About Irvin Schein

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Termination Clauses in Employment Agreements: How a lack of care may lead to an unintended result

The recent decision of the Ontario Court of Appeal in Rossman v Canadian Solar Inc. provides an excellent summary of the law in Ontario on the enforceability of termination clauses in employment agreements.

Mr. Rossman signed an employment agreement with Canadian Solar containing a termination clause. The clause provided that the employer could terminate Rossman’s employment on giving notice for a period which is the greater of two weeks or that specified by the Employment Standards Act (Ontario) (ESA).

The clause went on to say that if the minimum statutory requirements at the date of termination provide for a greater benefit than as provided for in the employment agreement, those statutory requirements apply.

Strangely, the clause concluded with the following words “benefits shall cease 4 weeks from the written notice.”

Canadian Solar terminated Mr. Rossman’s employment less than two years later. Mr. Rossman sued, and both parties brought motions for summary judgment. The issue dealt with by the motions court judge had to do with the enforceability of the termination clause. He held that it was unenforceable and that Mr. Rossman was entitled to damages at common law. The matter then went to the Court of Appeal.

The Court of Appeal began by reiterating the well-known principle that an employer must provide reasonable notice of termination unless there is an employment contract clearly specifying some other period of notice. Parties are free to agree to any notice period in an employment agreement, but the agreed-upon period cannot be less than the minimum standard stipulated by the ESA. If it is, the clause will be void and the employee will be entitled to common law reasonable notice of termination. In other words, a termination clause in an employment agreement must provide a benefit that is at least equal to the applicable ESA standard.

If even one part of the termination clause contravenes the ESA, the entire clause will be considered void and unenforceable.

As a matter of overall context, the court pointed out that employment agreements are interpreted differently than other commercial agreements, both because work is a vital aspect of the human condition and also because employees are so vulnerable at the moment of termination.

As a result, among other things, the court will interpret a termination clause in a way that encourages employers to draft agreements that comply with the ESA, failing which the consequences will be serious.

Furthermore, and because employment agreements are interpreted in a manner that tends to be generous towards employees, any ambiguity in the termination clause will be construed in the employee’s favour. A termination clause must be clear and unambiguous. Employees are entitled to know at the outset exactly what their rights are in the event that their employment is terminated.

In this case, the Court of Appeal agreed with the motions judge that the termination clause was void because of its last sentence, which limited benefits to a period of four weeks. The Court of Appeal ruled that there were two reasons why this part of the provision rendered the entire clause void.

Firstly, it placed a four-week limitation on the amount of benefit that Mr. Rossman could expect in the event of termination. The ESA provides for a sliding scale of up to eight weeks in the case of an employee whose employment is terminated after eight years of employment. Therefore, capping the benefits at four weeks has the potential of providing the subsequently-terminated employee with less notice than that stipulated by the ESA.

Canadian Solar argued that Mr. Rossman’s employment was terminated before this last provision would be applied as he had worked for the company for less than two years. Accordingly, his ESA entitlement would not have been as much as four weeks.

The court dismissed this argument, pointing out that the validity of a clause is to be determined based on the situation at the time that the agreement is signed, not at the time that the employment is terminated. If a termination clause has the potential for contravening the ESA, that is enough to render it void.

Secondly, the court pointed out that the final words in the clause created an ambiguity. The clause stated initially that statutory benefits would govern if they provided benefits greater than otherwise specified in the clause. However, at the end of the clause, benefits are said to be restricted to four weeks. This is totally inconsistent with the earlier reference to the paramountcy of the statutory requirements.

As the clause was ambiguous, it would be considered unenforceable.

Accordingly, as the termination clause was struck down, Mr. Rossman was found to be entitled to common law notice.

The court concluded its reasons by reiterating that employees are entitled to know all of the conditions of their employment with certainty, and particularly their entitlement in the event of termination. Employees tend to be vulnerable when negotiating employment agreements with employers who hold unequal bargaining power in these negotiations. The purpose of the ESA is to protect employees and ensure that they receive fair treatment upon termination and, as a result, the court will be vigilant in striking down termination clauses that run afoul of the ESA.

There is no suggestion in the court’s decision that Canadian Solar acted deliberately in attempting to slip something past Mr. Rossman in the hope that he would not recognize the issue. However, even if one were to assume that the final words in the clause were inserted unwittingly, this case makes it clear that it is critically important for termination clauses to be drafted with the utmost care.

Can Amazon be liable for the sale of defective goods by third parties?

As we all know, Amazon.com, Inc. and its Canadian affiliate, Amazon.ca, are giants in the world of e-commerce. As most realize, the bulk of sales of products on the Amazon websites involve products produced by third party sellers and sold through Amazon as a sales vehicle. The interesting question is whether or not Amazon can be held liable if any of these products proves to be defective to the extent that the purchaser of the product suffers loss or damages.

In the United States, the issue appears to have been considered in at least six cases in various American states. In three cases, the courts ruled that Amazon is not a seller of products sold by third parties on the Amazon website. Accordingly, Amazon is not liable for damages caused by defective products. In another three cases, the courts reached the opposite conclusion.

The most recent decision on the point involved a blender purchased by a sushi restaurant on Amazon from a Chinese third party seller. The Chinese seller had paid Amazon for “Fulfillment by Amazon” services. When the purchaser placed the order, Amazon packaged the blender in an Amazon box and sent it directly from its Fulfillment Centre in Virginia to the restaurant. The blender allegedly started a fire, possibly because of a defect in the product.

Amazon moved for summary judgment to dismiss the claim against it. The court ruled that because Amazon had never actually taken title to the blender, it was outside the distribution chain. Furthermore, it ruled that Amazon owed no duty to the restaurant owner because it did not manufacture, sell, or distribute the blender.

Clearly Amazon did not manufacture the blender. The question as to whether or not Amazon may be considered to have sold or distributed it, however, it is obviously open to debate. The debate has not been resolved in the United States.

I have been unable to find any reported cases in Canada where the same issue was raised against Amazon.ca. Perhaps it is only a matter of time. Given the lack of consensus in American courts, it will be very interesting to see what position Canadian judges take on the point.

The Latest on Creative (but Unsuccessful) Attempts to Get Out of a Really Bad Real Estate Deal

In the recent case of Forest Hill Homes (Cornell Rouge) v Peimian Ou, Mr. Justice Morgan of the Ontario Superior Court dealt with a summary judgment motion relating to an aborted real estate deal.

In this case, Ou agreed to purchase a home to be built from the plaintiff, Forest Hill Homes, for about $1.7 million. Ou provided deposits that added up to over $100,000 and, on closing, had to come up with almost $1.6 million to close.

On that day, Forest Hill Homes was ready to close the transaction, but Ou did not have sufficient funds.

This apparent breach of contract led to a lawsuit and ultimately to a motion for judgment brought by Forest Hill Homes.

At the motion, Ou brought out a series of arguments in an attempt to concoct a defence to what seemed to be an indefensible position.

Firstly, he argued that his performance of his obligation to close was made impossible by a drastic and unforeseeable drop in the real estate market. This, in turn, made it impossible for him to obtain the required financing. Accordingly, the contract was frustrated and Ou should be relieved of the obligation to close.

In fact, the property which he had agreed to purchase for over $1.7 million was, as at the date of the motion, worth just over $1 million. The fact that the real estate market had dropped significantly could not be challenged. However, and not surprisingly, the Court ruled that this did not amount to a frustration of contract. For a contract to be frustrated, there must be a radical change that transforms the nature of the contract. Here, the parties had intended that the property be sold for an agreed-upon sum. These were the essential terms of the contract and they did not change because of a drop in the market.

Ou then argued that the plaintiff’s sales agent had misrepresented the sale to them. The alleged misrepresentation took the form of the sales agent describing the deal as “the opportunity of a lifetime.” Supposedly this was said to Ou on the day that he signed the agreement of purchase and sale.

This language has been put forward in Court as a basis for a claim of misrepresentation on numerous occasions. It never works. The Court of Appeal has made it clear that to have an effect in law, a representation must be in respect of an ascertainable fact and not a mere opinion. A statement of opinion, judgment, probability, or expectation, or as merely a loose conjectural or exaggerated statement, does not count. This is because the person hearing the statement is not justified in relying on it.

Therefore, even if the sales agent did make that statement, it could never amount to an actionable misrepresentation.

Furthermore, and as is usually the case, the sales agreement contained a clause that made clear that any pre-contractual representation could not be relied upon.

Finally, Ou claimed that he had paid a bribe to the agent to jump the queue of potential purchasers and sign the sales agreement quickly. He argued that this excused his failure to close. In fact, there is no authority in Ontario for the proposition that a person who pays a bribe can have the contract rescinded as a result. In fact, the authorities are clear that it is the defrauded principal of an agent who takes a bribe, not the party paying the bribe, who can have the contract rescinded for that reason.

The last interesting point arising from this case has to do with the plaintiff’s claim for interest.

The agreement of purchase and sale provided that the plaintiff could charge interest in the amount of 20% of the purchase price if Ou failed to pay the balance due on closing. Ou argued that this was excessively onerous and ought not to be enforceable.

Our Court of Appeal has made it clear that a surprisingly onerous term of a contract may be unenforceable if it cannot be presumed that the non-drafting party had actually agreed to it. In other words, a stringent and onerous provision can only be relied upon if the party seeking to do so can show that reasonable measures were taken to draw the terms to the attention of the other party.

In this case, there was no evidence that this particular provision had been drawn to Ou’s attention when he signed the agreement of purchase and sale and accordingly, the plaintiff was unable to enforce it.

At the end of it all, judgment was awarded against Ou for over $500,000, being the difference between the purchase price and the value of the property at the time of the motion. In addition, he forfeited his deposits.

This would seem to be a rather extreme consequence arising from a drop in the real estate market, but unfortunately for Ou, that is simply how the numbers turned out.

When is the driver of a car considered not to be in possession of their own vehicle?

In the recent Court of Appeal decision in McKay v. Park, Hnatiuk and TD Home and Auto Insurance Company, the court dealt with a situation in which Ms. Park and Mr. Hnatiuk were driving together in a vehicle. Ms. Park was behind the wheel. The two individuals argued and Mr. Hnatiuk reached over from the passenger seat and grabbed and pulled the wheel of the vehicle. The vehicle immediately collided with another vehicle that carried the Plaintiff. The Plaintiff was seriously injured. The Plaintiff sued both Ms. Park and Mr. Hnatiuk.

Against Ms. Park, the Plaintiff alleged that Ms. Park had been negligent and was vicariously liable for the negligence of Mr. Hnatiuk. The Plaintiff relied on a provision in the Highway Traffic Act that provides for vicarious liability for a car owner due to the negligence in the operation of their car unless the car, without the owner’s consent, was “in the possession” of a person other than the owner.

Normally, this type of exception would apply to situations in which a car is stolen and then becomes involved in an accident.

In this case, the car was not stolen but the wheel was pulled by a passenger while the owner was sitting in the driver’s seat, without the owner’s consent. Does that mean that Ms. Park was not “in possession” of the car?

Ms. Park brought a motion for summary judgment dismissing the Plaintiff’s action against her on the basis that she was not in possession of the vehicle within the meaning of the statute. The motion court judge agreed and dismissed the action against Ms. Park. The decision was appealed to the Ontario Court of Appeal.

At the Court of Appeal, the argument was made that the motion judge had erred by not applying the law of possession properly. The Appellant took the position that despite Mr. Hnatiuk’s act of seizing the wheel, Ms. Park remained in possession of the vehicle. This ground of appeal failed. The Court of Appeal agreed with the motion judge that by seizing the wheel, Mr. Hnatiuk had taken control of the car away from Ms. Park. It affirmed that the purpose of vicarious liability under the Act is to have owners assume the risk of those they have entrusted with their motor vehicle. In this case, Ms. Park never entrusted Mr. Hnatiuk with her motor vehicle.

The Appellant also argued that Ms. Park had been negligent on several theories. It was argued that Ms. Park was negligent in operating the vehicle while Mr. Hnatiuk was agitated in the front passenger seat, knowing that he had a volatile and impulsive character. In addition, the argument was made that she had been negligent in driving while distracted by the emotion of the argument.

The Court of Appeal rejected these arguments. It felt that the motion judge had been entitled to find that Mr. Hnatiuk’s actions were not foreseeable, that any agitation Ms. Park may have had did not contribute to the accident, and that there was no element of negligence in the manner in which she conducted herself.

It does not appear from the reasons issued by the Court of Appeal that any consideration had been given to the possibility that Ms. Park could have slammed her foot on the brake at the time that Mr. Hnatiuk seized the wheel. One is left to wonder whether or not this might have helped avoid the accident altogether. There is also no evidence as to whether or not Ms. Park attempted to resist Mr. Hnatiuk’s pulling of the wheel.

In any event, this rather bizarre fact situation does seem to have led to a sensible result. It is indeed possible for someone to be sitting in the driver’s seat of a moving vehicle without being in possession of it. It is also a good idea for passengers to keep their hands to themselves!

The Latest on Representations and Warranties in Real Estate Contracts

In my blog post on June 28, 2017, entitled “Real Estate Transactions and Misrepresentations: When Can a Purchaser Back Out of the Deal?“,  I reviewed the Superior Court decision in Beatty v. Wei. That case involved the sale of a residential property. The sale agreement included a clause in which the seller represented and warranted that during the time that the seller owned the property, it had not been used to grow or manufacture any illegal substances. The clause also provided that at the best of the seller’s knowledge and belief, the property had never been used for that purpose by anyone else.

Between the date that the sale agreement was signed and the closing date, the purchaser’s real estate agent discovered that the property had in fact been used to grow marijuana plants before the seller had purchased the property. There was no evidence that the seller had known this before, but everybody now knew this prior to closing.

The purchaser took the position that as at the closing date, the seller’s representation that to the best of his knowledge, the property had never been used for this purpose, was no longer true. As the purchaser felt that this fact devalued the property, he refused to close.

When the issue came to Court, the judge ruled in favour of the purchaser. The judge concluded that the seller’s statement that to the best of his knowledge, the property had never been used to grow illegal substances had to be true not only at the date of the sale agreement, but right up until the closing date. As this was not the case, the purchaser was entitled to back out of the deal.

The seller appealed that decision to the Ontario Court of Appeal.

In a decision released earlier this summer, the Court of Appeal reversed the lower Court judge’s decision and found in favour of the seller. After a discussion about the differences between representations and warranties in real estate contracts, the Court of Appeal focused on the essential issue in this case, which was the effective date of the representation contained in the sale agreement as to the seller’s knowledge about the previous use of the property. In the view of the Court of Appeal, the seller’s representation and warranty that the property had never been used to grow illegal substances referred only to his knowledge and belief as it existed at the date that the sale agreement was signed. There were several reasons for this conclusion.

Firstly, the Court found that this interpretation was more consistent with the plain language in the clause in the sale agreement itself.

Secondly, there was an absence of any language in the clause dealing with the seller’s knowledge at the date of closing, unlike a number of other clauses in the sale agreement.

Accordingly, the Court of Appeal concluded that the representation as to the seller’s knowledge and belief had to be true as of the date of the sale agreement when the representation was made. It did not have to continue to be true up to the date of closing. For the purchaser to have succeeded, he would have had to prove that the seller knew at the time that the sale agreement was entered into that the house had been used for this purpose in the past. There was no evidence to this effect at all.

This case highlights the fact that purchasers must be careful to protect themselves in these circumstances right up until the closing date by insisting that any representations and warranties, relating both to existing facts and to the state of the seller’s knowledge, be true and correct as of the closing date.

A Commercial Tenant Fails to Pay Rent and Gets Locked Out: Will the court let them back in?

The scenario is not terribly unusual, especially in tough times. A commercial tenant falls behind in rent and fails to bring it current notwithstanding the landlord’s demands. The landlord finally decides to terminate the lease and arranges to have the locks changed, shutting the tenant’s business down. The tenant scrambles to find the money to bring the rent into good standing so that he can save his business. Is it too late?

A tenant in such circumstances does have the right to ask the Court to order the landlord to let the tenant back in, under the doctrine of relief from forfeiture.

As the Court pointed out in the case of 931576 Ontario Inc. v. Bramalea Properties Inc., generally speaking the Courts do not look favourably upon the forfeiture of a lease. Where a lease has been terminated for non-payment of rent, the Court will generally grant relief from forfeiture where the tenant comes to Court with “clean hands”, there has been no outright refusal by the tenant to pay rent, the rent has been in arrears for only a short time, and the landlord has not suffered any serious loss because of the delay in paying rent.

Where the tenant has breached terms of the lease other than those relating to the payment of rent, its chances of obtaining relief from forfeiture will depend upon its ability to remedy the default. In the case of non-monetary defaults, the landlord is obliged under Ontario legislation to provide the tenant with notice of default and a reasonable opportunity to cure it. If a default is curable but the time given by the landlord in which to remedy it is unreasonably short so that the tenant does not have a realistic opportunity to address the issue, the tenant might reasonably expect to receive favourable consideration from a Court. If the breach cannot be remedied regardless of the amount of notice provided, the tenant should not expect to succeed.

Even where the issue is non-payment of rent and the tenant shows up in Court with a certified cheque in hand, that will not end the matter. Where the tenant’s track record in terms of the payment of rent and the observance of other covenants in the lease is poor, or the tenant’s behaviour generally has been disruptive, the Court may well determine that the tenant has not come to Court with clean hands and the tenant’s application for relief from forfeiture will be denied.

As in most business relationships, one reaps what one sows. Tenants should be mindful of the fact that their behaviour during the currency of the lease may well be relevant in the event of a breach at some future date. Landlords wishing to be rid of problem tenants should be ready to pounce in the event of what may be even a minor breach, as a tenant in such circumstances may be unable to get back in even if they are ready and able to bring the rent into good standing.

The Uber Powerful Impact of Arbitration Clauses

In the recent case of Heller v. Uber Technologies Inc., the Court dealt with a case in which Mr. Heller, an Uber food delivery driver, attempted to bring a class action on behalf of all Uber drivers against Uber. Mr. Heller sought a declaration from the Court that all of the drivers are employees of Uber and thereby entitled to the benefits of Ontario’s Employment Standards Act. Uber brought a motion to the Court to stop the action on the basis that any complaint by Mr. Heller would have to be dealt with by way of arbitration in the Netherlands.

As the Court noted, Uber carries on a global business in which it characterizes itself as a vendor of “lead generation services” which it sells to transportation providers. It denies that it is a transportation company. There is a fierce debate, yet to be resolved, about whether Uber drivers are independent contractors or employees.

The main Uber company is incorporated under the laws of the Netherlands and has its offices in Amsterdam. Uber Canada Inc. is a Canadian company that simply provides marketing and administrative support for Uber apps in Canada. It has no contractual relationship with the users of the Uber apps.

Uber’s business model is to licence a “Rider App” to consumers, and a “Driver App” to drivers who use it to open an account and become a driver. Drivers respond to ride requests and are paid through the Driver App. In exchange for providing the Driver App, Uber charges the driver a fee.

A similar business model is used for consumers who wish to order food from restaurants and have it delivered to them.

Drivers enter into service agreements electronically under which they are granted a licence to use the Driver App. The service agreements specify that the parties are not in an employment relationship.

Each service agreement is stated as being governed by the law of the Netherlands. It contains an arbitration clause that requires that any disputes arising in any way connected to the agreement must be resolved by arbitration in Amsterdam.

Mr. Heller entered into a service agreement in 2016. Several months later, he started his proposed class action seeking a declaration as to his employment status and a finding that Uber had violated the Ontario Employment Standards Act. He did so in the face of the arbitration clause requiring all disputes to be determined by arbitration in the Netherlands.

The Supreme Court of Canada has made it clear that the Court will enforce mandatory arbitration clauses unless it is clear that the dispute falls outside the scope of the clause. Where it is unclear as to whether or not the dispute falls under that clause, the arbitrator will have the power to rule on that issue and determine the limits of his or her own jurisdiction. Accordingly, the Court will defer the issue of jurisdiction to the arbitrator. In this case, the Court was satisfied that it should be left to the arbitrator to decide whether he or she has jurisdiction to determine whether or not Uber drivers are employees.

The Court pointed out that there is a “very strong legislative direction” under the arbitration statutes and numerous cases holding that the Court should only refuse to refer a matter to arbitration if it is clear that the dispute falls outside of the arbitration clause. This was not such a case.

As a practical matter, of course, this decision will almost certainly end the matter. The idea that any Canadian driver would actually commence an arbitration proceeding in the Netherlands over this issue is difficult to take seriously given the practicalities involved.

The point to be taken from the case, is that before agreeing to the terms of a business relationship where the contract contains an arbitration clause, some attention should be paid to it. In situations like Uber, where all of the documentation appears online and there is no actual negotiation of any of its points, it is all too easy to simply click “I Agree” without reading the provisions to which one is agreeing. When a contract requires disputes to be arbitrated in some foreign country, the person signing it needs to know that enforcing his/her rights will be very difficult and expensive. That is something that people should recognize at the outset of a business relationship, and not simply once a dispute arises.