Alberta Employment Update - Winter 2012

Davis LLP Employment & Labour Bulletin


IN THIS ISSUE

  • Non-competition agreements and the duty to mitigate. The Alberta Court of Queen’s Bench held that an employee who took personal time off after his dismissal was acting reasonably considering a non-competition agreement kept him from working in his industry.
  • Mitigating while in school. The Alberta Court of Queen’s Bench held that a dismissed employee need not mitigate by seeking full-time employment when she had previously only worked part-time for her employer due to taking university courses.
  • The cost of sexual harassment allegations. The Alberta Court of Appeal held that a jury award for $300,000 in punitive damages was inordinately high for a dismissal based on fabricated sexual harassment allegations. The award was reduced to $75,000.
  • Lost “Book of Business” not worthy of additional damages. The Alberta Court of Appeal held that a trial judge’s award to the plaintiff of $1.6 million in damages for his “lost book of business” arising from his dismissal as an investment adviser had no basis in law as a separate head of damages.
     

Angeltvedt v. Flint Field Services Ltd.

Alberta Court of Queen’s Bench, 2010

Facts:

The plaintiff Angeltvedt sold his business to Conex Rentals Corporation (“Conex”), a company related to the defendant Flint Field Services Ltd. As part of the asset purchase agreement, the plaintiff contracted to provide consulting services to the defendant for two years and entered into a non-competition agreement with Conex for the same period of time. The consulting agreement provided that the plaintiff would assist with managerial duties, would be responsible for all means of carrying out the consulting services, and would mutually determine with the defendant the locations of said services. The agreement also provided that the plaintiff would perform all duties reasonably assigned or delegated by the defendant, and that the defendant reserved the right to terminate without notice or payment of compensation if the plaintiff failed to comply with any reasonable instructions.

After 13 months under the consulting agreement, the plaintiff was assigned the task of reviewing the defendant’s safety and operations manuals, to be completed at the Lloydminster office during fixed business hours (the “Manual Review”). The plaintiff informed the defendant that the Manual Review was outside the scope of the consulting agreement and that he consequently declined to perform the assignment.

The plaintiff was not assigned any further work under the consulting agreement and he did not seek out further employment. He took a month long vacation at his cabin, devoted more time to helping his family’s ranching operation, and after several months, pursued an investment opportunity that was concluded in approximately 2 months. The plaintiff became president of the new company, approximately 10.5 months after declining to perform the Manual Review.

Issues:

The issues in this case were whether the Manual Review was a repudiation of the consulting agreement, and if so, whether the plaintiff had failed to mitigate his losses in the 10.5 months he did not seek out alternative employment.

Decision:

The Court acknowledged that repudiation arises in employment law when there is a unilaterally imposed fundamental or substantial change to an employee’s contract of employment resulting in termination, entitling the employee to believe he has been constructively dismissed. The Court held that the plaintiff’s duties were “substantially altered” when he was told to complete work that would typically be performed by non-managerial or subordinate employees or consultants. The Court further held that while the nature of the Manual Review was sufficient to constitute repudiation, the additional location and scheduling restrictions for the task clearly indicated repudiation. The Court held that, viewed objectively, a reasonable person would conclude that the defendant’s actions in assigning the Manual Review and the related restrictions indicated that the defendant no longer intended to be bound by the consulting agreement.

The duty to mitigate is a duty to act reasonably in the circumstances. The innocent party has no obligation to accept a position of a different character or lower status. The plaintiff therefore could not be obliged to leave the Provost region, nor to change career paths. The Court held that given that the non-competition agreement limited his opportunities, the plaintiff acted reasonably in seeking out a new business venture, and the two month negotiation of this transaction was also reasonable.

 

West Care Pharmacy Ltd. and Shirin Bhimani v. SwiftRx Ltd., Minit Drug Company Ltd., NC Britton Holdings Ltd. and Barney Britton

Court of Queen’s Bench of Alberta, 2008

Facts:

West Care Pharmacy Ltd. (“West Care”) was created by the plaintiff Shirin Bhimani (“Bhimani”), who was also its principal officer. The defendant SwiftRx Ltd. (“SwiftRx”) was solely owned and controlled by the defendant Barney Britton (“Britton”), who was also the sole owner and controller of the defendants Minit Drug Company Ltd. (“Minit”) and NC Britton Holdings Ltd. (“NC”).

West Care and SwiftRx entered into an Asset Purchase and Sale Agreement (the “Agreement”) by which the business and assets of the online pharmaceutical company West Care were transferred to SwiftRx. In addition to the assets and business sold, the Agreement provided that SwiftRx would employ Bhimani as a pharmacist at an annual salary of $100,000 for two years, based on a four day work week to accommodate her MBA studies. The Agreement also provided that Bhimani agreed to be employed by SwiftRx for this two year period. The Agreement also contained a non-competition agreement stating that Bhimani could not compete in the mail order pharmaceutical business for two years.

Bhimani began employment with SwiftRx, although the majority of her work was for Minit. After fourteen months, Bhimani submitted a written proposal regarding her future with the venture, and her potential role following the end of her two-year contract. Bhimani and Britton met to discuss this proposal and some complimentary concert tickets were received by Bhimani. This meeting culminated in a decision that the parties no longer wished to work together and the terms of the separation would be agreed upon at a later date. The following day, Bhimani received a letter from Britton asking her to vacate the premises. Bhimani spoke to Britton on the telephone and agreed to stay off the premises until his return. Britton said he would contact Bhimani on the following Monday but never called her again.

Bhimani sought part-time employment that would accommodate her school schedule and after 3 months of unemployment, found a relief position as a pharmacist for 2 days per week.

Issues:

The employment issues in this case were whether SwiftRx was in breach of the Agreement for prematurely terminating Bhimani’s term of employment, and whether Bhimani failed to mitigate when she chose not to seek full-time employment.

Decision:

Bhimani was constructively dismissed. Although she agreed to discuss the possibility of terminating her employment contract following her meeting with the Brittons, no terms were formally agreed upon and she returned to work the following day with the expectation of continuing her position until such agreement was reached. Bhimani stayed off the premises based on Britton’s promise to call her, a promise Britton acknowledged he did not fulfil. This entitled Bhimani to assume the terms of the Agreement had been substantially altered and she had been unilaterally terminated.

The Agreement contained no express provisions regarding severance payments, obligations to continue payment, or waiver of the duty to mitigate, and therefore Bhimani had a duty to mitigate despite the fixed term of the Agreement.

The Agreement, however, provided for a four-day work week, and on reliance on this Agreement, Bhimani enrolled in an MBA program. It was therefore reasonable for Bhimani to seek alternate employment in her field that did not prohibit her from continuing her studies.

 

Daniel John Elgert v Home Hardware Stores Ltd, Christa Bernier and Diane Stengle

Alberta Court of Appeal, 2011

Facts:

The plaintiff Elgert was employed by the defendant Home Hardware Stores Ltd. (“Home Hardware”) as a supervisor at the Distribution Centre for 17 years when he was terminated without notice following allegations of sexual harassment made by defendants Christa Bernier (“Bernier”) and Diane Stengle (“Stengle”).

The plaintiff submitted negative comments on Bernier’s performance review and transferred her to a different department. Witnesses testified to comments by Bernier regarding her desire to “get even” with the plaintiff. Shortly thereafter, Bernier told her father, manager of the Distribution Centre, and her co-worker, Ms. Bowen, of an alleged incident of sexual harassment by the plaintiff. Bernier also told the story of her alleged harrassment to other coworkers (including Stengle) after Stengle had recounted a similar story. However, Stengle later testified that she never filed a complaint regarding her own alleged incident because she thought it was all a joke.

Subsequently, Bernier’s father informed Head Office of the alleged incident, and Bernier’s co-worker Ms. Bowen informed the Distribution HR Manager Ms. Borowdawka, who similarly informed Head Office. Head Office HR Mr. Gingrich sent a Mr. Kirck (who had no experience of sexual harassment investigations) to conduct an investigation. Both Mr. Gingrich and Mr. Kirck were close personal friends of Bernier’s father.

The investigation consisted of oral conversations with Ms. Bowen, Ms. Borowdawka, and Bernier. Immediately following the conversation with Bernier, Mr. Kirck suspended the plaintiff, accusing him of sexual harassment but refusing to give any particulars, despite the pleas and tears of the plaintiff. The plaintiff was then escorted out of the premises, and was not permitted to collect his belongings from his workstation. The plaintiff begged Mr. Kirck to do a thorough investigation as he believed someone may have been out to get him.

Immediately following the suspension, Mr Kirck told the plaintiff’s son that the plaintiff had been suspended for sexual harassment. When the son asked if there would be an investigation, Mr. Kirck told the plaintiff’s son that he would not have suspended the plaintiff if he had not been 100% sure of his guilt.

Counsel for the plaintiff and defendants agreed on the questions to be put to the jury at trial. The jury responded that the plaintiff had not committed the alleged acts of sexual harassment, and awarded the defendant two years’ pay in lieu of notice, $200,000 aggravated damages, $300,000 punitive damages, interest, and costs. They further concluded that the defendants, Bernier and Stengle, defamed the plaintiff and awarded him damages of $50,000 and $10,000, respectively.

Issue:

The issue on appeal was whether the trial judge erred by leaving the issue of aggravated and punitive damages with the jury. The appellants further submitted the damage awards were inordinately high.

Decision:

In order to grant aggravated damages there must be evidence that the employer acted badly in the course of the dismissal, and evidence that the employee suffered actual damages as a result of the manner of the dismissal (versus the fact of dismissal). The Court of Appeal held that the element of bad faith was clearly met by the inclusion of Bernier’s father in the matter, the carriage of the investigation by two of his friends, Mr. Kirck’s conduct during the meeting with Bernier, and the failure to conduct an appropriately broad investigation taking into account Bernier’s motives against the plaintiff. The Court of Appeal, however, also found that the plaintiff had failed to prove that his distress arising from termination stemmed from the manner of termination, and not just the fact of the dismissal. The Court of Appeal held that aggravated damages should not have been put to the jury and therefore set aside the $200,000 award.

In the context of wrongful dismissal, punitive damages are awarded for malicious or high-handed conduct giving rise to an independent actionable wrong. The Court acknowledged that although an employer cannot be faulted for honestly believing an allegation of sexual harassment, and should not be punished due to a clumsy investigation, the employer is not permitted to conduct an unfair investigation or behave in vindictive or outrageous ways. The Court held that there was sufficient evidence to leave punitive damages with the jury, but found the amount awarded was inordinately high and reduced the $300,000 award to $75,000.

The Court of Appeal also acknowledged that the $60,000 to be apportioned for defamation was high, but not unreasonable, and therefore declined to interfere.

 

Merrill Lynch Canada Inc v. Soost

Alberta Court of Appeal, 2010

Facts:

The respondent Soost was summarily dismissed from his position as a financial advisor by the appellant Merrill Lynch Canada Inc., who believed it had several grounds for dismissal, including failure to comply with regulatory authorities. The trial judge held that most of these grounds existed, but that they were not so severe to justify dismissal. The respondent found a new job after three weeks; however many of his former clients did not follow him to this lesser employer, resulting in a substantially lower income. The trial judge awarded a year’s pay in lieu of notice ($600,000) and $1.6 million in damages for damage to reputation and book of business or goodwill.

Issue:

The issue on appeal was whether the trial judge can award significant damages for the fact of an employee’s dismissal, the stigma that dismissal brings, or for the employer later competing with the ex-employee for the clients before the ex-employee has obtained a new job.

Decision:

The Court of Appeal held that the second damage award of $1.6 million had no basis in law and attempted to compensate for a detriment arising as a product of dismissal, rather than for an absence of reasonable notice.

The Court held that damages due to dismissal with neither reasonable notice nor pay in lieu cannot exceed what pay in lieu would have been. The only exception to this is “Honda damages”, which the Supreme Court of Canada granted in Keays v Honda Can. for methods of dismissal which were unduly unfair or insensitive. This level of behaviour cannot be due to sloppiness, but rather must be malicious or show blatant disregard for the company. The Court of Appeal held that the good faith of the company and its honest belief of cause were well-founded, and therefore Honda damages cannot apply.

The Court of Appeal also held that the compensatory damages stem from the right to reasonable notice or pay in lieu, and not from the damages for loss of a job. Although the plaintiff lost significant income with the loss of his clients upon dismissal, the dismissal itself was not a wrong, and therefore there can be no compensation for it.

The valuation of the “book of business” was based on a calculation of annual commissions. However the annual fee (and therefore the $600,000 for pay in lieu) is calculated based on the valuable fees from trades the plaintiff induced his customers to make, so the compensation of a year’s income and compensation for the book amounted to double counting.

Lastly, the Court of Appeal held that after an employer and employee part ways they are free at once to compete with each other for clients absent any confidential information or restrictive covenant, and that unfair competition therefore could not in law amount to a separate mode of dismissal and head of damages under Honda damages.

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