COURT FILE NO.: CV-21-640
DATE: 20220803
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Mark Andrew Tarras, Plaintiff
AND:
The Municipal Infrastructure Group Ltd., Defendant
BEFORE: C. M. Smith J
COUNSEL: Arthur Zeilikman, Counsel for the Plaintiff
Michael Horvat, Counsel for the Defendant
HEARD: June 10, 2022
ENDORSEMENT
BACKGROUND
[1] This motion is brought by the plaintiff pursuant to Rule 20 for summary judgment for breach of contract/wrongful dismissal.
[2] The plaintiff is a Professional Engineer and one of the former owners and directing minds of the defendant, The Municipal Infrastructure Group Limited (“TMIG”).
[3] The plaintiff and the other former owners of TMIG sold their interests in the company in December 2019, by way of a share sale to T.Y. Lin international Canada Inc., a large international engineering firm.
[4] At the time of the share sale, the plaintiff negotiated an employment agreement with TMIG pursuant to which he became a vice-president. The employment agreement was for a fixed term of three years, until December 2, 2022. The agreement also provided for a gross base salary of $250,000 per annum, along with other forms of compensation, including fringe benefits and an incentive compensation plan.
[5] On November 25, 2020, the plaintiff received a termination letter from TMIG pursuant to which he was dismissed on a “without cause” basis effective December 31, 2020. The plaintiff’s salary and benefits were terminated effective December 31, 2020.
[6] The plaintiff commenced this action and brought this motion as a result.
ISSUES
The parties agree that the issues in this motion are as follows:
Is this an appropriate matter for summary judgment?
Is the termination clause in the employment agreement enforceable?
If the termination clause in the employment agreement is not enforceable, what is the appropriate quantum of damages/notice period?
What are the plaintiff’s obligations concerning mitigation of damages?
ISSUE #1: Is this an appropriate matter for summary judgment?
[7] The parties are in agreement that this matter should be determined by way of summary judgment motion as the only issue in dispute is the enforceability of the termination clause contained in the employment agreement.
[8] The parties have also agreed that neither will seek costs.
[9] Pursuant to Rule 20.04(2)(a), summary judgment is to be granted if the court is satisfied there is no genuine issue requiring a trial.
[10] Rule 20.04(2)(b) requires a court to grant summary judgment where the parties have agreed to all or part of the claim being determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.
[11] In the case of Hyrniak v. Mauldin, 2014 SCC 7, the Supreme Curt of Canada found that there will be no genuine issue requiring a trial when a judge is able to reach a fair and just determination on the merits using the summary judgment process. The court went on to find summary judgment will be appropriate where the underlying process, (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, expeditious and less expensive means to achieve a just result.
[12] In this particular case the parties have agreed that this case should be decided by way of a summary judgment motion. The material facts are not in dispute and the parties have agreed on the issues to be decided. I am satisfied that I can find the necessary facts and apply the relevant law to the evidence in order to resolve the matter. I believe that can be done without resorting to the enhanced powers set out in Rule 20.04(2.2).
[13] There is no dispute about the following, material facts:
• the start date of the plaintiff’s employment was December 2, 2019;
• the plaintiff was notified of his termination without cause November 25, 2020, with a working notice of five weeks until December 31, 2020;
• the employment agreement was for a fixed term of three years commencing December 2, 2019, and expiring December 2, 2022;
• the plaintiff had the benefit of legal counsel through the negotiation, drafting, and execution of the employment agreement; and
• the plaintiff was terminated on a “without cause” basis.
[14] The parties are also agreed the only issue in dispute is the enforceability of the termination clause contained in the employment agreement, which is to be analyzed against the backdrop of the established jurisprudence and the provisions of the Employment Standards Act, 2000, S.O. 2000, c.41, (“ESA”).
[15] Given all of the foregoing I am satisfied that it is appropriate to proceed with this matter by way of summary judgment.
ISSUE #2: Is the termination clause in the employment agreement enforceable?
The agreement
[16] For the sake of convenience, s. 11 of the agreement, which is headed “Termination”, is reproduced here:
(a) Termination for Cause. TMIG may terminate Employee’s employment hereunder for “Cause” immediately upon delivery of a written termination notice to Employee. “Cause” means the repeated and demonstrated failure on Employee’s part to perform the material duties of his/her position in a competent manner, which Employee fails to substantially remedy within a reasonable period of time after receiving written warnings and counseling from TMIG; Employee engaging in theft, dishonesty or falsification of records; Employee willful refusal to take reasonable directions after which Employee fails to substantially remedy after receiving written warnings from TMIG; or any act(s) or omission(s) that would amount to Cause at common law. In the event that Employee’s employment hereunder is terminated pursuant to the provisions of section 11 (a), Employee shall not receive payment of any kind, including notice of termination or payment in lieu thereof, or severance pay, if applicable, save and except accrued and outstanding salary and vacation pay.
(b) Termination Without Cause. TMIG may terminate Employee’s employment in it’s sole discretion for any reason whatsoever without Cause or upon expiry of the Term, by providing Employee with notice of termination, or payment in lieu thereof, or a combination of both, and severance pay, if applicable, pursuant to the Ontario Employment Standards Act, 2000. In addition, TMIG will continue to pay its share of employees benefits, if any, for the duration of the notice of termination., pursuant to the employment standards act of 2000. TMIG will also provide Employee any accrued and outstanding salary and vacation pay.
[17] I have not reproduced clauses 11C and D, which pertain to termination in the event of total disability and resignation, as neither are relevant.
The provisions of the Employment Standards Act, 2000 (“the ESA”).
[18] The ESA sets out the minimum employment standards that an employer must meet. Parties to an employment agreement cannot contract out of those standards: see s.5 ESA: and see Andros v. Collier MacCaulay Nicolls Inc., 2019 ONCA 679 at para 19; and see Waksdale v. Swegon North America Inc., 2020 ONCA 391, at para 10.
[19] Section 5(1) the ESA provides that “no employee or agent of an employer and no employee or agent of an employee shall contract out of or waive any employment standard and any such contracting out or waiver is void.”
[20] Ontario Regulation 288/01, enacted pursuant to the ESA, addresses the issue of termination and severance of employment. Sections 2(1) and 9(1) of that regulation each provide a list of employees who are not entitled to notice of termination, or termination pay, or severance pay. Both sections include an “employee who has been guilty of willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer.”
[21] That clause can deprive an employee of statutory mandated benefits at dismissal. With very few limited exceptions, also set out in sections 2(1) and 9 (1) of the ESA, anything else that deprives an employee of the minimal statutory benefits is considered a breach of the ESA: see for example Peretta v. Rand A Technology Corporation, 2021 ONSC 2111, at paras 44 and 45.
Law and Analysis
[22] Termination in accordance with the provisions of the ESA, and termination for an act or omission that would amount to cause at common law, are two different notions.
[23] The common law meaning of cause is frequently a much lower standard than that of the ESA. For example, section 11(a) of the agreement in this case offers a number of examples of what might constitute cause at common law, which include the following:
• “the repeated and demonstrated failure on Employee’s part to perform the material duties of his/her position in a competent manner”;
• “Employee engaging in theft, dishonesty or falsification of records;
• “Employee willful refusal to take reasonable directions;” or,
• “any acts or omissions that would amount to cause at common law”.
[24] Those clauses do not contain the wording used in the ESA. They create a different standard of behaviour for employees from that set out in the ESA.
[25] That being so, it is possible for the defendant in this case to terminate the employment of an employee who signed an agreement such as this one, for conduct that meets the common law standard of cause, but which does not rise to the standard required by the ESA; see Livshin v. The Clinic Network of Canada Inc., 2021 ONSC 6796 at para 31.
[26] Courts in this province have repeatedly held that any provision in the termination clause of an employment agreement that contravenes the provisions of the ESA, or which deprives an employee of their statutory mandated entitlements under the ESA for conduct lower than the standard set by the ESA, renders the entire agreement void: see Waksdale, supra, at para 10; and see Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451, at paras 29 and 30.
[27] The defendant argues the definition of cause in section 11 of the agreement encapsulates and follows the description set out in the ESA. The defendant urges me to consider the wording as a whole, and to consider as well, the defendant was not the only drafting party, the applicant having helped to co-author the agreement. The defendant also points out the applicant had the benefit of legal counsel throughout the negotiation of the agreement and, is himself an individual with significant commercial experience.
[28] I do not find those arguments persuasive in the context of this particular case. While those submissions might ordinarily carry the day in most contract disputes, the fact is, this particular contract is an employment contract. As has frequently been observed by courts, for example the decision of Dickson CJC in Reference re Public Service Employee Relations Act (Alberta), 1987 CanLII 88 (SCC), [1987] 1 S.C.R. 313 (S.C.C.), the decision of Laskin, JA in Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 at paras 25-28, and paragraph 10 of the decision in Waksdale, there is a power imbalance between employees and employers. Employment is of grave importance to most individuals. It is therefore imperative that the power imbalance between an employer and an employee be curtailed and controlled at every opportunity. The ESA was enacted for that purpose.
[29] The fact of sophisticated parties, the presence of legal counsel, and the fact the employee participated in the negotiation process have all been found to be “subjective considerations” that should not be given any weight whatsoever in cases of this nature. Allowing such factors to override the plain wording of the agreement has been found to be an error of law: see Amberber v. IBM Canada Ltd., 2018 ONCA 571 at para 65, cited in Rahman, supra at para 24.
[30] In its written and oral submissions, the defendant relied heavily on the trial decision in the Rahman case, found at 2021 ONSC 5961, a decision which has now been overtured by the Ontario Court of Appeal. In fairness to the defendant, the Court of Appeal decision did not become available until the day before the hearing of this motion. Nevertheless, in that case the Court of Appeal did find the provisions of the employment agreement in question did not rise to the standard of the ESA, a fact which rendered those provisions void.
[31] The decision of the Court of Appeal in the Rahman case is yet another example of courts finding it is the wording of the termination provision in question which determines whether the agreement in question contravenes the ESA, the fact of actual compliance with the ESA not being a saving factor.
[32] At paragraph 10 of the decision in Waksdale, the court found the correct analytical approach to be taken in cases of this nature is to consider whether the termination provisions of the particular agreement, when read as a whole, violate the provisions of the ESA.
[33] The termination provisions of the agreement in this case, particularly those in s. 11(a) set out above, are clearly in conflict with the provisions of the ESA as they provide a lower standard for termination. As in Waksdale, the fact the parties in this case did not rely on the illegal provisions in section 11(a) is irrelevant and of no moment. The presence of the offending clauses in s. 11(a) renders the entirety of s. 11 of the agreement void and unenforceable.
[34] The answer to the question posed by issue #2 must therefore be no, the termination clause in the employment agreement is not enforceable.
ISSUE #3: If the termination clause in the employment agreement is not enforceable, what is the appropriate quantum of damages/notice period?
[35] The agreement in question provided for a term of employment commencing December 2, 2019 “for a term of three (3) years” with an end date Of December 2, 2022. That is an unambiguous, fixed term agreement.
[36] In the case of Bowes v. Goss Power Products Ltd., 2020 ONCA 425, the court found an agreement which stipulated a fixed term notice, or payment in lieu thereof, should be treated as fixing liquidated damages. The court found there was no material difference where the quantum is fixed or readily calculable from the terms of the agreement.
[37] The Court of Appeal expanded on that theme in the case of Howard v. Benson Group Inc., 2016 ONCA 256. That case involved a fixed term contract with an early termination clause which was found to be non-compliant with the ESA causing the motion judge to award the employee damages at common law. The Court of Appeal found as follows, at paragraph 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.
[38] That same approach was used by the court in McGuinty v. 1845035 Ontario Inc., 2020 ONCA 816, and in the Livshin case, supra.
[39] The defendant suggests the plaintiff ought not be permitted to obtain a windfall by receiving the balance of the employment contract and the amounts owing to him under the sale transaction. I do not find that argument persuasive. In my view the defendant is comparing apples to oranges. The share sale agreement, and the employment agreement, are two completely different agreements, involving two completely separate transactions. The plaintiff is unquestionably entitled to his share of the proceeds of the sale of the business to the defendant. Equally, the plaintiff is entitled to the salary and related benefits conferred upon him by the provisions of the employment agreement.
[40] I find that the plaintiff is entitled to payment arising from the termination of his employment with the defendant in an amount equal to his salary, vacation pay, the proceeds from the incentive compensation plan, and all other employee benefits, for the unexpired term of the employment agreement.
ISSUE #4: What are the plaintiff’s obligations concerning mitigation of damages?
[41] The plaintiff has admitted that he made no efforts to mitigate the damages arising from his termination, and has not looked for work since January 1, 2021.
[42] I expect that is at least in part due to the non-competition clause contained in the employment agreement. No doubt the plaintiff’s age was a factor as well.
[43] In any event, as noted above, the Court of Appeal has found in a number of cases, including Howard V Benson Group Inc, McGinty v. 1845035 Ontario Inc., and Livshin v. The Clinic Network Canada Inc., all supra, there is no duty to mitigate on the part of an employee terminated from a fixed term contract.
[44] I therefore find the plaintiff had no obligation to mitigate his damages in the circumstances of this case.
Conclusion
[45] Summary judgment for the plaintiff in the following amounts:
[1] The total owing for the balance of the fixed term contract, being 23 months salary in the total amount of $479,166.67.
[2] The total value of vacation pay, proceeds of the incentive compensation plan, and all other employee benefits for the period in question. (If the parties are unable to agree on the value of those amounts, they may bring the matter back before me).
[3] Pre- and post-judgment interest in accordance with the provisions of the Courts of Justice Act, R.S.O. 1990, Chap. C.43.
In view of the parties’ agreement, there will be no order as to costs.
C. Smith, J
Date: August 3, 2022