COURT FILE NO.: 16-68404
DATE: 20201125
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH HICKEY
Plaintiff
– and –
CHRISTIE & WALTHER COMMUNICATIONS LIMITED
Defendant
Janice B. Payne and Malini Vijaykumar, for the Plaintiff
Jock Climie and Erica Bennett, for the Defendant
HEARD: October 13, 15, 16, 19, 20, 21 and 22, 2020
MUSZYNSKI J.
[1] The Plaintiff, Joseph Hickey (“Mr. Hickey”), claims damages for breach of contract and wrongful dismissal for lost salary and incentive pay in the amount of $283,869.00 pursuant to his employment agreement with the Defendant, Christie & Walther Communications (“CWC”), and for lost benefits, including health and non-health benefits and pension contributions, unpaid vacation time of $10,027.31, together with pre-judgment interest and costs.
[2] CWC was in the radio communication business in Ontario prior to the asset sale of the company and change in control of the business to Turris Communications (“Turris”) on January 22, 2016. Turris is owned by three individuals: Rick Sullivan; John Wahba; and Ossama Bessada. Mr. Hickey was the Vice President of Sales at CWC from 2012 until he was terminated from his employment by CWC just over four years later on February 16, 2016. Mr. Hickey was offered new employment by Turris which Mr. Hickey ultimately rejected.
[3] Prior to Mr. Hickey’s termination, and particularly starting in 2015, he began to actively operate his own company, ROCK Networks Inc., which at the time was in the business of responding to government requests for proposals for procurement of goods. Counsel agree that, during the 12-month notice period, Mr. Hickey’s company had gross revenues of approximately $1.3 million and $345,000.00 in gross profit. There are serious credibility issues in relation to Mr. Hickey’s evidence about the operation of ROCK Networks both during the time that he was employed by CWC and during the notice period following his termination.
[4] CWC paid Mr. Hickey his 4-weeks’ notice in accordance with the Employment Standards Act, 2000, S.O. 200, c. 41 (“ESA”). Mr. Hickey, however, relies on a provision in his employment agreement with CWC that provides that he is entitled to 12-months’ notice in the event of immediate termination following a change in control of the business.
[5] The trial of this action took place virtually over Zoom due to the COVID-19 pandemic. The parties prepared a voluminous Joint Book of Documents and agreed that the documents contained therein were true copies of the originals. The parties did not agree to admit the truth of the contents of all the documents. Individual documents contained within the Joint Book of Documents were entered as individual trial exhibits once proven.
ISSUES
[6] The issues in this case are:
Did Mr. Hickey’s rejection of the employment offer from Turris constitute a failure of his duty mitigate such that CWC was relieved from paying 12-months’ notice?
What are the damages related to the 12-month notice period attributable to salary, health and non-health benefits, pension contributions, and vacation-pay?
Are Mr. Hickey’s damages reduced by the funds received by him or under his control from his business, ROCK Networks, during the 12-month mitigation period and, if so, to what extent?
RESULT
[7] I find that Mr. Hickey failed to mitigate his damages in rejecting the final offer of employment by Turris. Mr. Hickey is not entitled to damages beyond the ESA notice that was paid to him by CWC.
[8] Further I find that Mr. Hickey fully mitigated his damages claim through ROCK Networks’ earnings during the mitigation period and therefore, Mr. Hickey has suffered no damages in relation to his termination by CWC.
[9] A judgment shall issue that Mr. Hickey’s claim is dismissed. Costs are reserved.
POSITION OF THE PARTIES
[10] Mr. Hickey’s position is that he is entitled to full damages for his wrongful dismissal by CWC, as claimed, as Turris’ final offer was not for comparable employment. Further, his position is that the earnings of his company, ROCK Networks, are not to be used to offset his damages claim by way of mitigation.
[11] CWC’s position is that Mr. Hickey is not entitled to 12-months’ notice because he failed to mitigate his damages by rejecting the offers of comparable employment from Turris. Further, CWC’s position is that Mr. Hickey fully mitigated his damages during the 12-months following his termination from funds that he earned through his corporation, ROCK Networks, of which Mr. Hickey was the sole shareholder.
BACKGROUND FACTS AND ANALYSIS
[12] Mr. Hickey’s career started in earnest at Nortel based mainly in Ontario. He has a Bachelor of Engineering degree and a Master’s in Business Administration. He worked his way up through the ranks of Nortel in various positions and became one of the youngest vice presidents of the company. After Nortel ceased to exist, Mr. Hickey operated a sole proprietorship, JPH Consulting, in the same line of work that he previously did at Nortel. His main objective, however, was to obtain stable employment to support his young family. Mr. Hickey then worked for various communications companies in California, India, and ultimately Ottawa.
[13] JPH Consulting was incorporated by Mr. Hickey as ROCK Networks Inc. in 2007. From 2007 to 2015 Mr. Hickey remained employed with other companies and did not focus his efforts on expanding ROCK Networks’ business to any significant degree.
[14] In 2011, Mr. Hickey applied for the position of Vice President of Sales with CWC. This position was attractive to Mr. Hickey because of his related experience in the communications industry and he because he would not have to relocate his family from Ottawa. Being close to home was important to Mr. Hickey for personal family reasons. Mr. Hickey was the successful candidate and commenced employment with CWC on January 9, 2012.
[15] Mr. Hickey and CWC negotiated the terms of his employment over the period of several weeks in late 2011 and early 2012. The parties agree that, while only an unsigned version was available at trial, an employment agreement, dated January 5, 2012, governed their relationship and was signed by both parties at the time.
[16] The relevant portions of the employment agreement are:
1.(e) The Employee acknowledges and agrees that during the currency of this agreement, the Employee shall devote the Employee’s full-time and skills to the duties and responsibilities contemplated herein and shall not be engaged in any other employment or business activity in any other capacity.
- SALARY AND BENEFITS
(a) For all services rendered by the employee in the course of the employment hereunder, the Employee shall receive compensation (subject to statutory withholdings and deductions) and on the terms as set forth in the Offer of Employment Letter dated December 14, 2011. The said salary is to be paid at such times and in such fashion as is in keeping with the ordinary practices and policies of the Employer. Such compensation shall be reviewed periodically by the Employer and may be varied from time to time by the Employer as the Employer may in its absolute discretion decide without the necessity of an amendment hereto.
- VACATION
The Employee shall be entitled to vacation in accordance with the offer of employment letter dated January 5, 2012.
- TERMINATION
Notwithstanding anything herein contained to the contrary, this agreement may be terminated in the following manner:
(a) (ii) (d) twelve (12) months notice in the event of immediate termination following a change of control.
(e) Duty to Mitigate
None of the provisions of this agreement shall relieve the Employee from the Employee’s duty to mitigate any and all damages resulting from the termination of this agreement or the employment of the Employee hereunder.
[17] Mr. Hickey confirmed in his evidence that he had legal advice prior to signing the employment agreement with CWC.
[18] In addition to the employment agreement, CWC sent a letter of offer of employment to Mr. Hickey on January 5, 2012 that set out further relevant details excerpted as follows:
“Compensation consists of a base salary, incentive payments and participation in the company benefits and other programs and applicable and when available.”
“Your target income is Cdn $225,000. Target income is the combination of the base salary and incentive income and will be achieved at 100% performance against your assigned sales quota and all other applicable performance targets and objectives.”
“You have this responsibility for all regions and geographies where Christie & Walther conducts such business now or in the future. Christie & Walther Communications reserves the right to alter the territory at any time to accommodate changing business conditions, objectives or for any other reason that, in its sole discretion, it deems appropriate.”
“Christie & Walther Communications reserves the right to alter or adjust assigned targets at any time in its sole discretion.”
“You are entitled to four (4) weeks paid vacation per year during the first five (5) years of employment with the Corporation. Thereafter, vacation entitlements will be in accordance with the then current corporate policy.”
“You acknowledge that the position of VP Sales requires travel outside your home town for business purposes. Christie & Walther does not expect any such travel would exceed 15 – 25% of the time, however, you acknowledge that this may change over time as the business grows and our needs change.”
“During periods of travel on company business you will be reimbursed at cost for your out of pocket expenses in accordance with the company’s applicable policies.”
“Finally, Christie & Walther Communications confirms that in the event of an acquisition of the company and if and only if you are the President &/or CEO at the time of such transaction, that you will receive some form of equity equivalent like compensation. Such compensation to be a minimum of five percent (5%) of the net sale transaction value (sale price less associated transaction costs such as legal, accounting fees, applicable payouts and/or taxes, etc.) Notwithstanding this paragraph, nothing herein commits or obliges the company to promote you to the position of President &/or CEO at any time.”
[19] Mr. Hickey’s income at CWC was comprised of a base salary plus incentive income, which included commission income and a bonus. Each year Mr. Hickey was assigned a target income. The target income was the combination of his base salary and his incentive income.
[20] Mr. Hickey’s assigned target incomes from 2012 to 2015 were as follows:
2012: $225,000 ($165,000 base salary and $60,000 incentive income);
2013: $225,000 ($165,000 base salary and $60,000 incentive income);
2014: $240,000 ($165,000 base salary and $75,000 incentive income); and
2015: $240,000 ($165,000 base salary and $75,000 incentive income).
[21] Mr. Hickey’s total income as reflected on his income tax returns from 2012 to 2015 was as follows:
2012: $218,337.50;
2013: $245,018.16;
2014: $303,665.17; and
2015: $242,117.80.
[22] Counsel agree that from 2013 to 2015 all the income reported by Mr. Hickey came from CWC. For 2012, it is unclear whether the income reported all by Mr. Hickey came from CWC or modestly from some other sources. The year 2014 was a high-income year due to one contract with the federal government that generated significant revenue for CWC and resulted in an increase in Mr. Hickey’s incentive income. It was agreed that this contract was an anomaly during Mr. Hickey’s tenure with CWC.
[23] The formula used to calculate Mr. Hickey’s incentive income changed during his period of employment with CWC. His commission rates were adjusted on a yearly basis depending on CWC’s projected revenue and profit while the overall target income remained the same.
[24] This was done by setting annual budgets after consultation between senior employees at CWC and the management team. Mr. Hickey, and other senior executives at CWC, provided departmental budgets to the acting chief operating officer, Larry Trenwith, and CWC’s president, Charles Walther. Mr. Walther and/or Mr. Trenwith then calculated the appropriate commission rates for senior employees, including Mr. Hickey, after accounting for the overall corporate plan for the year. Commission rates were not static. They changed annually based on the projected revenue and budget for the following year.
[25] In the years 2013, 2014 and 2015, Mr. Hickey’s incentive income was based both on the overall revenue of CWC and the sales operating income (the “SOI Model”) for Mr. Hickey’s own department. Mr. Hickey’s commission rates were communicated to him after the CWC corporate plan had been finalized. The commission rates did not alter Mr. Hickey’s target income in any given year but provided a framework for how his incentive income could be achieved.
Mr. Hickey’s Position at CWC
[26] Mr. Hickey’s evidence was that he was hired to help turn CWC around financially. There is no issue that CWC was struggling when Mr. Hickey began his employment and that the status quo could not be maintained. Mr. Hickey’s evidence was that, if he succeeded in turning the business around, he would be made CEO of CWC. Mr. Hickey acknowledged that nothing in his employment agreement obliged CWC to make him the CEO.
[27] Mr. Trenwith, the acting chief operating officer of CWC, confirmed in his evidence at trial that Mr. Hickey made contributions to CWC. Mr. Hickey recruited and trained a successful sales team. Mr. Hickey had leadership qualities and was motivated to build the business. The only real concern with Mr. Hickey’s performance related to his focus on building revenue as opposed to profit. Regardless, Mr. Hickey was considered a valuable member of the CWC team. I found Mr. Trenwith to be a very credible witness. His evidence was balanced and fair in relation to his assessment of Mr. Hickey’s workplace abilities.
[28] With respect to the profitability of CWC during this period, Mr. Hickey’s evidence was that it did start to “turn around”. Although Mr. Trenwith acknowledged that 2014 was indeed a good year, his evidence was that CWC was still not where it needed to be financially and that something had to change.
Turris’ Acquisition of CWC
[29] In the fall of 2015, CWC engaged in discussions to sell the assets of CWC to Turris. Mr. Hickey was aware that these discussions were taking place.
[30] Mr. Hickey’s first meeting with representatives from Turris took place in November of 2015. John Wahba and Rick Sullivan of Turris visited CWC to meet with senior employees. Mr. Hickey’s evidence was consistent with Mr. Sullivan’s evidence as to what took place at this initial meeting. Mr. Wahba and Mr. Sullivan provided background on the Turris organization. Turris had recently purchased one of the largest two-way radio dealers in Canada, Glentel, and two smaller companies, namely, Oxford Communications and TAS.
[31] During this initial meeting, CWC’s business lines were reviewed and potential changes were discussed. CWC’s “Push Plus Network” was discussed at this time. Push Plus Network was a two-way radio network that was an integral part of the radio business line at CWC. At CWC, the revenue recognition associated with the Push Plus Network was calculated on an ‘up front’ basis due to CWC’s need for financing. Turris advised, however, that they did not require financing to operate the Push Plus Network. The model for revenue recognition would therefore change from an ‘up front’ model to one that would see revenue spread out over a longer period if Turris purchased CWC. Revenue from the Push Plus Network formed a significant part of Mr. Hickey’s compensation at CWC.
[32] In this initial meeting, Turris advised that radio towers that were owned by CWC, that were the most profitable aspect of CWC’s business, would be purchased by Turris Sites – a related but separate corporation. Mr. Hickey was not directly involved in the tower business at CWC, however, the revenues generated by the tower business did impact the global CWC’s corporate revenues and profit and, therefore, did impact Mr. Hickey’s incentive income to some extent.
[33] Finally, in this initial meeting, there was discussion about a Turris employee named George Wales that was hired by Turris following the Glentel acquisition. Mr. Wales was the Director of Sales and Turris was pleased with his performance in that role. Mr. Hickey’s evidence was that this caused him concern that there might not be a role for him at Turris.
[34] The next meeting that involved Mr. Hickey took place on December 17, 2015 at Turris’ head office in Georgetown, Ontario. Mr. Hickey, Mr. Sullivan, Mr. Wahba and Mr. Bessada, were present at the meeting. The purpose of the meeting was to have a more detailed discussion regarding what Mr. Hickey’s role would be at Turris going forward. Mr. Wahba raised the issue of Mr. Hickey taking on a bigger job as vice president of both sales and operations for Turris. There was discussion of the “Warren Buffett philosophy” regarding compensation, specifically, the Turris owners each took modest salaries (of $100,000.00 each) and made up additional income by way of dividends and/or equity. Mr. Hickey’s evidence was that this caused him concern that he would not be well paid.
[35] Ultimately, Turris purchased the assets of CWC on January 22, 2016.
Turris’ Offers of Employment to Mr. Hickey
[36] On January 6, 2016, Mr. Hickey received Turris’ opening offer from Mr. Sullivan.
[37] The relevant terms of this offer are:
Mr. Hickey would be a Vice President, but his specific role was unclear;
His base salary would be $160,000.00;
His total target income would be $220,000.00;
His maximum total income would be capped at $260,000.00;
His incentive income would be based on “earnings before interest, taxes, depreciation, and amortization”, the “EBITDA model”;
He would have an option to purchase shares of up to 3% of up to Turris’ value;
A review would be conducted at 6-months and annually thereafter;
His expenses would be reimbursed for business and project costs and an allowance of eligible employment expenses would be paid in the amount of $1,000.00 per month;
His vacation entitlement would be 15 vacation days; and
He was eligible to participate in group insurance and group RRSP plans of Turris.
[38] Mr. Hickey’s evidence was that he was disappointed with this opening offer for the following reasons: the base salary was lower; his target incentive income was lower and based on an EBITDA model as opposed to a SOI model; his income opportunities were capped; his vacation entitlement was reduced from 20 to 15 days per year; there was a 6-month review clause; and he did not understand the share purchase option.
[39] Mr. Hickey’s reply to this offer was to send an email to Mr. Sullivan on January 8, 2016 with a “red-lined” version of the initial offer with comments outlining his various concerns.
[40] The intended closing date for the Turris’ acquisition of CWC was January 22, 2016. Mr. Sullivan’s evidence was that Turris had ongoing discussions with Mr. Hickey leading up to the closing date. The evidence from Mr. Sullivan was that Turris did not understand exactly what Mr. Hickey required in order to accept a position of employment.
[41] On January 19, 2016, Mr. Hickey confirmed in a telephone call that he would accept employment with Turris provided that Turris: made him “whole” from CWC; gifted him 10% equity of Turris; and provided him a seat on the board of directors of Turris.
[42] Mr. Hickey’s evidence was that his proposal demonstrated his commitment to Turris. Beyond these general notions, Mr. Hickey did not particularize his compensation expectations to Turris.
[43] Mr. Sullivan’s evidence was that Mr. Hickey’s proposal was not well received by Turris. Turris could not understand why it should be responsible for any loss that Mr. Hickey perceived he sustained as a result of not being made CEO of CWC and therefore not realizing any gain from the sale of the company. Further, Turris could not rationalize gifting 10% equity of its business to Mr. Hickey or providing him with a seat on the board of directors without having had a chance to work with him.
[44] The evidence of Mr. Hickey and Mr. Sullivan was that, at this point, both parties were disappointed.
[45] On January 21, 2016, the day prior to closing, Turris sent Mr. Hickey a second offer that was dated January 20, 2016.
[46] The relevant terms of the second offer included:
Mr. Hickey would be the Vice President of Sales;
His base salary would be $165,000.00;
His total target income would be $240,000.00;
There would be no cap on his total income;
His incentive income would be based on the “EBITDA model”;
The share purchase option was removed;
A review would be conducted at 6-months and annually thereafter;
His expenses would be reimbursed for business and project costs and an allowance of eligible employment expenses and a car allowance of $650.00 per month;
His vacation entitlement would be 20 vacation days;
There would be a 12-month non-competition clause and a 24-month non-solicitation clause; and
He was eligible to participate in group insurance and group RRSP plans of Turris.
[47] Since the second offer was delivered the day before the closing date, Mr. Sullivan requested that CWC allow Mr. Hickey additional time to obtain legal advice and consider its offer, which was granted. While it had been the plan for all CWC employees to be terminated effective January 22, 2016, the date of the sale, an exception was granted for Mr. Hickey. While he considered the offer, Mr. Hickey continued to be paid by CWC. All other CWC employees accepted offers of employment that were made by Turris and started their employment as planned on January 22, 2016.
[48] On January 29, 2016, Mr. Hickey emailed Mr. Sullivan and said: “After much thought and reflection I have decided not to move forward with the offer to join the Turris team. I have sent a letter indicating this to Christie Walther (CWC). Wishing you and the team success in the future.”
[49] On February 2, 2016, Mr. Wahba of Turris, who was filling in for Mr. Sullivan while on vacation, emailed a reply to Mr. Hickey and stated: “We are still interested in seeing you joining the team, we will be sending you tomorrow a revised letter that should clarify all your concerns that you have raised to Christie Walter (CWC).”
[50] On February 3, 3016, Mr. Wahba sent an email attaching a revised offer to Mr. Hickey. In the email, Mr. Wahba stated:
“We understand that you are of the view that our last offer of employment was not comparable to your previous terms and conditions of employment. We are committed to ensuring that our offer does meet this test. As such, we are providing you with a revised attached offer that is designed to address the concerns that you have highlighted. Please note the following:
While your territory now includes Belleville and Peterborough, your employment contract with CWC permits your employer to expand your territorial scope at their discretion. We can also assure you that while we’ve added these two municipalities, we do not anticipate that this will require you to be on the road more than you already are.
We have changed your compensation to be based on SOI rather than EBITDA.
Your targets will not be higher or harder to attain. With Turris, we anticipate that you will have greater opportunities to increase your income, not less.
Our revised offer now mirrors your accelerators as contained in your CWC terms and conditions.
Your restrictive covenants shall mirror those you currently have with CWC.
We trust you will find the above acceptable and we look forward to you joining our team.”
[51] The relevant terms of the final offer included:
Mr. Hickey would be the Vice President of Sales;
His base salary would be $165,000.00;
His total target income would be $240,000.00
His incentive income would be based on the SOI model;
All other employment terms with Turris would be on the same terms and conditions set out in the January 5, 2012 offer letter from CWC and the employment agreement with CWC.
[52] After Mr. Hickey received this final offer, he exchanged emails with Mr. Sullivan regarding how his incentive income would be calculated and expressed concern about his ability to achieve his target income.
[53] On February 11, 2016, in an email to Mr. Sullivan, Mr. Hickey stated that he would not be accepting the offer to join Turris and that his decision was final. His main concern was: “I continue to believe my compensation will be significantly lower than that earned while with Christie Walther (CWC). I cannot reasonably believe otherwise.”
[54] On February 16, 2016, Mr. Hickey received a termination letter from CWC. The termination letter contained, in part, the following relevant information:
Mr. Hickey’s employment will terminate on the same date;
CWC has reviewed the offer from Turris and “it is clear that Turris’ offer was comparable to the terms and conditions you enjoyed at CWC.”
The decision to turn down Turris’ offer breached Mr. Hickey’s duty to mitigate and therefore disentitles him to the notice provisions as set out in the employment agreement; and
Mr. Hickey will be provided with 4-weeks of termination pay in lieu of notice plus 5% of earnings reflecting the employer contributions that would have been made to the pension plan.
[55] The undisputed evidence is that, throughout Mr. Hickey’s employment with CWC and his employment agreement negotiations with Turris, Mr. Hickey did not disclose the fact that, since 2015, he was actively operating his own business of ROCK Networks.
ISSUE 1: Did Mr. Hickey’s rejection of the employment offer from Turris constitute a failure of his duty mitigate such that CWC was relieved from paying 12 month’s notice?
[56] The employment agreement between CWC and Mr. Hickey expressly provides that Mr. Hickey had “a duty to mitigate any and all damages” arising from his termination. This is in addition to his common law duty to mitigate.
[57] The employer bears the burden of demonstrating that the employee failed to mitigate [See Michaels v. Red Deer College, 1975 15 (SCC), [1975] 2 SCR 324].
Comparable Employment
[58] Mr. Hickey’s evidence was that it was appropriate for him to reject each of the three offers made by Turris as none would provide him with comparable employment to what he had at CWC.
[59] The inference I draw from Mr. Sullivan’s evidence as a whole is that Turris’ opening offer to Mr. Hickey was not, in fact, equivalent to his employment agreement with CWC. The opening offer from Turris offered less salary, less vacation and less overall compensation to Mr. Hickey. I find that Mr. Hickey was justified in rejecting Turris’ opening offer.
[60] Turris’ second offer of employment to Mr. Hickey offered comparable compensation, utilized a different method of calculating incentive income, and included more extensive non-competition and non-solicitation clauses. For this reason, I find that the second Turris offer was not comparable to his position at CWC and he was justified in rejecting it.
[61] I find, however, that Mr. Hickey was not justified in rejecting Turris’ third offer as it was for comparable employment for the following reasons.
[62] The case law provides that “comparable employment” does not mean “any employment”. In order to be considered comparable, the employment must be similar in terms of status, hours and remuneration [See Carter v. 1657593 Ontario Inc. (The Olde Angel Inn), 2015 ONCA 823 at para 6].
[63] The recent Ontario Court of Appeal decision of Dussault v. Imperial Oil 2019 ONCA 448 at para 8 [Dussault] confirms that whether an employee has mitigated their damages by accepting comparable employment is a fact-driven inquiry.
[64] In relation to the third and final offer, in comparison to his position at CWC, the relevant and undisputed facts are as follows:
Mr. Hickey would retain the same job title and essential job duties at Turris;
The slight expansion in Mr. Hickey’s territory set out in the Turris offer was a non-issue for Mr. Hickey;
His base income would be the same;
His target income would be the same;
The method of calculating incentive income would be the same;
His vacation entitlement would be the same;
His benefits and pension plan would remain the same;
The non-competition clause / non-solicitation clause would remain the same;
The reimbursement of business expenses / car allowance would be the same; and
The termination provisions would remain the same.
[65] Mr. Hickey’s evidence as to why the final Turris offer was not comparable to his position at CWC related to his incentive income, and specifically, the commission rates that were referred to in the final Turris offer.
[66] The evidence at trial was that Mr. Hickey’s commission rates at CWC were re-calculated and adjusted on an annual basis based on the projected revenues and budget for the company. This budgeting process was often not completed until well into the year once CWC had the necessary information.
[67] The final Turris offer included the following information about how Mr. Hickey’s incentive income would be calculated:
Annual Bonus: Annual performance is the same as the current bonus plan as communicated by CWC and yourself and outlined in the following table:
[68] The commission rates referred to in the above table were Mr. Hickey’s 2015 commission rates from CWC.
[69] Both Mr. Trenwith and Mr. Sullivan gave evidence that the inclusion of the table in the offer (including Mr. Hickey’s 2015 commission rates) served to demonstrate that Mr. Hickey would be treated in the exact same manner as he was while at CWC. Mr. Sullivan was very clear that Turris would have worked with Mr. Hickey to calculate new commission rates based on the projected revenues for the following year once they had enough information to do so. I accept the evidence of Mr. Trenwith and Mr. Sullivan as being credible and reliable in this regard and I am satisfied that Mr. Hickey’s commission rates would have been calculated on a comparable basis.
[70] Conversely, Mr. Hickey’s evidence was that by including this commission rate table in the offer he would be subject to the same commission rates at Turris as he was at CWC in 2015. Mr. Hickey’s evidence was that the change in revenue recognition associated with the Push Plus Network and the loss in the profitable tower revenue would make it impossible to reach his target income.
[71] While the final offer does not explicitly state that the commission rate table was included as an example, I find that all parties, including Mr. Hickey, knew or ought to have known the purpose of the 2015 commission rate table being included in the Turris offer. This is particularly the case due to the email communication on February 9, 2016, subsequent to the final offer, that further clarified Turris’ intentions.
[72] After receiving Turris’ final offer, Mr. Hickey wrote back to Turris on February 5, 2016 requesting additional information about how his incentive income would be calculated for 2016. Specifically, Mr. Hickey asked what percentage growth factor Turris would apply for 2016 targets and for a pro-forma target for revenue and SOI for 2016. Mr. Sullivan responded by email on February 9, 2016 and stated:
Targets for April 1st to March 31st, 2017 will be set at the conclusion of a bottom up budget development process. Each sales person submits his projections based on a combination of the sales expected in the funnel, his knowledge of the market and an estimate of regular or routine business opportunities. These we will in cooperation with you evaluate and maybe even stretch a bit and the sum total will be our budget.
In a similar manner we will calculate the SOI. In this way we will deal with the annual ups and downs of the market and the economic factors that affect our industry. To ask us to pick a number after owning the business for only a little over two weeks is a bit unrealistic. You will be a key participant in the process and strongly influence the budget since you are so intimate with the market in that area.
[73] The February 9, 2016 email exchange, I find, demonstrates two things. Firstly, it shows that Mr. Hickey understood that new targets would be set for 2016. Secondly, Mr. Sullivan confirmed that the new targets would be set after a “bottom up budget development process” in which Mr. Hickey would be involved. I find that this was the same process that occurred annually when setting Mr. Hickey’s commission rates while he was employed at CWC.
[74] While I accept that the loss of the CWC tower revenue and the change in revenue recognition for the Push Plus Network would have had an impact on revenue for 2016, it does not translate that it would result in an inability of Mr. Hickey to meet his targets. I am satisfied on the evidence that, at Turris, Mr. Hickey’s commission rates would have been re-calculated based on projected revenues for 2016. I am equally satisfied that Mr. Hickey would have been involved in this process and would have advocated for himself as he had in the past while employed at CWC.
[75] I find that any uncertainty with respect to commission rates at Turris would have been equally applicable at CWC as they were recalculated annually based on projected revenues and incomes.
[76] I find that the commission rate chart included in the final Turris offer was an example of how Mr. Hickey’s future commission rates would be calculated. I find Mr. Hickey’s concerns about his commission rates and how his commission would be calculated in the future to be unreasonable and ill founded. I reject Mr. Hickey’s evidence that the final Turris offer was not comparable to his position at CWC related to his incentive income.
[77] The third offer from Turris included terms that mirrored Mr. Hickey’s employment with CWC and were comparable. The final offer of Turris and terms of employment with CWC provide for the same salary, the same formula for calculating incentive income, the same number of vacation days, and the same entitlement to pension and benefits. I find that the final Turris offer was comparable to the employment Mr. Hickey had with CWC.
[78] I find that Mr. Hickey’s failure to accept this comparable employment offer from Turris constitutes a failure in Mr. Hickey’s duty to mitigate his damages.
Timing of the Offer
[79] Counsel for Mr. Hickey submits that the timing of the offers of employment matters. Specifically, that employment opportunities by a successor employer must be offered after termination for a duty to mitigate to be triggered. There is no issue that the three Turris offers were all made before Mr. Hickey’s employment with CWC was terminated.
[80] In support of this position, counsel relies on the case of Farwell v. Citair, Inc. (General Coach Canada), 2014 ONCA 177 [Farwell]. Farwell deals with a case where the plaintiff was asked to take on a new position with an existing employer which was essentially a demotion. The Court of Appeal for Ontario held that to trigger a mitigation duty in that instance, the employer was obliged to offer the plaintiff the opportunity to work out the notice period in the alternate position after the plaintiff expressed that he was constructively dismissed.
[81] I accept the submission of CWC on this issue that while the timing of an offer of employment can be a factor that is considered in determining whether a duty to mitigate is triggered, a “multi-factored and contextual analysis” is required [See Evans v. Teamsters, 2008 SCC 20 at para 30 (Evans)].
[82] In this case, the evidence confirms that Turris offered employment to all interested CWC employees immediately at the time of the asset purchase. Due to ongoing negotiations between Mr. Hickey and Turris, CWC extended Mr. Hickey’s employment to allow Turris and Mr. Hickey to reach an agreement and for Mr. Hickey to obtain legal advice. Mr. Hickey remained on the CWC payroll during this period even though CWC’s business was effectively not operational. I find that the extension of Mr. Hickey’s employment beyond closing was done in good faith by CWC.
[83] There is no evidence that this was a situation where the offer of alternative employment would have had “strings attached” by way of the requirement for a full and final release as in the cases of Dussault or Fillmore v. Hercules SLR Inc., 2016 ONSC 4686.
[84] Accordingly, I find the caselaw cited by counsel for Mr. Hickey to be unhelpful in this case. I find that the timing of the Turris’ third offer is not fatal to the defence that Mr. Hickey failed to mitigate his damages by rejecting that offer.
Other Factors
[85] Mr. Hickey’s evidence was that there were other factors involved in his decision to reject the final Turris offer, specifically, that his relationship with Turris had been damaged beyond repair by the time he received the third offer.
[86] Mr. Hickey’s evidence was that by the time he received the third offer, he was uncomfortable working at Turris because the negotiation process went poorly, he was uncertain with respect to his future with the company, and that his CWC emails were being forwarded to Mr. Wahba, of Turris, after the purchase.
[87] With respect to the negotiation process, I have found that Turris’ opening offer was not comparable to Mr. Hickey’s position at CWC. Mr. Sullivan’s evidence was that, given Mr. Hickey’s experience in the business world, it was Mr. Sullivan’s expectation that they would engage in negotiations and that Mr. Hickey would not accept the first offer. Turris’ initial offer to Mr. Hickey was a “low ball” offer. However, I find that Mr. Hickey’s response to that offer was a significant overreach.
[88] The evidence from both Mr. Hickey and Mr. Sullivan was that Mr. Hickey’s response to the first Turris offer was a proposal that included the term that Turris make him “whole”. The inference that I draw from this evidence is that Mr. Hickey believed that CWC had wronged him by selling the company before promoting him to CEO. Pursuant to Mr. Hickey’s employment agreement with CWC, if he had been CEO at the time of the sale, Mr. Hickey would have received a significant financial benefit due to having an equity stake in CWC. In Mr. Hickey’s only responding offer to Turris he demanded that Turris pay him the equivalent of what he would have received from the sale had he been CEO at CWC at the material time, which he testified was approximately $500,000.00. I find that this was an unreasonable request to be made of Turris. In addition, Mr. Hickey asked to be gifted an equity stake in Turris, be given the title of CEO, and be provided a seat on the board of directors all of which I find to be equally unreasonable.
[89] Despite Mr. Hickey’s unreasonable demands, Turris continued to engage in negotiations, I find, in good faith. I find that Turris genuinely wanted to hire Mr. Hickey as they recognized his abilities.
[90] Mr. Hickey, additionally, gave evidence that he worried there would not be a place for him at Turris as the owners were extremely pleased with the performance of its newly acquired Director of Sales, Mr. Wales. I find the evidence to be overwhelming that Turris indeed had a place for Mr. Hickey in their company. This is clear from the fact that Turris’ offered to make Mr. Hickey a vice president in the very first offer.
[91] Mr. Hickey’s evidence was that he was nervous about the future of his role with Turris because after Turris’ other acquisitions, senior employees of the acquired companies were terminated. I find that there was no evidence that Turris intended to remove Mr. Hickey from the team. All evidence supports the fact that Turris was sincere in its desire to work with Mr. Hickey.
[92] Further, Mr. Hickey’s evidence was that the Turris owners told him that he was overpaid at CWC. His evidence was that this made him feel that his job was in jeopardy, or that Turris would not value him the same way as they had at CWC. Mr. Sullivan, when confronted on this point at trial, agreed that for an $8M company, such as CWC, the salaries of the CWC sales group were high. However, Mr. Sullivan confirmed that Turris was a much larger, and more profitable company and reiterated that Turris was prepared to pay Mr. Hickey what he had been making at CWC in any event.
[93] Finally, Mr. Hickey testified that after the asset sale was completed, and unbeknownst to him at the time, his CWC emails were forwarded to Mr. Wahba at Turris. On cross-examination, Mr. Hickey acknowledged that Turris was the new owner of the computer network and would want to make sure that emails from former clients of CWC were being answered. Mr. Sullivan, on cross-examination, agreed that Mr. Hickey should have been informed that his emails were being forwarded. Mr. Sullivan gave evidence that the purpose of forwarding the emails was to ensure that business matters were being handled as Mr. Hickey was not yet a Turris employee.
[94] While I find that Mr. Hickey should have been informed that his CWC emails were being forwarded after the Turris acquisition, I find that this was not done for any spurious purpose. The purchase of CWC was a multi million-dollar transaction. I find that it was reasonable for Turris to take all necessary steps to ensure the smooth transition of the business and that the failure to inform Mr. Hickey about the forwarding of his emails was an oversight on Turris’ part.
[95] When assessing whether an employee’s decision not to mitigate was reasonable an objective standard must be employed [See Evans at para 33].
[96] Mr. Hickey’s evidence was that he had never been treated so “horribly” in his life and that the relationship with Turris was so damaged that he could not possibly accept the final Turris offer. I reject Mr. Hickey’s evidence in this regard, and I find his only responding proposal to Turris lacked sincerity. The inference that I draw from Mr. Hickey’s evidence is that he was not genuinely interested in accepting an offer from Turris but wanted to preserve his 12-month notice period and the financial benefits that it provided. I find Mr. Hickey’s decision in not accepting the final Turris offer to be unreasonable on an objective standard.
[97] I find that the parties were sophisticated business people engaging in good faith negotiations and the events unfolded in a manner that would be expected in a transaction of this nature. All other interested CWC employees accepted positions with Turris. I am satisfied that Turris genuinely wanted to work with Mr. Hickey and that Mr. Hickey would have secured comparable employment had he accepted the final Turris offer.
[98] I find that CWC has satisfied its burden of proof that the rejection of the final Turris offer constitutes a failure by Mr. Hickey to mitigate his damages. In the result, Mr. Hickey’s claim against CWC is dismissed as Mr. Hickey failed to accept comparable employment with Turris, which was unreasonable to do from an objective standard.
ISSUE 2: What are the damages related to the 12-month notice period attributable to salary, health and non-health benefits, pension contributions, and vacation pay?
[99] In spite of the fact that the action is dismissed as result of my findings on the first issue, I am required to assess the quantum of Mr. Hickey’s damages.
[100] Mr. Hickey’s employment agreement with CWC provides for “twelve (12) months notice in the event of immediate termination following a change of control”. There is no issue that the asset sale of CWC to Turris constituted a change of control. However, the parties disagree as to how damages for the 12-months’ notice is to be calculated.
Salary
[101] At trial, counsel for Mr. Hickey took the amended position that Mr. Hickey’s damages for 12-months’ pay in lieu of notice in relation to salary was in the amount of $272,891.50 based on an averaging of his 2014 and 2015 base salaries and incentive income from CWC.
[102] Counsel for CWC submits that 12-months’ pay in lieu of notice should be calculated on Mr. Hickey’s base salary alone of $165,000.00 because his incentive income was linked to the overall profitability of the business and the performance of Mr. Hickey’s team. In the 12-months following Mr. Hickey’s termination (i.e. the notice period), the business was not operating and had no profits. Alternatively, counsel for CWC submits that while an average of total incomes can be an appropriate approach in quantifying wrongful dismissal damages, Mr. Hickey’s 2014 income should not be considered as 2014 was admittedly an unusually high earnings year for CWC.
[103] There is significant variation in the case law on how income should be calculated to determine damage awards in wrongful dismissal actions. Counsel were unable to provide any case law that dealt with a dismissed employee’s entitlement to bonus or commission income that is linked to profitability following an asset sale of a business when the original employer ceased to exist.
[104] The evidence in this case is that Mr. Hickey consistently received both his base salary and incentive income throughout his employment with CWC. I find that Mr. Hickey’s incentive income represented a significant portion of his total income with CWC and therefore was an integral component of his compensation. Further, Mr. Hickey’s employment agreement does not limit the 12-months’ notice to base salary alone and is silent as to how incentive income is to be dealt with upon termination.
[105] It is accepted by counsel that in determining damage awards for wrongful dismissal, the goal is to compensate the employee for losses arising from the employer’s failure to give proper notice. In Paquette v. TeraGo Networks Inc. 2016 ONCA 618 (citing Taggart v. Canada Life Assurance Co. (2006), 50 C.C.P.B. 163) the Court of Appeal for Ontario emphasized that when considering whether to include commission or bonus income when calculating an employee’s losses, an appropriate consideration is whether the contract or bonus plan unambiguously removes the employee’s entitlement to commission or bonus income.
[106] In this case, the employment agreement provides for 12-months’ notice upon termination following change in control of the business. The scenario of a termination following a sale of the business was specifically contemplated at the time the employment agreement was drafted. Mr. Hickey’s incentive income was an integral component of his compensation package at CWC and nothing in the employment agreement unambiguously removes his entitlement to receive notice based on his total compensation. I find it is therefore reasonable to include Mr. Hickey’s incentive income in calculating his total damages for the 12-month notice period. In making this finding, I specifically reject CWC’s submission that because CWC was not operational in the 12-month notice period, and therefore had no revenue or profits during this period, Mr. Hickey should only be entitled to damages based on his base salary.
[107] I accept CWC’s submission that 2014 was an outlier year and should not be included in any averaging calculation. Mr. Hickey and Mr. Trenwith both gave evidence that the large government contract that was secured by CWC in 2014 was an anomaly.
[108] I accept Mr. Hickey’s submission that his 2012 and 2013 income should not be included in any averaging calculation because those years do not accurately reflect what Mr. Hickey would have earned in the 12-month notice period. Mr. Hickey’s target income of $225,000.00 in 2012 and 2013 was increased to $240,000.00 in 2014 and 2015. Part of this increase involved a raise in Mr. Hickey’s guaranteed base salary.
[109] I am persuaded by the decision of Dimmer v. MMV Financial Inc., 2012 ONSC 7257 at para 90, where the court applied a “fairness factor” by excluding outlier quarters to determine an appropriate amount to attribute to a dismissed employee’s bonus income.
[110] In this case, I find, that it would be unfair to both parties to average Mr. Hickey’s income in calculating his damages. It would be unfair and unreasonable to CWC to include the outlier year of 2014 as this would significantly increase the damage calculation. It would be equally unfair and unreasonable to Mr. Hickey to include 2012 and 2013 in an averaging calculation because his target income and guaranteed base salary increased effective in 2014. Including the years 2012 and 2013 would decrease the damage calculation and would not be reflective of what Mr. Hickey would have earned during the 12-month notice period had CWC continued to operate.
[111] I find that it is not fair or reasonable to average Mr. Hickey’s historical income to assess damages for pay in lieu of notice. There is no evidence in this case that Mr. Hickey would have earned any more or less than his target income during the 12-month notice period if CWC had continued to be in business in 2016.
[112] I therefore assess Mr. Hickey’s damages for salary for the 12-month notice period to be his 2015 target income at $240,000.00.
Benefits
[113] Counsel for Mr. Hickey submits that the court should assess the value of Mr. Hickey’s health and non-health benefits as a percentage of his base salary in the amount of 15% or $24,750.00 (15% of $165,000.00). Counsel for Mr. Hickey relies on the case of Geluch v. Rosedale Golf Association Ltd. 2004 14566 (ON SC), [2004] OJ No 2740 at para 206 where the trial judge fixed the percentage value of benefits at 15%. It is unclear from the decision what evidence was relied upon in fixing of this percentage.
[114] While I accept that fixing benefits as a percentage of salary can be reasonable in appropriate circumstances, in this case there is direct contrary evidence or no evidence as to the financial impact of loss of benefits to Mr. Hickey.
[115] The evidence in this case is that Mr. Hickey was enrolled in his wife’s health and dental plan as well as the plan with CWC. There was evidence that CWC’s plan did not include short term disability coverage. The evidence was limited and unclear regarding other benefits that Mr. Hickey may have been entitled to at CWC. Mr. Hickey’s evidence at trial was that he suffered no financial loss in relation to the loss of his benefits with CWC. He did not purchase a new benefits plan and there was no evidence as to the replacement cost of a similar benefits plan.
[116] CWC submits that Mr. Hickey fully mitigated his damages related to the loss of his CWC benefits plan as he immediately went on his wife’s benefits plan through her employment. I reject this submission.
[117] I find the fact that Mr. Hickey was covered under his wife’s benefits plan is not determinative of the issue. Mr. Hickey is entitled to be compensated for losses associated with his health and non-health benefits for the 12-month notice period. In this case, however, there was insufficient evidence of the value of Mr. Hickey’s benefit plan during the 12-month notice period or the scope of the benefits that were available to Mr. Hickey beyond the fact he was enrolled in the benefit plan at CWC. Accordingly, I decline to apply a 15% value for loss of his benefits with CWC during the 12-month notice period as there is little to no evidence to support this aspect of the claim. Mr. Hickey has failed to prove his damages for loss of health and non-health benefits on the balance of probabilities and therefore this claim fails.
[118] I therefore assess Mr. Hickey’s damages for loss of his health and non-health benefits during the 12-month notice period at zero.
Pension Contributions
[119] Counsel agree that Mr. Hickey is entitled to 5% of his total income for the employer’s portion of his pension contributions.
[120] I therefore assess Mr. Hickey’s damages for loss of employer pension contributions during the 12-month notice period at $12,000.00 (5% of his assessed total income of $240,000.00).
Vacation
[121] Mr. Hickey’s evidence was that he is entitled to damages for 15.8 days of accrued, unpaid vacation-pay in the amount of $10,027.31.
[122] By virtue of the employment agreement between Mr. Hickey and CWC, Mr. Hickey was entitled to 20 days of paid vacation each calendar year.
[123] Mr. Hickey’s evidence was that on January 1st of each year he had an immediate entitlement to 20 paid vacation days. When he was terminated from CWC on February 16, 2016, Mr. Hickey’s evidence was that he should receive payment for his entire vacation entitlement for all of 2016. At the time of his dismissal, he had earned only 4.2 days of his vacation entitlement with 15.8 days remaining. The policy at CWC was that vacation days can be carried over into the following year.
[124] Mr. Hickey relies on an email dated December 2, 2014 from Diane Hudson, an executive assistant at CWC, that states:
Hi Joe
I have you starting your year with 7.5 days plus 20 which gives you 27.5 days.
You took March 10 to March 14 - 5 days
You took Friday April 25th - 1 day
You took 2 weeks but only used 8 days in August
You took Monday June 30 - 1 Day
You used 15 days this year, so your balance is 12.5 days.
[125] Mr. Trenwith gave evidence that Mr. Hickey was entitled to take 20 vacation days annually, but that he had to earn those vacation days throughout a given year. Mr. Trenwith gave evidence that occasionally CWC would permit employees to take paid vacation days in a calendar year prior to them earning those days. However, if an employee departed midway through the year, they would only be paid out the prorated share of their unused paid vacation days. Mr. Trenwith testified that Mr. Hickey was paid his prorated share of unused vacation days for 2016 when he was terminated. I accept Mr. Trenwith’s evidence in this regard.
[126] The evidence at trial was that CWC did have a written vacation policy but it is unclear as to whether that vacation policy applied to Mr. Hickey as a senior executive or whether it applied to other staff. The written policy was undated and there was no evidence as to when it came into effect. In any event, Mr. Hickey’s vacation entitlement exceeded what was stipulated in the written policy.
[127] I find that Ms. Hudson’s email of December 2, 2014 does not support Mr. Hickey’s position. I find, based on Mr. Trenwith’s evidence which I accept, that at CWC vacation entitlement must be earned. I accept the evidence of Mr. Trenwith that it was CWC’s standard operating procedure to provide departing employees with their prorated share of unused vacation for a given year.
[128] I therefore assess Mr. Hickey’s damages for accrued, unpaid vacation-pay at zero.
Employment Standards Act Notice Paid
[129] Counsel agree that any damage assessment should be reduced by the 4-weeks’ ESA pay in lieu of notice that was provided to Mr. Hickey upon termination. Mr. Hickey’s evidence was that he was paid $12,692.31, which is 4-weeks of Mr. Hickey’s base salary plus vacation-pay and CWC’s contribution to his pension.
Summary – Assessment of Damages
[130] In summary, I assess Mr. Hickey’s total damages for the 12-month notice period at $239,307.69 as follows:
Salary (inclusive of incentive income): $240,000.00
Benefits: $0
Pension: $12,000.00
Vacation-Pay: $0
TOTAL: $252,000.00
Less ESA Notice paid ($12,692.31)
TOTAL: $239,307.69
[131] The assessment of Mr. Hickey’s total damages at $239,307.69 is, however, subject to my findings on the third issue as to whether Mr. Hickey mitigated his damages from money either received or available to him through ROCK Networks.
ISSUE 3: Are Mr. Hickey’s damages reduced by the funds received by him or under his control from his business, ROCK Networks, during the 12-month mitigation period and, if so, to what extent?
[132] Mr. Hickey was the sole shareholder of ROCK Networks. During the mitigation period, ROCK Networks generated significant revenue. Counsel disagree as to what extent ROCK Networks’ revenue should be considered as mitigation income. Further, counsel disagree as to whether any consideration should be given to the fact that Mr. Hickey had pre-existing earnings, namely supplemental income from ROCK Networks while he was working at CWC in contravention of his employment agreement.
[133] Counsel agree that during the mitigation period ROCK Networks had approximate gross revenues of $1.3M related to successful bids on government requests for proposals (the “RFP business”). Counsel further agree that this translated into gross profits of ROCK Networks of approximately $345,000.00 within the mitigation period.
[134] Counsel for Mr. Hickey submits several reasons as to why this $345,000.00 should not be considered as mitigation earnings to offset Mr. Hickey’s assessment of damages. Mr. Hickey’s evidence was that those funds were not available to him as income during the mitigation period as they were used to pay down shareholder loans, kept as retained earnings, and used for business expenses.
Shareholder Loan Repayments
[135] Mr. Hickey’s evidence was that a significant portion of ROCK Networks’ gross profits of $345,000.00 were used to pay down shareholder loans to himself personally. Since the creation of ROCK Networks in 2007, shareholder loans accumulated nearly every year owing to Mr. Hickey personally for things such as rent for a home office and professional fees that were paid personally by Mr. Hickey, although very little work was being done within that business. Mr. Hickey’s evidence was that ROCK Networks was essentially dormant during the early years that these shareholder loans accumulated. ROCK Networks was used by Mr. Hickey as a vehicle to write off and recoup personal expenses while he worked at CWC.
[136] The evidence was that at the time of Mr. Hickey’s termination on February 16, 2016, ROCK Networks owed Mr. Hickey $106,359.77 by way of shareholder loans. During the mitigation period, additional shareholder loans to Mr. Hickey accumulated in the amount of $112,494.81 for a total owing to him by ROCK Networks of $218,854.58. During the mitigation period, ROCK Networks then repaid Mr. Hickey $202,077.58 leaving a balance owing to him at the end of the mitigation period of $16,777.00.
[137] Mr. Hickey made the personal choice to use a significant portion of ROCK Networks’ gross profits to pay down his shareholder loans, rather than paying himself a salary. I find this decision was calculated and made in contemplation of this litigation to reduce mitigation earnings. In making this elective choice, I find his decision to minimize his personal income and to repay himself monies owed to him by ROCK Networks cannot be used to escape his obligation to account for mitigation earnings to CWC.
Expenses of ROCK Networks and the Acquisition of Nova Communications
[138] Mr. Hickey operated ROCK Networks in a more focused manner in 2015. After his termination on February 16, 2016, he began to operate this business in an even more serious way. On May 26, 2017 ROCK Networks purchased Nova Communications after the end of the mitigation period.
[139] Counsel for Mr. Hickey cites the case of PCL Construction Management Inc. v. Holmes, 1994 ABCA 358 [PLC] as providing authority that expenses associated with generating mitigation earnings should be deducted from gross profits. Counsel for CWC agree that legitimate business expenses incurred to generate mitigation earnings should be deducted from gross profits. I agree.
[140] I find that ROCK Networks’ expenses fall into two categories during the mitigation period: 1) expenses associated with running its RFP business; and 2) expenses associated with its acquisition of Nova Communications. Complicating this analysis is that the mitigation period runs from February 16, 2016 to February 16, 2017 and ROCK Networks’ fiscal year runs from October 1st to September 30th of each year.
[141] Based on ROCK Networks’ financial statements, in ROCK Networks’ 2015 fiscal year, from October 1, 2014 to September 30, 2015, while Mr. Hickey was working full-time with CWC, the gross revenue of the business was $299,742.00. The costs of sales were $212,452.00 leaving a gross profit of $87,290.00. ROCK Networks’ expenses totalled $21,010.00 in that year leaving a net income of $66,280.00.
[142] In ROCK Networks’ 2016 fiscal year, from October 1, 2015 to September 30, 2016, the gross revenue of the business was $140,102.00. The costs of sales were $105,262.00 leaving a gross profit of $34,840.00. ROCK Network’s expenses totalled $26,942.00 in that year leaving a net income of $7,898.00.
[143] In ROCK Networks 2017 fiscal year, from October 1, 2016 to September 30, 2017, the gross revenue of the business was $1,080,613.00. The costs of sales sold were $753,869.00 leaving a gross profit of $326,744.00. ROCK Network’s expenses totalled $299,092.00 in that year leaving a net income of $27,652.00.
[144] Nova Communications is a company that was acquired by ROCK Networks in May of 2017. Mr. Hickey’s evidence was that discussions to purchase Nova Communications began in March of 2016 when a mutual Non-Disclosure Agreement was signed. Mr. Hickey approached the Business Development Bank of Canada regarding financing the purchase of Nova Communications in the fall of 2016. Mr. Hickey estimates that the expenses associated with the Nova Communications purchase total approximately $194,000.00 during the mitigation period.
[145] Counsel for Mr. Hickey relies upon case law that supports the principle that self-employment is a proper mitigation option. [See PCL and Peet v. Babcock & Wilcox Industries Ltd. 2001 24077 (ON CA), [2001] O.J. No. 1129]. I agree that self-employment is a viable option for mitigation. I find that Mr. Hickey’s decision to further develop the RFP business through ROCK Networks was an acceptable option to mitigate his damages.
[146] However, Mr. Hickey then made a personal financial decision. Instead of drawing a salary from ROCK Networks during the mitigation period, Mr. Hickey accumulated retained earnings within ROCK Networks and spent those retained earnings on the purchase of Nova Communications.
[147] The acquisition of Nova Communications benefited Mr. Hickey and his company, ROCK Networks. On September 15, 2020, Mr. Hickey was named one of Atlantic Business Magazine’s Top 50 CEO’s in relation to his work with Nova Communications and ROCK Networks. Mr. Hickey’s personal decision to spend ROCK Networks’ retained earnings to purchase an additional company, I find, should not be to the detriment of CWC. In this case, I find the acquisition of Nova Communications was not an essential element to mitigation and was collateral to the dispute between Mr. Hickey and CWC.
[148] I therefore find that Mr. Hickey’s purchase of Nova Communications and the expenses incurred by ROCK Networks associated with that purchase are not reasonable factors to consider when determining Mr. Hickey’s mitigation earnings.
[149] The revenue of $1.3M generated by ROCK Networks during the mitigation period resulted in gross profits of $345,000.00 from the RFP business. Mr. Hickey was the only one performing that work. No revenue during the mitigation period was received by Nova Communications as the transaction had not yet closed.
[150] Mr. Hickey’s evidence was that there were limited expenses associated with running the RFP business of ROCK Networks. Mr. Hickey’s evidence confirmed that he worked from home and that he required a computer, internet access, a cellphone, bookkeeping assistance to render invoices, occasional translation services, and mileage associated with driving into downtown Ottawa from Carp. Mr. Hickey testified that limited retained earnings were necessary to allow ROCK Networks to purchase goods associated with the RFP business which I find was reasonable.
[151] It is therefore necessary to determine what amount should be deducted from ROCK Networks’ gross profits on account of reasonable expenses during the mitigation period. I find that to operate the RFP business of ROCK Networks, the expenses were relatively fixed and did not increase significantly with the cost of sales or revenue. ROCK Networks’ expenses for fiscal year 2015 (October 1, 2014 to September 30, 2015) were $21,010.00 and for fiscal year 2016 (October 1, 2015 to September 30, 2016) were $26,942.00 for an average of $23,976.00. I find that the expenses ROCK Networks incurred in fiscal year 2017 (October 1, 2016 to September 30, 2017) are not representative of the expenses that were required to operate the RFP business of ROCK Networks due to the purchase of Nova Communications, increased travel, and the salary Mr. Hickey paid himself after the end of the mitigation period.
[152] I find a reasonable sum to be attributed to expenses of ROCK Networks incurred during the mitigation period to be $25,000.00, a rounded-up average of the expenses for fiscal years 2015 and 2016. Deducting this sum from the gross profits of $345,000.00, this leaves net retained earnings in ROCK Networks available to Mr. Hickey during the mitigation period of $320,000.00. This would have allowed Mr. Hickey to fully reimburse himself for the damages he suffered of $239,307.69 and leave surplus retained earnings of $80,692.31 which, at Mr. Hickey’s discretion, could have been used to pay down a portion of his outstanding shareholder loans and leave sufficient funds in the business to purchase goods. I find that Mr. Hickey fully mitigated his damages.
[153] I assess Mr. Hickey’s mitigation earnings at $320,000.00. In the result, Mr. Hickey’s entitlement to damages in relation to the 12 months notice period is zero.
Supplemental Income
[154] Counsel for Mr. Hickey submits that Mr. Hickey’s net profit from ROCK Networks in 2015 must be deducted from mitigation earnings. CWC learned, just weeks before trial, that Mr. Hickey had been operating ROCK Networks’ RFP business while he was still a full-time employee at CWC contrary to his employment agreement.
[155] The evidence was that ROCK Networks had profits net of expenses of $66,280.00 in 2015 ($87,290.00 gross profits less $21,010.00 in expenses). Counsel for Mr. Hickey submits that this was “supplemental income”.
[156] Counsel for Mr. Hickey relies on the cases of Pakozdi v. B & B Heavy Civil Construction Ltd. 2018 BCCA 23 [Pakozdi] and Yip-Young v. L-3 Communications Electronic Systems Inc., 2011 ONSC 4537 [Yip-Young] to support the position that Mr. Hickey’s pre-existing supplemental income should be distinguished from his post-termination substitute income. In Pakozdi and Yip-Young, the dismissed employees had been working side jobs, with the knowledge of their employers, for years. In each case, the courts held that it was not reasonable to include income earned from those side jobs during the mitigation period provided it was at the same level as what was earned while working for the employer. Counsel for Mr. Hickey submits that based on these authorities, I must reduce Mr. Hickey’s mitigation earnings by his pre-termination supplemental income of $66,280.00.
[157] I find there are distinctions between the case law cited by counsel for Mr. Hickey and this case. The employees in Pakozdi and Yip-Young had lengthy histories of earning supplemental income which was known to their employers. In this case, there was little history of earning supplemental income from ROCK Networks. In this respect this case is distinguished from Pakozdi and Yip-Young. Further, in this case, I find that CWC had absolutely no knowledge that Mr. Hickey was operating ROCK Networks as an active business while he was an employee as Mr. Hickey failed to disclose this relevant information to CWC.
[158] Mr. Hickey’s evidence was that he was unaware or had forgotten about the clause in his employment agreement with CWC that required him to devote his full-time and skills to CWC and not be engaged in any other employment or business activity in any other capacity. Further, Mr. Hickey’s evidence was that, regardless of his ongoing efforts to develop ROCK Networks, he worked extremely long hours for CWC and that he considered himself working for CWC on a full-time basis. I accept Mr. Hickey’s evidence that he was hard working and made significant contributions to CWC as an employee. I reject Mr. Hickey’s evidence that he was unaware or forgot that he was required to work full-time for only CWC by virtue of his employment agreement.
[159] I find that regardless of how hard-working Mr. Hickey was while at CWC, he was contractually obliged to not engage in secondary employment. I reject Mr. Hickey’s evidence that he is not bound by the terms of his employment agreement or that those terms should be overlooked and considered not binding. Mr. Hickey is a sophisticated business person and I find that he knew, or ought to have known, what the terms of his employment agreement required. This is the same employment agreement that Mr. Hickey relies on in claiming damages for 12-months’ notice in this lawsuit. He cannot pick and choose which clauses are binding on him. Mr. Hickey should not derive any benefit from the fact that he engaged in secondary employment with ROCK Networks while employed by CWC.
[160] I reject counsel for Mr. Hickey’s submission that there should be a reduction in Mr. Hickey’s mitigation earnings due to the supplemental income that he had earned from ROCK Networks in 2015 while an employee at CWC.
Additional Mitigation Efforts by Mr. Hickey
[161] Mr. Hickey gave evidence about his job search attempts during the mitigation period. While he was mitigating his losses by pursuing the RFP business at ROCK Networks, Mr. Hickey applied for many employment positions with various established companies.
[162] The extent of Mr. Hickey’s job search is ultimately irrelevant given my finding that Mr. Hickey failed in his duty to mitigate when he rejected the final Turris offer and that he fully mitigated his damages during the mitigation period.
Credibility
[163] Counsel for CWC submits that Mr. Hickey intentionally concealed relevant financial details about his ROCK Networks business and that, due to Mr. Hickey’s untruthfulness at his initial examination for discovery and lack of full disclosure, Mr. Hickey’s credibility has been seriously undermined. Mr. Hickey’s evidence was that it was not his intention to be untruthful and that full particulars of ROCK Networks dealings were not disclosed through either inadvertence or an innocent misunderstanding. I find that Mr. Hickey’s answers at his original examination for discovery about his mitigation earnings were evasive and misleading.
[164] It is agreed that Mr. Hickey did not produce any information related to ROCK Networks in his affidavit of documents even though this information was admittedly relevant. No records related to ROCK Networks were disclosed until shortly before the trial when they were requested by CWC after it discovered ROCK Networks was actively in business at the material time. Further, CWC obtained a court order, again shortly before trial, to obtain additional financial disclosure and conduct additional discovery on this issue which resulted in a short delay in the commencement of the trial.
[165] At Mr. Hickey’s December 1, 2017 examination for discovery, he was specifically asked about his mitigation efforts and earnings during the mitigation period. He was asked if he generated income from ROCK Networks during the mitigation period. Mr. Hickey responded:
“Yes. Within ROCK Networks there was income generated – well, there was revenue generated. I can’t say it was income generated, but it was revenue generated to some federal government type customers that after I left Christie Walther (CWC), I started to look at RFPs that are published on Buyandsell which is the federal government procurement website. So I looked at opportunities to bid on projects in that area. So, request for proposals that the government issues.”
[166] When counsel for CWC followed up and asked how that generated revenues, Mr. Hickey advised, “Well, then you have to win the request for proposal.” Mr. Hickey went on to disclose that he won a request for proposal worth $50,000.00, a “20 percent gross margin kind of proposal.” Referring to the mitigation period, when asked: “Did you earn any income personally in that period?”, Mr. Hickey responded: “No, I did not.” When asked how much he received from ROCK Networks during the mitigation period, Mr. Hickey responded: “Zero”. When asked: “What else did you do to generate income for you and your family through that 12-month period?”, Mr. Hickey failed to mention his ROCK Networks business. When asked: “What prospects to earn income were you contemplating, did you think you had available to you?” Mr. Hickey’s verbose response failed to mention any information about ROCK Networks.
[167] While it would be reasonable to accept that Mr. Hickey may have misunderstood some of the questions related to earnings during the mitigation period, I do not accept that he misunderstood virtually all of the questions that he was asked about earnings during the mitigation period. Mr. Hickey was given several opportunities to disclose relevant information regarding earnings generated by his company during the mitigation period, but he failed to do so. I find this was not an innocent oversight on Mr. Hickey’s part but rather a strategic plan. I find that Mr. Hickey actively concealed his mitigation earnings through ROCK Networks to attempt to gain a financial advantage in this litigation.
CONCLUSION AND JUDGMENT TO ISSUE
[168] I find Mr. Hickey failed to mitigate his damages in rejecting the final offer of employment by Turris. Mr. Hickey is not entitled to damages beyond the ESA notice that was paid to him by CWC.
[169] Further I find that Mr. Hickey fully mitigated his damages claim through ROCK Networks’ earnings during the mitigation period and therefore, Mr. Hickey suffered no damages in relation to his termination by CWC.
[170] A judgment shall issue that Mr. Hickey’s claim is dismissed.
COSTS
[171] Costs are reserved. If the parties cannot come to an agreement on costs of the action, including any costs reserved to the trial judge, on or before January 8, 2021, counsel shall file written submissions in accordance with the following schedule: CWC shall serve and file their costs submissions on or before January 22, 2021; Mr. Hickey shall serve and file responding submissions on or before February 5, 2021; CWC may serve and file reply cost submissions, if any, on or before February 12, 2021 after which time I will determine the issue of costs based on the material filed.
[172] Counsel shall file their written submissions by sending them by email to the Superior Court of Justice civil trial coordinator in Ottawa assigned to this matter.
_____________________________ Muszynski J.
Released: November 25, 2020
Hickey v. Christie & Walther Communications Limited, 2020 ONSC 7214
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH HICKEY
-and-
CHRISTIE & WALTHER COMMUNICATIONS LIMITED
REASONS FOR JUDGMENT
Muszynski J.
Released: November 25, 2020