Gula v. Freed Developments Ltd.

Ontario Reports

Ontario Superior Court of Justice

Ramsay J.

December 10, 2020

154 O.R. (3d) 604 | 2020 ONSC 6463

Case Summary

Civil procedure — Interest — Prejudgment interest — Applicant's employment contract stipulating amount of compensation for termination without cause — Applicant terminated without cause and claiming lump sum payment of 11 months' severance not subject to mitigation, plus benefits and bonus — No duty to mitigate as parties had specified notice period with no reference in contract to mitigation — Ambiguity in contract in determining amount of severance resolved in favour of applicant's calculation of 11 months — Common law presumption of lump sum payment not displaced — Applicant entitled to benefits and bonus as stipulated in contract, plus prejudgment interest from date cause of action arose. [page605]

Contracts — Interpretation — Ambiguity — Contra proferentem rule — Applicant's employment contract stipulating amount of compensation for termination without cause — Applicant terminated without cause and claiming lump sum payment of 11 months' severance not subject to mitigation, plus benefits and bonus — No duty to mitigate as parties had specified notice period with no reference in contract to mitigation — Ambiguity in contract in determining amount of severance resolved in favour of applicant's calculation of 11 months — Common law presumption of lump sum payment not displaced — Applicant entitled to benefits and bonus as stipulated in contract, plus prejudgment interest from date cause of action arose.

Employment — Wrongful dismissal — Damages — Benefits — Mitigation — Notice — Applicant's employment contract stipulating amount of compensation for termination without cause — Applicant terminated without cause and claiming lump sum payment of 11 months' severance not subject to mitigation, plus benefits and bonus — No duty to mitigate as parties had specified notice period with no reference in contract to mitigation — Ambiguity in contract in determining amount of severance resolved in favour of applicant's calculation of 11 months — Common law presumption of lump sum payment not displaced — Applicant entitled to benefits and bonus as stipulated in contract, plus prejudgment interest from date cause of action arose.

The applicant's employment contract of indefinite term stipulated that upon termination without cause he would be entitled to compensation equivalent to six months' base salary and benefits, plus one additional month of salary and benefit continuation for every additional year of employment or portion thereof beyond the first year, to a maximum of 15 months, plus the pro-rata share of all eligible bonus plans in place at the time of termination. He had been working for 68 months when his employment was terminated without cause. The respondent paid the applicant his entitlements under the Employment Standards Act in accordance with its payroll practice. The applicant found a similar job with equivalent earnings within the contractual notice period. He claimed to be entitled to a lump sum payment of 11 months' severance as liquidated damages less statutory entitlement paid, not subject to mitigation. He calculated the entitlement based on six months for his first year of employment, plus five months for the four years and a portion that he worked beyond that. The respondent's position was that the applicant was entitled to ten months' severance less statutory entitlements, subject to a reduction for mitigation. The applicant brought an application under rule 14.05 of the Rules of Civil Procedure for a determination of his rights under the employment contract.

Held,the application should be allowed.

The applicant was under no duty to mitigate. The parties contracted out of the common law by specifying the notice period, or pay in lieu of notice, and the employment contract made no reference to mitigation.

The applicant was entitled to 11 months of severance. The wording of the employment contract, drafted by the respondent, created an ambiguity to be resolved in favour of the applicant.

The severance was to be paid in a lump sum. The presumption at common law was that damages in wrongful dismissal cases were to be awarded in a lump sum. That presumption was not displaced by anything in the Courts of Justice Act. [page606]

The applicant was entitled to receive a project bonus of $177,500. The bonus was based on the project IRR, which the parties agreed was 15.7 per cent. The respondent argued that the calculation of the bonus ought to be based on the actual IRR at the end of the project of 14.94 per cent, but the agreement was clear and unambiguous and the respondent could not resile from it.

The applicant was entitled to all compensation and benefits that he would have earned during the notice period. That term of the contract was subject to the continuing approval of the insurance carrier. There was no evidence as to the identity of the group insurer or whether it had or would approve the continued coverage, nor any evidence of the value of such coverage.

The applicant was entitled to prejudgment interest from the date the cause of action arose.

Stevens v. Globe and Mail (1996), 1996 10215 (ON CA), 28 O.R. (3d) 481, [1996] O.J. No. 1614, 135 D.L.R. (4th) 240, 90 O.A.C. 361, 19 C.C.E.L. (2d) 153, 96 CLLC para. 210-036, 63 A.C.W.S. (3d) 73 (C.A.), apld

Howard v. Benson Group Inc. (2016), 129 O.R. (3d) 677, [2016] O.J. No. 1814, 2016 ONCA 256, 348 O.A.C. 381, 264 A.C.W.S. (3d) 665, 31 C.C.E.L. (4th) 18, 397 D.L.R. (4th) 485, consd

Bowes v. Goss Power Products Ltd., [2012] O.J. No. 2811, 2012 ONCA 425, 293 O.A.C. 1, 99 C.C.E.L. (3d) 152, 351 D.L.R. (4th) 219, [2012] CLLC para. 210-038, 216 A.C.W.S. (3d) 103, folld

Neilson v. Vancouver Hockey Club Ltd., [1988] B.C.J. No. 584, 1988 3051, 51 D.L.R. (4th) 40, [1988] 4 W.W.R. 410, 25 B.C.L.R. (2d) 235, 20 C.C.E.L. 155, 9 A.C.W.S. (3d) 199 (C.A.), not folld

Other cases referred to

Andrews v. Ottawa Community Housing Corp., 2003 23361 (S.C.J.); Arthur Andersen Inc. v. Toronto-Dominion Bank (1994), 17 O.R. (3d) 363, [1994] O.J. No. 427, 71 O.A.C. 1, 14 B.L.R. (2d) 1, 13 C.L.R. (2d) 185, 1994 729, 46 A.C.W.S. (3d) 478 (C.A.); Bain v. UBS Securities Canada Inc., [2018] O.J. No. 1013, 2018 ONCA 190, 289 A.C.W.S. (3d) 550, 46 C.C.E.L. (4th) 50, 2018 CLLC para. 210-039; Bardal v. Globe & Mail Ltd., [1960] O.J. No. 149, 24 D.L.R. (2d) 140, [1960] O.W.N. 253, 1960 294 (H.C.J.); Bowes v. Goss Power Products Ltd., [2011] O.J. No. 3411, 2011 ONSC 4445, [2011] CLLC para. 210-044, 95 C.C.E.L. (3d) 288, 205 A.C.W.S. (3d) 687 (S.C.J.); Brown v. Pronghorn Controls Ltd., [2011] A.J. No. 1233, 2011 ABCA 328, 515 A.R. 128, 344 D.L.R. (4th) 1, 209 A.C.W.S. (3d) 563, 61 Alta. L.R. (5th) 378; Ceccol v. Ontario Gymnastic Federation (2001), 2001 8589 (ON CA), 55 O.R. (3d) 614, [2001] O.J. No. 3488, 204 D.L.R. (4th) 688, 149 O.A.C. 315, 11 C.C.E.L. (3d) 167, [2002] CLLC para. 210-007, 2001 8589, 107 A.C.W.S. (3d) 1015 (C.A.); Chang v. Simplex Textiles Ltd., [1985] O.J. No. 16, 7 O.A.C. 137, 6 C.C.E.L. 247 (C.A.); Christensen v. Family Counselling Centre of Sault Ste Marie and District, 2001 4698 (ON CA), [2001] O.J. No. 4418, 151 O.A.C. 35, 12 C.C.E.L. (3d) 165, [2002] CLLC para. 210-014, 109 A.C.W.S. (3d) 433, 2001 4698 (C.A.); Clarke v. Insight Components (Canada) Inc., [2008] O.J. No. 5025, 2008 ONCA 837, 70 C.C.E.L. (3d) 13, 243 O.A.C. 196, 173 A.C.W.S. (3d) 493; Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, 112 D.L.R. (3d) 49, 32 N.R. 488, [1980] I.L.R. para. 1-1176, 1 A.C.W.S. (2d) 169; Correa v. Dow Jones Markets Canada Inc. (1997), 1997 12268 (ON SC), 35 O.R. (3d) 126, [1997] O.J. No. 3356, 41 O.T.C. 85, 30 C.C.E.L. (2d) 248, 73 A.C.W.S. (3d) 456 (Gen. Div.); Eady v. Treklogic Technologies Inc., [2009] O.J. No. 4118, 2009 ONCA 710, 183 A.C.W.S. (3d) 432, affg [2008] O.J. No. 1693, 167 A.C.W.S. (3d) 84, 2008 19785 [page607] (S.C.J.); Freudenberg Household Products Inc. v. Digiammarino, [2012] O.J. No. 4868, 2012 ONSC 5725 (S.C.J.); Graham v. Marleau, Lemire Securities Inc., 2000 22616 (ON SC), [2000] O.J. No. 383, [2000] O.T.C. 92, 49 C.C.E.L. (2d) 289, [2000] CLLC para. 210-034, 94 A.C.W.S. (3d) 686, 2000 22616 (S.C.J.); Leeming v. IBM Canada Ltd., [2015] O.J. No. 1020, 2015 ONSC 1447 (S.C.J.); Machtinger v. HOJ Industries Ltd. (1992), 1992 102 (SCC), 7 O.R. (3d) 480, [1992] 1 S.C.R. 986, [1992] S.C.J. No. 41, 91 D.L.R. (4th) 491, 136 N.R. 40, J.E. 92-783, 53 O.A.C. 200, 40 C.C.E.L. 1, 92 CLLC para. 14,022, 1992 102, 33 A.C.W.S. (3d) 256; Michaels v. Red Deer College, 1975 15 (SCC), [1976] 2 S.C.R. 324, [1975] S.C.J. No. 81, 57 D.L.R. (3d) 386, 5 N.R. 99, [1975] 5 W.W.R. 575, 75 CLLC para. 14,280; Nemeth v. Hatch Ltd., [2018] O.J. No. 145, 2018 ONCA 7, 287 A.C.W.S. (3d) 291, 418 D.L.R. (4th) 542, 44 C.C.E.L. (4th) 19, 2018 CLLC para. 210-026; Oudin v. Centre Francophone de Toronto Inc., [2016] O.J. No. 3512, 2016 ONCA 514, 268 A.C.W.S. (3d) 95, 34 C.C.E.L. (4th) 271, affg [2015] O.J. No. 5613, 2015 ONSC 6494, 27 C.C.E.L. (4th) 86, 260 A.C.W.S. (3d) 281, [2016] CLLC para. 210-010 (S.C.J.) [Leave to appeal to S.C.C. refused [2016] S.C.C.A. No. 391]; Paquette v. TeraGo Networks Inc., [2016] O.J. No. 4222, 2016 ONCA 618, 269 A.C.W.S. (3d) 495, 34 C.C.E.L. (4th) 26, 28 C.C.P.B. (2d) 1, 352 O.A.C. 1; Scanlon v. Castlepoint Development Corp. (1992), 11 O.R. (3d) 744, [1992] O.J. No. 2692, 99 D.L.R. (4th) 153, 59 O.A.C. 191, 29 R.P.R. (2d) 60, 1992 7745, 37 A.C.W.S. (3d) 563 (C.A.); Scharff v. Sears Canada Inc., [2017] O.J. No. 6169, 2017 ONSC 6757 (S.C.J.); Stevenson v. Reliance Petroleum Ltd., 1956 27 (SCC), [1956] S.C.R. 936, [1956] S.C.J. No. 68, 5 D.L.R. (2d) 673, [1956] I.L.R. para. 1-238

Statutes referred to

Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 116 [as am.], 128(1)

Employment Standards Act, 2000, S.O. 2000, c. 41 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 14.05

APPLICATION for determination of rights under employment contract.

Chris Foulon and Behzad Hassibi, for plaintiff.

Stephen Bernofsky, for defendants.

[1] RAMSAY J.: — The applicant, Barry Gula (the "applicant"), brings this application under rule 14.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, seeking a determination of his rights under an employment contract entered into with his former employer, Freed Development Ltd. ("Freed").

Overview

[2] The applicant was hired in November 2013 and commenced employment with Freed in January 2014 pursuant to a written employment agreement. The contract was for an indefinite term of employment. The contract included a provision for determining the applicant's severance or payment in lieu of notice if the applicant was terminated without cause. The severance would be [page608] inclusive of the applicant's entitlements under the Employment Standards Act, 2000, S.O. 2000, c. 41 ("ESA").

[3] The employment contract, drafted by Freed, makes no reference to mitigation nor the manner in which payment was to be made upon termination, i.e., periodic payments or a lump sum payment.

[4] The applicant's employment was terminated without cause in September 2019. With Freed's assistance, the applicant successfully found a consulting job almost immediately afterwards, and within the contractual notice period, with earnings equivalent to what he had been earning before. Freed paid the applicant his entitlements under the ESA in accordance with Freed's payroll practice.

[5] The applicant submits that he is entitled to a lump sum payment of 11 months' severance, or $148,076.94, as liquidated damages (less statutory entitlement paid), which is not subject to mitigation as the employment agreement stipulated a notice period and was silent with respect to mitigation. The applicant argues there should be no deduction for having mitigated his loss.

[6] Freed submits that the applicant was entitled to ten months' severance less his statutory entitlements under the ESA, subject to a reduction for mitigation.

[7] The applicant is also claiming entitlement to a bonus of $177,500 said to be owing under the employment contract. Freed does not dispute that the applicant is owed a bonus but argues that the amount owing is $136,750.

[8] The issue raised by this application are as follows:

(i) Where the employment contract includes a fixed term of notice, does the duty to mitigate apply to the calculation of damages?

(ii) Is the applicant entitled to severance as a lump sum payment or does Freed retain discretion to make periodic payments?

(iii) Is the employment contract to be interpreted to provide for a calculation of damages based on 11 months less statutory entitlements or ten months, less statutory entitlements?

(iv) What is the quantum of a bonus, if any is the applicant entitled to receive?

(v) Is the applicant entitled to continuation of all benefits during the notice period (or damages in lieu of such continuation?

(vi) When does prejudgment interest start to run on any damages awarded? [page609]

The Facts

[9] In a letter dated November 20, 2013, Freed offered the applicant the position of Vice-President of Development and Engineering. The applicant accepted Freed's offer on November 25, 2013 (the "employment contract") and started his position on January 6, 2014.

[10] The employment contract provided that if Freed were to terminate the applicant's employment without cause during the first 12 months of employment, the employer would have to pay "severance compensation" equivalent to six months base salary and benefits, contingent upon the insurer's approval. Beyond the first 12 months of employment, the employment contract stipulated that Freed would pay one additional month of base salary and benefit continuation for every additional year of employment or portion thereof beyond the first 12 months of employment, to a maximum of 15 months, plus the pro-rata share of all eligible bonus plan in place at the time of termination.

[11] The applicant was terminated without cause by letter of termination dated September 13, 2019. The termination letter indicated that Freed would pay the applicant five weeks' vacation pay and 11 weeks' severance pay required by the ESA. The letter further noted that Freed would continue to pay ten months' severance pay in accordance with its payroll practice in exchange for a Release. At the time of his termination, the applicant was earning a base salary of $210,000 annually, was entitled to a project bonus and had coverage under a comprehensive group benefits plan.

[12] Freed paid the applicant a lump sum payment with respect to his entitlements under the ESA, less deductions mandated by law, totalling $44,423.07.

[13] With the assistance of Freed, in September 2019, the applicant secured a consulting position with 2292446 Ontario Limited, as General Partner for and on behalf of 2131 Yonge Limited Partnership ("2292446"). 2292446 is the developer of the Art Shoppe construction project. The applicant received a monthly consulting fee of $17,500 which was equivalent to what he was earning when he was employed by Freed.

Analysis

Does the applicant have a duty to mitigate?

[14] The applicant submits that the common law has been displaced by the contractual severance notice term and argues that the contractually stipulated severance in the employment contract is equivalent to liquidated damages and is not subject to mitigation. The applicant argues the contract made no reference [page610] to mitigation and should not be read into the agreement between the parties.

[15] Freed argues that as a general principle of contract law the applicant was under a duty to mitigate his loss. Alternatively, Freed submits that even assuming there was no duty to mitigate, the fact that the applicant did mitigate his loss by obtaining an alternative position should be taken into account in the calculation of damages. At issue is whether the common law has been displaced by the agreement reached by the parties, and whether the parties should be held to their bargain.

[16] At common law, it is presumed that every employment contract of an indefinite term includes an implied term that an employer must provide an employee with reasonable notice prior to termination, if the termination is without cause: Machtinger v. HOJ Industries Ltd. (1992), 7 O.R. (3d) 480, [1992] 1 S.C.R. 986, [1992] S.C.J. No. 41, 1992 102, at pp. 990-91 S.C.R.; Bardal v. Globe & Mail Ltd., [1960] O.J. No. 149, 1960 294 (H.C.J.), at para. 12.

[17] The presumption is rebuttable "if the contract of employment clearly specifies some other period of notice, whether expressly or impliedly": Machtinger, at p. 998 S.C.R.; Ceccol v. Ontario Gymnastic Federation (2001), 55 O.R. (3d) 614, [2001] O.J. No. 3488, 2001 8589 (C.A.), at para. 45.

[18] It is settled law that as long as the minimum requirements under the ESA are met, parties are at liberty to contract out of the common law notice period (Machtinger v. HOJ Industries Ltd.).

[19] In order to displace the common law, the intention must be clear but no particular form of words is required in order to do so: Clarke v. Insight Components (Canada) Inc., [2008] O.J. No. 5025, 2008 ONCA 837, 243 O.A.C. 196; and Nemeth v. Hatch Ltd., [2018] O.J. No. 145, 2018 ONCA 7, 418 D.L.R. (4th) 542.

[20] It is not necessary for the parties to explicitly displace the common law, but any ambiguities about that intention will be resolved in favour of the employee. Nemeth v. Hatch Ltd., supra.

[21] In Bowes v. Goss Power Products Ltd., [2012] O.J. No. 2811, 2012 ONCA 425, at para. 25 ("Bowes"), Winkler C.J.O. noted that:

. . . parties to employment agreements can, and often do, substitute a fixed period of notice in the agreement, thereby displacing the common law period of "reasonable notice". Parties are entitled to do so provided that they do not violate the minimum statutory requirement relating to notice: see Machtinger v. HOJ Industries Ltd., 1992 102 (SCC), [1992] 1 S.C.R. 986, at pp. 998-1002.

[22] The doctrine of mitigation requires a terminated employee to take reasonable steps to reduce their loss: Michaels v. Red Deer College, 1975 15 (SCC), [1976] 2 S.C.R. 324, [1975] S.C.J. No. 81. [page611]

[23] The applicant relies on Bowes as the controlling authority for the position that where an employer and an employee agree to a specified or fixed term of notice in the employment contract, the common law is displaced, and an employee who is, terminated without cause is entitled to compensation as liquidated damages, and is not under any obligation to mitigate.

[24] In Bowes, just as in the present case, the employment contract was for an indefinite term. Just as in this case, similarly, the contract in Bowes specified the period of notice and was silent with respect to mitigation. In Bowes, the employee was dismissed without cause but found a new job with an equivalent salary two weeks later. Similarly, in this case, the applicant found another position the same month he was terminated. In both cases, the employee was terminated without cause. And in Bowes, as in the present case, the employer refused to pay the agreed upon sum on the basis that the employee had mitigated his damages.

[25] Chief Justice Winkler explained in Bowes that a fixed term of notice or payment in lieu is not akin to common law damages for reasonable notice. He stated, at para. 34 that: "An employment agreement that stipulates a fixed term of notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages."

[26] In Bowes, the application judge had followed Graham v. Marleau, Lemire Securities Inc., [2000] O.J. No. 383, 2000 22616 (S.C.J.) ("Graham"). Chief Justice Winkler commented that both the judge in "Graham, and the application judge in this case, erred by treating a contractually fixed term of notice as effectively indistinguishable from common law reasonable notice", at para. 36. Freed is relying on Graham despite the fact that it has been expressly overruled by the Ontario Court of Appeal.

[27] As stated by Winkler C.J.O. in Bowes: "It is well-settled law that employment agreements are subject to the ordinary principles of contract law", Bowes, at para. 23.

[28] After a review of the jurisprudence at the appellate level across the country, Winkler C.J.O. explained in Bowes, at para. 37, that "(d)amages for contractually stipulated notice or pay in lieu should not be analogized directly to damages for common law reasonable notice". He cited the following passage from the Alberta Court of Appeal decision of Brown v. Pronghorn Controls Ltd., [2011] A.J. No. 1233, 2011 ABCA 328, at para. 47 in support of the court's conclusion:

If the contract entitles the employee to payment of money, howsoever calculated, on termination, that right to that money is contractual. As such, the parties were not bound to specify an entitlement that is equal or even [page612] analogous to the quantum of reasonable notice that the common law might require if the contract was silent.

[29] Whether the stipulated notice term is characterized as liquidated damages or a contractual sum is irrelevant as mitigation applies in neither case: Bowes, at para. 48. Parties are at liberty in those circumstances to expressly agree that mitigation applies as "no presumption exists in law necessitating that it must be contracted away expressly": Bowes, at para. 49. The application judge in Bowes had determined that the principle of mitigation applied generally to the calculation of damages and was not ousted by the fact the parties had agreed on the notice period of reasonable notice. The Court of Appeal disagreed, explaining that [at para. 55]:

It is worthy of emphasis that, in most cases, employment agreements are drafted primarily, if not exclusively, by the employer. In my view, there is nothing unfair about requiring employers to be explicit if they intend to require an employee to mitigate what would otherwise be fixed or liquidated damages. In fact, what is unfair is for an employer to agree upon a fixed amount of damages, and then, at the point of dismissal, inform the employee that future earnings will be deducted from the fixed amount.

(Emphasis added)

[30] In Howard v. Benson Group Inc. (2016), 129 O.R. (3d) 677, [2016] O.J. No. 1814, 2016 ONCA 256 ("Howard"), the Court of Appeal considered whether a terminated employee with a fixed term contract had a duty to mitigate where the employment contract did not have an enforceable early termination clause. The employee had a five-year fixed-term employment agreement which was terminated by the employer after two years. Howard was found to be entitled to his salary and benefits for the balance of the contract because a fixed-term contract "specifies the penalty for early termination": Howard, at para. 39.

[31] The court concluded that an employee is not under an obligation to mitigate where the employment contract sets out the penalty for breach of contract. "In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term and that obligation will not be subject to mitigation": Howard, at para. 44.

[32] In Howard, though it involved a fixed term contract as opposed to a contract with a fixed notice term, it is noteworthy that Miller J.A. makes no distinction in his comment on the applicability, or not, of the principle of mitigation in these cases, stating at para. 43:

In Graham, Nordheimer J. exhaustively canvassed the case law on the question of whether a contractual sum payable on termination of employment is [page613] subject to the duty to mitigate. After observing that there were competing lines of authority, he concluded at para. 50 that the duty to mitigate applied to both fixed term contracts and contracts of indefinite duration. Graham, however, has been overtaken on this point by Bowes (emphasis added). At paras. 34-37, the Bowes court wrote:

An employment agreement that stipulates a fixed term of notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages.

[33] Both Bowes and Howard make clear that parties are at liberty to displace the presumption of the application of the common law in contracts involving an indefinite term as well. In Howard, Millar J.A. explained [at para. 44]:

In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation. Just as parties who contract for a specified period of notice (or pay in lieu) are contracting out of the common law approach in Bardal v. Globe & Mail Ltd. (1960), 1960 294 (ON SC), 24 D.L.R. (2d) 140 (Ont. H.C.), so, too, are parties who contract for a fixed term without providing in an enforceable manner for any other specified period of notice (or pay in lieu).

(Emphasis added)

[34] Bardal involved a contract of indefinite term though the issue of mitigation was not before the court.

[35] In Freudenberg Household Products Inc. v. DiGiammarino, [2012] O.J. No. 4868, 2012 ONSC 5725 (S.C.J.), the issue before the court was whether the applicant was entitled to receive two years' salary plus bonuses stipulated in her employment contract in the event that she was terminated within four years of the contract. The court found that she was, and on the issue of mitigation, at paras. 10 and 11, Morawetz J., as he then was, noted that:

On the issue of mitigation, Bowes v. Goss Power Products Limited, 2012 ONCA 425 is the controlling authority. The Court of Appeal held that where an employment contract contains a stipulated entitlement on termination without cause and is silent as to the obligation to mitigate, the employee will not be required to mitigate. That is the situation that faces the parties. There is no duty on the Respondent to mitigate.

In the result, I have determined that paragraph 7 of the Employment Contract applies. A lump sum payment for the two-year period including bonuses and benefits is payable.

[36] As Winkler C.J.O. noted in Bowes, at para. 62, "it is worth repeating that if parties who enter into an employment agreement specifying a fixed amount of damages intend for mitigation to apply upon termination without cause, they must express such an intention in clear and specific language in the contract" (emphasis added). [page614]

[37] In Bowes, at para. 61, Winkler C.J.O., after an extensive review of the jurisprudence including several court of appeal decisions from other jurisdictions, pulled together the following principles from the cases:

-- By contracting for a fixed sum the parties have contracted out of the Bardal "reasonable notice" approach or damages in lieu thereof. There is no material difference whether the quantum contracted for is fixed or readily calculable from the terms of the agreement.

-- By specifying an amount, the stipulated quantum is characterized as either liquidated damages or a contractual sum.

-- Mitigation is a live issue at law only where damages are at large, i.e. damages in lieu of reasonable notice. Mitigation is not applicable if the damages are either liquidated or a contractual sum.

-- It would be unfair to permit an employer to opt for certainty by specifying a fixed amount of damages and then allow the employer to later seek to obtain a lower amount at the expense of the employee by raising an issue of mitigation that was not mentioned in the employment agreement.

-- It is counter-intuitive and inconsistent for the parties to contract for certainty and finality, and yet leave mitigation as a live issue with the uncertainty, lack of finality, risk and litigation that would ensue as a consequence.

-- Thus, where an agreement provides for a stipulated sum upon termination without cause and is silent as to the obligation to mitigate, the employee will not be required to mitigate.

-- Moreover, a broad release in an employment agreement, as here, demonstrates an intention to avoid resort to the courts, confirms a desire for finality, and bolsters a finding that the parties intended that mitigation would not be required unless the agreement expressly stipulates to the contrary.

(Emphasis added)

[38] Freed relies on Graham which has been overruled by Bowes. Freed also relies on Neilson v. Vancouver Hockey Club Ltd., [1988] B.C.J. No. 584, 1988 3051 (C.A.) ("Neilson"), which is at odds with the Ontario Court of Appeal decision of Howard. Neilson also involved an employment contract with a fixed term, and not as is the present case, a contract with an indefinite term with a fixed notice period. Neilson is relied upon by Freed for the proposition that the applicant had a duty to mitigate his damages. Neilson was not cited by the Ontario Court of Appeal in either Howard or Bowes, the latter being the controlling decision. In Neilson, Seaton J. concluded that where there is a fixed-term contract, unless the contract provides otherwise, the employer derives the benefit of mitigation. This, too, is at odds with the Ontario Court of Appeal decision of [page615] Howard, on this point, as the facts in Howard are similar to the facts in Neilson.

[39] In Neilson, Seaton J. concluded that the employee's damages for unpaid wages for the unexpired term of a fixed term contract, would be subject to deduction, absent a provision in the contract. In Howard, the Ontario Court of Appeal came to the exact opposite conclusion. The presumptive application of the doctrine of mitigation espoused in Neilson, which Freed urges should apply as a general principle of contract law, is directly at odds with Bowes (indefinite term with stipulated notice period and no reference to mitigation in the contract) and Howard (fixed-term contract and an unenforceable early termination clause).

[40] The court accepts the applicant's position that having contracted out of the common law by specifying the notice period, or pay in lieu of notice, if the applicant were to be terminated without cause, the employment contract making no reference to mitigation, the applicant was under no duty to mitigate his damages.

[41] The applicant is entitled to the sum stipulated in the employment contract, upon being terminated without notice.

The amount of the severance

[42] The applicant takes the position that he is owed 11 months' severance, whereas Freed takes the position he is owed ten months, subject to mitigation. The applicant submits that there is no ambiguity in the language used by Freed in the termination clause, and if there was, the ambiguity must be construed against Freed, the drafter of the employment contract.

[43] On the issue of the number of months of severance, the language used by Freed in drafting the termination clause must be interpreted.

[44] The applicant was employed with Freed from January 6, 2014 to September 13, 2019. The applicant contends that after the completion of the first 12 months of employment (January 6, 2015), he was employed for an additional 4.67 years.

[45] The termination clause in the employment contract provides:

In the event that Freed terminates this agreement and your employment without cause during the first twelve (12) months of employment, Freed agrees to pay severance compensation to you equivalent to six (6) months' base salary and subject to continuing insurance career approval benefits, calculated using your current base salary and employment benefits at the time of termination but excluding the Project Bonus or any other bonus.

After the completion of the first twelve (12) months of employment, in the event that Freed terminates this agreement and your employment, Freed agrees to pay you one (1) additional month of base salary and subject to the [page616] continuing approval of the insurance carrier, benefits, per each additional year of employment or portion thereof beyond the first twelve months of employment, to a maximum of fifteen (15) months, plus the pro-rata share of any eligible bonus plan or plans in place at the time of termination.

(Emphasis added)

[46] Where there is an ambiguity in a contract that cannot be resolved by resort to the other rules of construction, the contra proferentem rule may apply, and the language of the contract will be construed against the party that drafted the provision: Stevenson v. Reliance Petroleum Ltd., [1956] S.C.R. 936, [1956] S.C.J. No. 68, 1956 27; Scanlon v. Castlepoint Development Corp. (1992), 11 O.R. (3d) 744, [1992] O.J. No. 2692, 1992 7745 (C.A.); Arthur Andersen Inc. v. Toronto-Dominion Bank (1994), 17 O.R. (3d) 363, [1994] O.J. No. 427, 1994 729 (C.A.).

[47] The contra proferentem rule mandates that where there is an ambiguity, the more favourable interpretation is given to the non-drafting party: Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, at pp. 899 and 900 S.C.R.

[48] The contra proferentem principle applies only where there is a genuine ambiguity: Oudin v. Centre Francaphone de Toronto Inc., [2015] O.J. No. 5613, 2015 ONSC 6494, 27 C.C.E.L. (4th) 86 (S.C.J.), affd [2016] O.J. No. 3512, 2016 ONCA 514, 34 C.C.E.L. (4th) 271, leave to appeal to S.C.C. refused [2016] S.C.C.A No. 391.

[49] If a termination clause could be interpreted in more than one way, the court should select the interpretation that favours the employee: Ceccol v. Ontario Gymnastics Federation, supra, and Christensen v. Family Counselling Centre of Sault Ste. Marie and District, [2001] O.J. No. 4418, 2001 4698, 151 O.A.C. 35 (C.A.).

[50] The word "completed" has been used in other cases to clearly express the employer's intention: Scharff v. Sears Canada Inc., [2017] O.J. No. 6169, 2017 ONSC 6757 (S.C.J.), at para. 73; Leeming v. IBM Canada Ltd., [2015] O.J. No. 1020, 2015 ONSC 1447 (S.C.J.), at para. 5.

[51] It is not clear that giving effect to the plain and ordinary meaning of the phrase "each additional year of employment or portion thereof" would achieve the result of giving meaning to the intention of the parties.

[52] On the face of it, there is some ambiguity in the language used by Freed and therefore the rule of contra proferentem would apply as the intention of the parties cannot be readily ascertained by giving effect to the ordinary meaning of the words. It is not clear whether Freed intended for the completion of a portion [page617] a year would result in the applicant being entitled to an additional month of base salary upon termination without cause.

[53] As Freed drafted the contract, the ambiguity should be construed in favour of the applicant. The applicant was entitled to 11 months of severance when he was terminated in September 2019.

Lump sum or periodic payments

[54] The contract is silent on how payment is to be made upon termination. The applicant submits that he is entitled to be paid a lump sum payment for pay in lieu of notice as stipulated in the agreement. Freed submits that the employer has discretion to make periodic payments and did so with respect to payment of the applicant's ESA entitlement.

[55] The cause of action for breach of employment contract occurs in this instance when the applicant is terminated without cause. Freed has not provided me with any authority to support its position that it has discretion to periodic payments upon termination without cause in the absence of the consent of the applicant.

[56] At common law, there is a presumption that damages in wrongful dismissal cases will be awarded in a lump sum. In Correa v. Dow Jones Markets Canada Inc. (1997), 1997 12268 (ON SC), 35 O.R. (3d) 126, [1997] O.J. No. 3356 (Gen. Div.), Sanderson J. commenting on the common law principles of damages, noted that the courts in Ontario do not have jurisdiction to make an order for salary continuance. She cited the following passage from MacGregor on Damages [at para. 51]:

At common law damages have historically been paid by a once and for all lump sum payment. The authors of MacGregor in MacGregor on Damages, 15th ed. (London: Sweet & Maxwell, 1988), have said at ss. 1:

Damages are the pecuniary compensation, obtainable by success in an action, for a wrong which is either a tort or a breach of contract, the compensation being in the form of a lump sum which is awarded unconditionally . . .

And at ss. 1795:

The award must be in the form of a lump sum for which judgment is entered. No other form of final award is allowed to the court, so that in Fournier v. Canadian National Ry. [1926 549 (UK JCPC), [1927] A.C. 167 (P.C.)] it was held to be improper and illegal to award an annuity by way of damages; however, in Metcalfe v. L.P.T.B. [[1938] 2 All E.R. 352] McNaughten J. said that a pension could be awarded to the plaintiff with the consent of the parties . . .

[57] Aside from the common law principle of damages, s. 116 of the Courts of Justice Act, R.S.O. 1990, c. C.43 grants the court [page618] jurisdiction to make an order for periodic payments in the case of a personal injury or medical malpractice actions but makes no reference to other civil actions. In the absence of any reference to other types of civil actions, the common law presumption of awarding a lump sum award is not displaced.

[58] Courts in fact have routinely awarded lump sum awards in wrongful dismissal actions: Andrews v. Ottawa Community Housing Corp., 2003 23361, at para. 27; Freudenberg Household Products Inc. v. DiGiammarino, supra, at paras. 2 and 5-6; Eady v. TrekLogic Technologies Inc., [2008] O.J. No. 1693, 2008 19785 (S.C.J.), at para. 141, affd [2009] O.J. No. 4118, 2009 ONCA 710; Bowes v. Goss Power Products Ltd., [2011] O.J. No. 3411, 2011 ONSC 4445 (S.C.J.), at para. 35. (The trial judge found that "[t]here is some suggestion in the caselaw that a lump sum obligation may be implied where there is no duty to mitigate as the damages crystallize at the point of discharge". This aspect of the case was not appealed.)

[59] The court finds that the applicant was entitled to receive a lump sum payment for severance upon being terminated without cause and is entitled to a lump sum award.

Project bonus

[60] The parties concede that the applicant is entitled to a bonus. The sole issue is the quantum.

[61] The applicant takes the position that he is due a bonus which became payable on the date of termination or as of the date of the final closing.

[62] The employment contract provides as follows with respect to the project bonus:

Remuneration: You will be eligible for a Project Bonus of up to $300,000 in relation to the Project located at 2131 Yonge Street: 35% payable upon the start of construction and the balance payable upon the final closing of condominium sales, subject to predetermined, pre-tax IRR for the Project. The target IRR for the Project Bonus will be mutually agreed by you and Freed upon the conclusion of the Project's re-zoning. For each 1% of Project IRR above (below) the predetermined Project IRR, your bonus will be increased (decreased) by $50,000. In the event the pre-tax IRR of the Project is less than 10%, the bonus shall be at the discretion of Freed and the above formula shall not apply . . .

[63] It is not disputed that when the Project IRR increased from 15.7 per cent to 16.9 per cent, the project bonus increased from $300,000 to $350,000.

[64] The applicant received a letter dated November 23, 2016 from Freed confirming the increase in the Project Bonus from $300,000 to $350,000. The letter stated: [page619]

Please accept this letter as confirmation that the first instalment of your employee incentive compensation bonus has been approved, in the amount of $122,500. This represents 35% of $350,000, calculated in accordance with the target Project IRR formula for the 2131 Yonge Project. The effective date for the bonus payment obligation by Freed Developments Ltd. is April 16, 2016. Freed will pay you the bonus plus accrued interest based upon an agreed rate of 12% per annum, compounded annually. It remains Freed's intention to pay this bonus to you prior to the end of 2016.

Interest will continue to accrue on any outstanding balance, until the bonus has been paid in full.

[65] In the third quarter of 2019, the Project IRR was stated at 15.68 per cent with the forecasted Project IRR revised to 15.57 per cent, i.e., the Project Bonus would be $300,000, not the earlier forecasted $350,000.

[66] Freed and the applicant that the IRR Project Bonus was 15.7 per cent.

[67] Counsel for the parties agree that the bonus was non-discretionary (i.e., the discretionary provision of the contract was not triggered).

[68] Counsel for Freed conceded during oral submissions that as the parties had already agreed that the IRR was 15.7, there was no way around it. Freed however urges the court to consider the actual IRR at the end of the project in the calculation of the project bonus.

[69] In November 2016, Freed paid the applicant 35 per cent of the IRR project Bonus in the amount of $122,500. The applicant takes the position that he is entitled to $177,500 as a bonus, i.e., $300,000 less the $122,500 already paid.

[70] Freed submits that the balance of the project bonus owing to the applicant is $136,750. The employer submits that the actual IRR of 14.94 per cent should be used, instead of the 15.7 per cent agreed to by the parties resulting in a balance due of $136,750 for the IRR bonus, calculated as follows:

Bonus Limit - $300,000

IRR - 15.68%

Actual IRR 14.94%

Variance -0.74%

1% increase $50,000

1% decrease ($50,000)

Decrease - (-$37,000)

Net Balance - $263,000

Payments - $126,500

Balance - $136,750

[page620]

[71] The agreement between the parties is clear and unambiguous. There was no reference to taking into account the "actual" IRR. Moreover, Freed cannot now resile from its agreement with the applicant that the Project IRR was 15.7 per cent. Having done so, it is simply a mathematical calculation at the time of final closing. For the reasons above, the court accepts the applicant's calculation and reject's Freed's calculation.

[72] The applicant is entitled to receive a project bonus of $177,500, which became due and owing on the date of final closing in June 2020. The project bonus attracts interest in accordance with the agreement made by the parties in the employment contract.

Continuation of benefits

[73] The applicant sought a continuation of all benefits during the 11-month notice period, or damages in lieu of such continuation. No particulars for out-of-pocket cost for providing the benefits were provided. The employment contract also provided, as part of the notice term that "Freed agrees to pay you one (1) additional month of base salary and subject to the continuing approval of the insurance carrier, benefits, per each additional year of employment or portion thereof beyond the first twelve months of employment, to a maximum of fifteen (15) months." There is no evidence of who the group insurer is and whether the insurer has or would approve the continued coverage.

[74] The applicant is entitled to include all compensation and benefits that he would have earned during the notice period: Paquette v. TeraGo Networks Inc., [2016] O.J. No. 4222, 2016 ONCA 618, 352 O.A.C. 1, at para. 16. There is nothing to assist the court on the value, if any, of the continued coverage.

Prejudgment interest

[75] The issue of prejudgment interest is linked to the dispute between the parties regarding periodic payments or a lump sum payment. In Stevens v. Globe & Mail (1996), 1996 10215 (ON CA), 28 O.R. (3d) 481, [1996] O.J. No. 1614 (C.A.) at paras. 31-33, the Court of Appeal accepted the trial judge's approach which rejected the installment argument in favour of the lump sum argument. Justice Catzman cited with approval Morden J.A.'s decision in Chang v. Simplex Textiles Ltd., [1985] O.J. No. 16, 7 O.A.C. 137 (C.A.) in which the predecessor section to s. 128(1) of the Courts of Justice Act, s. 138(1), was used to impose prejudgment interest on an entire amount from the date written notice of the action was provided. Justice Catzman indicated that s. 128(1) of the Courts of Justice Act provided that prejudgment interest is to be calculated [page621] [at para. 31] "from the date the cause of action arose" to the date of the order.

[76] Stevens was revisited by the Court of Appeal in Bain v. UBS Securities Canada Inc., [2018] O.J. No. 1013, 2018 ONCA 190, and the court declined to interfere with the trial judge's approach in calculating prejudgment interest stating at para. 27:

We are not prepared to interfere with the trial judge's determination of prejudgment interest in this case. In Chang v. Simplex Textiles Ltd. (1985), 7 OA.C. 137, this court adverted to the debate between the instalment approach and the lump sum approach to awards of prejudgment interest on damages for wrongful dismissal, and stated, at para. 16, that the trial judge's exercise of discretion should not be interfered with provided it had "a logical basis and [was] in general accord with similar but not identical dispositions in other unjust dismissal cases. This approach was cited with approval by this court in Stevens v. Globe & Mail (1996), 1996 10215 (ON CA), 28 O.R. (3d) 481 (C.A.), at para. 33.

[77] The applicant is therefore entitled to prejudgment interest on the above amounts from the date the cause of action arose regarding his claim for the contractually stipulated severance and the date cause of action arises with respect to the bonus.

The release

[78] Freed raised the issue of the applicant's refusal to execute a release contrary to his contractual obligations to do so. In the face of the dispute between the parties with respect to the interpretation of the applicant's rights under the employment contract, it was reasonable for the applicant to refuse to execute a release which would have barred him from resorting to the court to resolve any dispute.

Disposition

[79] For the above reasons, I make the following findings and orders set out below:

(i) The applicant is entitled to receive 11 months' notice being the contractual sum for severance totalling $148,076.94, less any less statutory entitlements

(ii) The applicant is not obliged to mitigate. There shall be no deduction from the contractual severance on account of the applicant mitigating his loss.

(iii) The applicant is entitled to be paid a lump sum and not periodic payments.

(iv) The applicant is entitled to a project bonus in the amount of $177,500 as contemplated by contract, plus interest cin accordance with the contract. [page622]

(v) The applicant was entitled to continuation of all benefits during the notice period subject to the continuing approval of the insurance carrier.

(vi) The applicant is entitled to prejudgment interest on his award for damages for his severance payment based on a lump sum amount for his contractual notice term.

Costs

[80] If the parties cannot agree on costs, they may make submissions in writing limited to no more than three pages. The applicant shall deliver his submission within 20 days of the release of these reasons for decision followed by the respondent's submissions within a further 20 days.

Application allowed.

End of Document