

[84] In determining whether a bonus is an integral aspect of an employee’s compensation, the following factors are relevant: (i) whether bonuses are received each year; (ii) whether bonuses are required to remain competitive with other employers; (iii) whether bonuses were historically awarded and the employer never exercised its discretion against the employee; and (iv) whether bonuses constitute a significant component of the employee’s overall compensation: Dawe, at para. 50.

[85] The Employment Agreement referred to and attached a sample Variable Compensation Plan (the “VCP”) for 2015. Mr. Groves would be eligible to participate “[as] long as you are an active regular member of the Company as of December 31 of the plan year.” The target bonus for Mr. Groves’ position was 30 percent of annual salary, and was dependent upon both UTS meeting financial performance objectives and Mr. Groves meeting personal financial performance objectives. The sample VCP for 2015 provided certain eligibility criteria, none of which are at issue. UTS has not stated that Mr. Groves received an unsatisfactory performance rating for any particular year. The VCP specified the financial targets for the company. If those targets were not met, no payments would be made.

[86] Section 5.2 of the VCP states that “[p]articipants must be actively employed (or regular employees on approved leaves of absence) on December 31 of the Plan year in order to be eligible for payment… If employment is voluntarily or involuntarily terminated, with or without cause, no bonus shall be paid in respect of any period of reasonable notice or any period for which pay in lieu of reasonable notice is or ought to be provided.”

[87] UTS argues that the VCP was only for 2015 and did not put into evidence any bonus plan for subsequent years. However, the Termination Provision stated that “[a]ny variable pay owing to you will be prorated for the year’s service and paid at the time of termination.” In addition, the Termination Letter states that “[y]ou have a contractual entitlement to a pro-rated amount of any variable compensation pay ‘owing’ to you for the calendar year 2017.” This supports the view that the VCP was not only for 2015. Mr. Groves’ pro-rata bonus for 2017 was calculated as $30,103.00, which he did not receive, since he refused to sign a release.

[88] Moreover, in 2016, UTS did not meet its financial targets but exercised its discretion to pay bonuses to four out of thirteen eligible employees, but not Mr. Groves or Mr. Uyede, to encourage them to stay. UTS has not disputed that the financial targets were met for 2017. In that year, UTS paid bonuses to all seven eligible employees.

[89] Applying the relevant factors, I find that the VCP was an integral part of Mr. Groves’ compensation. Since only three years passed between the sale and Mr. Groves’ termination, and the company’s financial targets were not met in 2015 or 2016, it is not possible to say whether the bonuses were historically awarded or whether the discretion was never exercised against him. Nonetheless, the VCP was clearly an incentive to encourage Mr. Groves to remain with UTS after the sale. The rate of 30 percent was a significant portion of his salary. Other employees received the bonus when the company’s financial targets were met as well as when they were not, at management’s discretion. While UTS maintains that VCP payments are at the CEO’s discretion, in response to an undertaking, UTS advised that “employees who did not receive a bonus did not qualify for one on the basis of corporate achievement and their [performance]”.

[90] The second question is whether something in the bonus plan removes the common law entitlement: Paquette, at para. 31. The Employment Agreement specifies that in order to be eligible for a bonus for a particular year, Mr. Groves had to be employed on December 31 of that year. This is analogous to the provision considered in Paquette, requiring that the employee be “actively employed” when the bonus was to be paid, or in Andros v. Colliers Macaulay Nicolls Inc., 2018 ONSC 1256, 291 A.C.W.S. (3D) 735, requiring that the employee be in “good standing” when bonuses were payable. In my view, this language does not unambiguously alter or remove the Plaintiff’s common law rights.

[91] Moreover, it would be unfair to deny Mr. Groves damages for lost bonus potential that he would have earned had he been given reasonable notice. As held by the Court of Appeal in Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679, 2019 CarswellOnt 13999 [Andros], absent a contracting out, allowing for common law damages that include compensation in lieu of a pro rata share of a bonus where bonus an integral part of the compensation package is “the only sensible approach:” Andros, at para. 55.

[92] Mr. Groves is entitled to damages for lost bonus potential during the notice period from September 26, 2017 to September 26, 2019. While UTS’s financial target was met for 2018, the 2019 financial year is not yet complete. I leave it to counsel to determine the precise amount in accordance with my findings and can be spoken to in the event that any issues arise.

[93] Mr. Groves is also entitled to a pro-rata bonus that he earned but did not receive while employed by UTS in 2017, in the amount of $30,103.00.

2. Benefits

[94] Mr. Groves has incurred monthly expenses of $461.76 since January 1, 2018 for health and dental benefits, which he claims are inferior to those provided by UTS. He has incurred approximately $750.00 in health and dental expenses that were not covered by his current health and dental plan.

[95] The Plaintiff submits that a reasonable approach for determining his entitlement to benefits is to fix it at 10 percent of his base salary, an approach has been adopted in numerous cases: Ruston v. Keddco Manufacturing (2011) Ltd., 2018 ONSC 2919, 296 A.C.W.S. (3d) 106, at paras. 114-117 [Ruston]; Movati Athletic (Group) Inc. v. Bergeron, 2018 ONSC 7258, 301 A.C.S.W. (3d) 776, at paras. 49-51; Mikelsteins, at paras. 21-24. This approach was recently used by the Court of Appeal in Andros.

[96] UTS has not provided any evidence with respect to the cost or value of benefits. It has not opposed the method of calculating Mr. Groves’ benefits entitlement proposed by the Plaintiff, but rather argues that he did not have benefits or a pension prior to the sale. This, however, is not determinative. Mr. Groves’ entitlement to benefits and pension should be consistent with the terms of the Employment Agreement.

[97] Under the circumstances, I find that it would be appropriate to calculate benefits using the 10 percent approach. Ten percent of Mr. Groves’ base salary during the notice period is $24,847.22.

3. Vacation Pay

[98] UTS claims that it overpaid Mr. Groves’ vacation pay in the amount of $2,062.36. UTS calculates Mr. Groves’ entitlement to vacation pay based on a statutory notice period of three weeks. Based on my findings above, the statutory notice period is eight weeks. Since Mr. Groves is entitled to vacation pay for the statutory notice period, there was no overpayment and no basis for UTS’s claim. It does not appear from the material that Mr. Groves has sought any additional amount for vacation pay.

4. Damages Calculation

[99] To summarize, the Plaintiff is entitled to the following for the notice period of 24 months:

Total Salary = $248,472.24

Total Pension Contributions = $12,423.84

Total Benefits at 10% of Base Pay = $24,847.22

Total Car Allowance = $24,000.00

Bonus to September 26, 2017 = $30,130.00

Lost Bonus Potential from September 27, 2017 to and September 26, 2019 = x

Total = $339,873.30 + x

[100] The $37,031.96 previously paid by UTS to Mr. Groves is to be subtracted from this total.

E. Did the Plaintiff Take Reasonable Steps to Mitigate his Damages?

[101] The Defendant bears the burden of demonstrating that the Plaintiff has not adequately mitigated his damages. An employer “must establish that the employee failed to attempt to take reasonable steps and that had his job search been active, he would have been expected to have secured not just a position, but a comparable position reasonably adapted to his abilities:” Yiu v. Canac Kitchens Ltd., [2009] O.J. No. 871, 175 A.C.W.S. (3d) 142, at para. 16 (Ont. Sup. Ct.), citing Link v. Venture Steel Inc., 2008 CanLII 63189 (ON SC), [2008] O.J. No. 4849, 173 A.C.W.S. (3d) 164, (Ont. Sup. Ct.), at paras. 45-46.

[102] In order to demonstrate that an employee failed to mitigate his or her damages, an employer must show that: (a) the dismissed employee failed to pursue alternate employment opportunities that were of a comparable nature; and (b) that such opportunities were not only available, but that, if pursued, the dismissed employee could have minimized the damages sustained: Link v. Venture Steel Inc., 2010 ONCA 144, 259 O.A.C. 199, at paras. 73-74.

[103] In this case, UTS has not adduced evidence to show that Mr. Groves has failed to take reasonable steps to mitigate. In addition, it chose not to cross-examine Mr. Groves on his mitigation efforts.

[104] Mr. Groves’ evidence is that he engaged in a job search from October 2017 to present, including through networking, attending consulting appointments and applying for positions. As noted above, the Plaintiff is also limited in his ability to find employment because of his age and the non-competition agreement, which ends in November 2019. In February 2018, Mr. Groves decided to start his own consulting business. From February 1, 2018 to July 31, 2018, he earned $12,180.00 gross revenue as a consultant.

[105] Mr. Groves submits that this income should not be deducted from his damages, since it constitutes inferior work and is not comparable to his previous position in terms of responsibility and salary.

[106] In Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402, 413 D.L.R. (4th) 284, the Court of Appeal held that employment income earned during the statutory entitlement period is not deductible as employment income (at para. 118). In a concurring decision, Feldman J.A. held that when an employee is wrongfully dismissed and forced to take an inferior job because no other position is available, the income earned is not mitigation of damages and need not be deducted (at paras. 157-58).

[107] In Mr. Groves’ case, the statutory entitlement period extended for 32.75 weeks to mid-May 2018. Any amounts earned during that time would not be deducted from his damages. While I have only been provided with Mr. Groves’ gross revenue for February 1 to July 31, 2018, some of this income was earned during the statutory entitlement period. Once that period is taken into account, the net amount earned by Mr. Groves from May 15 to July 31, 2018 would be minimal. As a result, I decline to deduct any income from Mr. Groves’ consultancy work as mitigation of damages.

[108] The Plaintiff submits that in the event that summary judgment is granted and an unexpired portion of the notice period remains, the court should apply the “trust and accounting approach” in which the judgment is paid to the Plaintiff, but impressed with a trust in favour of the Defendant for the balance of the notice period, requiring the Plaintiff to account for any mitigation earnings. See: Paquette v. TeraGo Networks Inc., 2015 ONSC 4189, 255 A.C.W.S. (3d) 641, at paras. 48, 66-70; Zoldowski v. Strongco Corp. / Strongco Corp., 2015 ONSC 5485, 258 A.C.W.S. (3d) 331, at paras. 22-26.

[109] Since the 24-month notice period will end on the release of this decision, it is likely that this is no longer necessary. Mr. Groves will be able to advise what further income he has earned to September 26, 2019 and this can be taken into account in the final judgment.

F. Did the Defendant Breach its Duty of Good Faith and Fair Dealing?

[110] Mr. Groves seeks moral damages of $50,000, alleging that the manner in which he was terminated was a breach of the implied duty of good faith and fair dealing in employment contracts.

[111] The Supreme Court of Canada and the Court of Appeal have recognized that the manner of termination can lead to a breach of the duty of good faith and fair dealing. In Wallace, the Supreme Court specified that damages resulting from the manner of termination may be available when the employer engages in conduct that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive:” Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, at para. 98 [Wallace].

[112] In Keays v. Honda Canada Inc., 2008 SCC 39, 2 S.C.R. 362 [Keays], at para. 58, the Supreme Court clarified that the implied duty of good faith in employment contracts governs the manner in which employers terminate employees and may give rise to moral damages. The availability of moral damages depends on whether those damages were within the reasonable contemplation of the parties: Keays, at para. 54.

[113] Moral damages cannot be claimed to redress the “normal distress and hurt feelings” resulting from termination, which are non-compensable: Keays, at para. 56. To make out a claim for moral damages, the plaintiff must establish that the employer’s conduct caused psychological injury to the plaintiff that goes beyond the “hurt feelings” intrinsic to a standard termination process. It is not necessary to provide medical evidence of psychological injury: Lau v. Royal Bank of Canada, 2017 BCCA 253, 415 D.L.R. (4th) 166, at para. 47 [Lau]. Nevertheless, some external evidence of mental distress is typically required to make out a successful claim: see Lau, paras. 45-47; Morison v. Ergo-Industrial Seating Systems Inc., 2016 ONSC 6725, 272 A.C.W.S. (3d) 770; Cottrill v. Utopia Day Spas and Salons Ltd., 2018 BCCA 383, 427 D.L.R. (4th) 39 (leave to appeal to SCC dismissed, 38448 (April 11 2019)).

[114] The grounds for moral damages are assessed on a case-by-case basis: Galea v. Wal-Mart, 2017 ONSC 245, 44 C.C.E.L. (4th) 251, at para. 232 [Galea]. Conduct that could qualify as a breach of good faith or fair dealing in the course of a dismissal includes conduct by an employer that is untruthful, misleading or unduly insensitive, or where the employer fails to be candid, reasonable, honest and forthright with the employee: Galea, at para. 232.

[115] In this case, Mr. Groves alleges bad faith on the part of UTS because he was called to the OHC head office and terminated there, without any opportunity to craft a joint statement with the employer. In the meantime, the locks at the UTS office were changed. As the founder of UTS, Mr. Groves had longstanding personal and professional relationships with other employees and clients. Moreover, UTS did not pay Mr. Groves his ESA entitlements and bonus pay and tried to get him to sign a release foregoing his entitlements.

[116] UTS submits only that the termination was conducted in a manner consistent with ordinary business practices but has given no evidence on the need to change the locks at UTS. UTS claims that the termination meeting was conducted in a respectful manner, and Mr. Groves has provided no evidence to the contrary.

[117] No doubt, the sudden and unceremonious termination was deeply disappointing to Mr. Groves and could have been conducted in a more sensitive manner. UTS treated Mr. Groves as an employee rather than the person who founded and built the company over twenty-five years. There was little regard for his relationships or reputation among other employees and clients. Nonetheless, without more, I cannot find that UTS’s manner of termination was a breach of the duty of good faith. UTS was not obligated to craft a joint statement with Mr. Groves. The cases in which bad faith was found involved more egregious conduct, such as litigation misconduct or unsubstantiated allegations of dishonesty: Ruston; Avelin v. Aya Lasers Inc., 2018 BCSC 2313, 300 A.C.W.S. (3d) 307; Davies v. Shineray Supplies Group Inc., 2017 BCSC 304, 277 A.C.W.S. (3d) 542. Without more, I find that this manner of termination falls short of the type of bad faith that would give rise to an entitlement to moral damages.

Conclusion

[118] Based on the foregoing, I grant the Plaintiff’s motion for summary judgment and dismiss the Defendant’s cross-motion for summary judgment. I remain seized to address any issues in respect of damages, in particular, the quantification of lost bonus potential and mitigation.

Costs

[119] Counsel for the parties each submitted costs outlines at the hearing of the motion. Since it appears that an offer to settle may need to be taken into consideration, counsel will be provided with the opportunity to make costs submissions. Needless to say, counsel are encouraged to agree on costs.

[120] In the event that no agreement is reached, Plaintiff’s counsel shall submit their costs submissions within seven days of the release of these Reasons. The Defendant’s responding costs submissions are due within seven days of receiving the Plaintiff’s cost submissions. No costs submissions are to exceed three pages. If no costs submissions are received within this time frame, the parties will be deemed to have resolved costs.

Nishikawa J.

Released: September 27, 2019

COURT FILE NO.: CV-18-598494

DATE: 20190927

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Wayne Groves

Plaintiff

– and –

UTS Consultants Inc.

Defendant

REASONS FOR JUDGMENT

Nishikawa J.

Released: September 27, 2019