The recent decision of the Ontario Court of Appeal in Howard v. Benson Group Inc. clarifies the current state of the law on the duty to mitigate where a fixed term employment contract is terminated early.

In this case, Mr. Howard was employed at the Defendant’s auto service center as a manager. He had a written employment contract for a five-year term starting in September, 2012.  His employer terminated the contract after almost two years, without cause.

The contract included the following provision concerning the employer’s right to early termination without cause:

“Employment may be terminated at any time by the Employer and any amounts paid to the Employee shall be in accordance with the Employment Standards Act of Ontario.”

The employer took this to mean that it had the right to terminate the contract early at any time, at which point it would be liable to the employee only for statutory benefits.

Mr. Howard’s position was that he was owed the full amount that would have been payable for the balance of the employment contract, as a lump sum.

The matter went to trial. The trial judge concluded that the early termination clause was so ambiguous as to be unenforceable.  He then concluded that the employee was entitled to damages, but the damages were to be calculated on the basis of reasonable notice at common law.

Furthermore, the judge determined that in accordance with usual common law principles, the employee had a duty to mitigate those damages.

The employee appealed to the Court of Appeal both on the question of the applicability of common law reasonable notice in these circumstances, and on the question of his having a duty to mitigate.

The Court of Appeal allowed the appeal. It ruled that as the relationship was governed by a fixed term contract, the common law presumption of the employer having an implied obligation to provide reasonable notice of termination was completely displaced.  The judge’s characterization of the early termination clause in the agreement as ambiguous was not challenged by either party but the Court of Appeal considered that whatever it meant, it did not alter the fact that this was a fixed term contract.  Accordingly, the employer was liable for the immediate payment of everything that would have been paid to the employee over the balance of the term of the contract had it not been terminated.

The Court of Appeal went on to determine that in such circumstances, the employee was under no duty to mitigate. As a fixed term employment contract requires the employer to pay the employee to the end of the term, in effect this means that the parties have contracted out of the common law approach to reasonable notice subject to mitigation.

As a result, even if Mr. Howard had obtained another job the day after his employer terminated the fixed term employment contract, he would have been entitled to payment of the balance under the contract.

This points up the very serious consequences of a fixed term employment contract that does not have a clear and unambiguous provision for early termination, specifying the rights and obligations of the parties in that event. Clearly, a clause simply saying that the employer may terminate early, without specifying those consequences, cannot be relied upon by the employer to escape the obligation to pay the balance due under the contract.

At common-law, where a property is purchased with one person’s money and title is put in the name of another, there is a presumption that the title holder holds title in trust for the person who contributed the money.

This principle was at the basis of a recent Court of Appeal decision in the case of Andrade v. Andrade.

Luisa Andrade, a widow and mother of 7, immigrated to Canada from Portugal in 1969 accompanied by her oldest daughter who was then 17. She worked as a cleaner for a number of years saving money for plane tickets to bring over the rest of the children.  They finally arrived in 1972.

Luisa stopped working to look after her children. One by one each of the children left school and began working while they were teenagers.  While they continued to live at home they gave their earnings to their mother to support the family.  This continued until each got married and moved out.

The family lived in a series of apartments but by 1974 Luisa had decided to buy a house. She found a house that would be suitable for her family and bought it for $58,500.  She signed the offer to purchase and borrowed a cash deposit of $1,000 (which she subsequently repaid).  For the most part the balance of the purchase was paid with 2 mortgage loans.

She arranged for title to the house to be put in the names of her oldest son, Henry, and her second daughter, Maria Jesus, both of whom were employed. At the time, Henry was 19 and Maria Jesus was 18.  They signed the mortgages.

Five years later, in 1979, at Luisa’s direction, Maria Jesus transferred her registered interest to younger brother Joseph. The mortgages were renewed in the names of Henry and Joseph.

The house was large enough to include separate apartments. The apartments generated rental income which was collected by Luisa.  At one point Henry and his wife occupied one of the apartments and paid rent to his mother as well.

Joseph died in 2007. At the time he was married to the plaintiff in this action, Manuela Andrade.  In 2008, she demanded that the house be sold and that half of the sale proceeds be paid to her, as the beneficiary of Joseph’s estate, saying that Joseph had been a beneficial owner of half of the house since it was purchased.

Luisa, supported by everyone else in the family, insisted that Luisa was actually the beneficial owner of the house and that Henry and Maria Jesus, at first, and Joseph, subsequently, only held title as trustees for Luisa.

During the litigation, Luisa passed away. The action continued to trial against Henry and Luisa’s estate.

At trial, Manuela was successful. The trail judge ruled that at the time of the purchase, Luisa had no money of her own.  She had paid the expenses involved in the house with her children’s money and not her own.  He found no evidence of a joint intention on the part of Luisa on one hand and Henry and Maria Jesus on the other hand that the latter two would hold title in trust for their mother.  The trial judge ordered that the house be sold, the half the proceeds be paid to Manuela, and that the estate pay Manuela over $237,000 in costs.

The matter was appealed to the Court of Appeal. The Court of Appeal reversed the decision, holding that the trial judge had made a number of mistakes.

Firstly, the trial judge erred in concluding that Louisa had no money of her own at the time of the purchase. In fact, she was the one who had borrowed the deposit and she was the one who paid it back.  The money that was in her account and used to pay the expenses relating to the purchase and subsequent expenses for maintaining the home may well have been provided to her by her children but the trial judge was wrong in concluding that therefore, this was her children’s money.  Once her children gave their paycheques to Luisa, it became her money.

Secondly, the trial judge erred in concluding that in order to determine whether or not a trust existed, the court would look for an intention of both Luisa and her children that a trust would exist. In fact, only Luisa’s intention was relevant since she was the one paying the money and directing that the title be taken in the names of other people.  There was ample evidence in this case that Luisa intended to be the beneficial owner of the property.  The evidence obtained from Luisa prior to her death was that she had directed title to be taken into the names of Henry and Maria Jesus because mortgage financing was needed to make the purchase and she could not qualify for a mortgage.  As both Henry and Mariah Jesus were employed at the time, they could and did qualify for a mortgage.  There simply was no other reason for this arrangement.

As a result, the presumption of resulting trust prevailed and Luisa’s estate was declared to be the sole beneficial owner of the house.

Unfortunately, it took years and hundreds of thousands of dollars to get this straightened out. It probably also cost this family at least one relationship.  The lesson to be learned, as usual, is to make sure these types of arrangements are recorded in writing – if not right at the outset, then as soon as possible thereafter.

The idea of adding members of management as defendants in wrongful dismissal cases against corporate employers is not a new one.  The case of Watson v. TrojanOne Ltd., Harrison and Lee is a useful reminder of the current status of the law in this area.

In this case, the Plaintiff, Watson, sued his former employer, TrojanOne, as well as two individuals named Harrison and Lee.  Harrison was TrojanOne’s President and CEO and Lee was its Chief Creative Officer.

The matter came before the court by way of a motion brought by Harrison and Lee to have the action dismissed as against them on the basis that Watson did not have the right to sue them personally.

The judge summarized the law on the point by indicating that the officers of a corporation are not liable personally for what they do within their authority and on behalf of their corporation.  However, they may be liable in an action against the corporation if there is some conduct on the part of the officer that is either tortious in itself, or that amounts to misconduct that is independent from that of the corporation.

Historically, this point has come up rather frequently in cases in which a Plaintiff sues an officer of the corporate employer for inducing the company to breach the contract of employment with the Plaintiff by terminating the employment without reasonable notice.  It is clear in such cases that unless the officer can be said to have acted in bad faith and against the company’s best interests, he or she cannot be sued for inducing breach of contract where a claim for breach of contract is available against the company.

As a result, for an officer of an employer company to be liable, the claim against that individual must specifically identify the cause of action that is asserted against the officer and explain why he or she is being sued separately from the company.

It is to be kept in mind that this matter came before the court as a procedural attack on the statement of claim as against Harrison and Lee.  The only question before the Court was as to whether or not a case against those individuals had been properly pleaded.

The statement of claim contained the usual pleadings as against TrojanOne.  With respect to both Harrison and Lee, it contained a series of quotes allegedly attributable to each of Harrison and Lee in which they are alleged to have made a variety of degrading and humiliating statements to Watson and others.  Some of the statements even had racist overtones.

The Plaintiff’s allegation was that this conduct created a poisoned and hostile work environment causing the Plaintiff to suffer from severe anxiety and depression for which he sought and received medical treatment and therapy.

At some point, a public altercation took place in which the Plaintiff was physically threatened and verbally abused.  The Plaintiff alleges that as a result, he had to stop work and take a leave of absence immediately for medical reasons.

According to Watson’s Statement of Claim, this all amounted to constructive dismissal.  Watson alleged that the conduct of Harrison and Lee was flagrant and outrageous, they intended to harm Watson or, at least, knew that their conduct would cause harm, and Watson suffered a visible and provable illness.  As a matter of law, these are the elements of the tort of intentional infliction of mental distress.

Accordingly, the Court concluded that Watson had adequately pleaded that independent actionable wrongs had been committed by Harrison and Lee. The case was permitted to proceed against them as well as against TrojanOne.

It would seem to follow logically that where a member of management is verbally abusive or conducts himself or herself in a manner that creates a poisoned work environment, and that conduct causes visible and measureable harm, that conduct will never be considered to be in the best interests of the company and may well serve as the basis of a claim against him or her personally.

The recent case of Stevens v. Walsh provides a useful reminder about the current status of the tort of intrusion upon seclusion, more commonly thought of simply as invasion of privacy.  In one respect, however, this case may push the boundary of the tort to a new level.

The tort of intrusion upon seclusion requires proof of three elements.  Firstly, the defendant’s conduct has to be intentional.  Secondly, the defendant must have invaded the plaintiff’s private affairs or concerns without lawful justification.  Thirdly, a reasonable person would regard that invasion as highly offensive causing distress, humiliation or anguish.

In this case, both the plaintiff, Mr. Stevens, and the defendant, Ms. Walsh, were Air Canada pilots.  Mr. Stevens was in the process of getting a divorce from Mrs. Stevens.
Ms. Walsh and Mrs. Stevens were friends.

There is an Air Canada password protected website accessible only to Air Canada employees showing pilots’ schedules.  A pilot can add another pilot to a “friends list” so that friends can check that pilot’s schedule is.  Mr. Stevens had added Ms. Walsh as a friend so that Ms. Walsh could access Mr. Stevens’ calendar.

In this case, Ms. Walsh testified that her friend, Mrs. Stevens, had called her. Mrs. Stevens was very upset and indicated that the extent to which her estranged husband worked was an issue in her divorce case.  Ms. Walsh assumed that Mrs. Stevens would have access to her husband’s schedules but Mrs. Stevens was so frantic that Ms. Walsh, wanting to keep her friend calm, accessed the site and sent Mr. Stevens’ scheduling information to Mrs. Stevens.  Ms. Walsh subsequently swore an Affidavit setting out the same information.

Mr. Stevens subsequently sued Ms. Walsh.  Mr. Stevens’ complaint was not that Ms. Walsh had accessed Mr. Stevens’ flight schedule but rather that Ms. Walsh had passed that information along to someone else.

The Court found that the tort of intrusion upon seclusion had been committed by Ms. Walsh.  The Court was satisfied that for an employee to obtain information under the guise of review for legitimate work related purposes and then use it by sharing it with her colleague’s estranged wife for use against the colleague in a divorce proceeding, amounted to a significant invasion of personal privacy which, on an objective basis, was highly offensive.

The interesting aspect of this particular case has to do with the nature of the information itself.  If the extent to which Mr. Stevens spent time doing his job was an issue in the divorce case, one would have thought that his work schedule would have to have been produced in the litigation itself.  Ms. Walsh provided a copy of the schedule, or the information in it, only to Mrs. Stevens.  She did not make the information available to anyone else.  In this case, it would seem that Mrs. Stevens ultimately would have been able to obtain that information anyway and indeed, that Mr. Stevens would have been obliged by law to provide it.

According to this case, however, this additional aspect of the matter is not relevant.  Furthermore, the fact that Ms. Walsh had been given permission by Mr. Stevens to access this information was similarly irrelevant.  According to this case, if a person obtains information through lawful means and then disseminates it to someone who otherwise would be entitled to it anyway, this can still amount to unlawful conduct.

In the recent case of Spence v. BMO Trust Company et al., the Ontario Court of Appeal dealt with the interesting question as to whether or not the court can set aside a bequest in a Will because it may have been motivated by racism.

Rector Emanuel Spence was born in Jamaica and died in Ontario 71 years later. He had two children, Verolin and Donna. Both are in their 50’s.

Spence became separated in about 1965 after which Verolin lived with him and Donna lived with her mother. It appears that Donna had no further communication with Spence from that point onward.

According to Verolin, she and Spence enjoyed a positive relationship for many years. That changed in 2002 when she informed Spence that she was pregnant. When Spence learned that the father of Verolin’s child was white, he ended his relationship with his daughter permanently.

About 8 years after Spence ended his relationship with Verolin, he made a Will. The will made no provision for Verolin or Verolin’s child. Instead, the will left most of Spence’s Estate to Donna. In fact, the will specifically stated that Spence was leaving nothing to Verolin “as she has had no communication with me for several years and has shown no interest in me as her father”.

Verolin challenged the will, saying that it was void because it was contrary to public policy. In support she filed an Affidavit alleging that Spence’s decision to exclude her from the will was racially motivated. An individual who had acted as Spence’s occasional care giver submitted an affidavit, stating much the same thing.

When the matter first came up for hearing by way of Application, the Application Judge determined that on its face the will did not offend public policy. However, given the clear evidence that Spence’s reason for disinheriting Verolin was based on a “clearly stated racist principle”, the will offended both human sensibilities and public policy. The will was set aside in its entirety.

The case was appealed to the Court of Appeal.

The Court of Appeal began its analysis by focusing on what it described as the “important principle of testamentary freedom”. The Court pointed out that in Ontario at least, there was no statutory duty on a competent testator to provide in his or her will for an adult independent child, whether based on an overriding concept of an alleged moral obligation on a parent to provide for his or her children or otherwise. That is not to say that testamentary freedom is absolute. For example, where a Trust is established to provide scholarships but the terms of the Trust stipulate that the scholarships are only available to one or another gender or people of a certain racial background, that may well be the type of a violation of public policy that will justify interference by the Court.

In this case, however, the will did not impose any conditions that offended public policy. It provided for the estate to go to Donna and not to Verolin because of what it described as a lack of communication for several years and a lack of interest on her part in Spence as a father. The Court observed that this is “not the language of racial discrimination”.

The Court of Appeal distinguished this case from previous cases in which, for example, bequests were made to what had described as “unworthy heirs”, such as terrorists groups, beneficiaries whose reasons for existence involve illegal activities, and the like. Nor would the implementation of testamentary intentions require the estate trustee to engage in discriminatory conduct in order to carry out his wishes, such as in the case of a Trust that discriminates by, for example, gender or race. Most significantly, the Court asked the question as to whether or not Spence should be entitled to disinherit Verolin on discriminatory grounds if he chose to do so. This was a bequest of a private rather than a public nature. So even if his intentions were repugnant, according to the Court of Appeal, the principle of testamentary freedom overrides a testator’s distasteful intentions unless there are legally offensive conditional terms in the will. A testator has the right to choose his or her beneficiaries. Accordingly, the Court of Appeal determined that the Application Judge was wrong to go beyond Spence’s expression of his clear intentions.

Verolin is now seeking leave to appeal to the Supreme Court of Canada.

The new judicial policy promoting summary judgment motions as a way of disposing of law suits, rather than trials, has become all the rage in lawful dismissal litigation. Counsel acting for wrongfully dismissed employees, who often operate on a contingency basis, have welcomed this development for obvious reasons.  The courts appeared to be totally receptive. However, there is still one aspect of a typical wrongful dismissal case that may require a special treatment where the case is brought to court on a summary judgment motion.

In most wrongful dismissal cases, mitigation is raised by the former employer as part of its defence.  Terminated employees have a duty to make reasonable efforts to mitigate their loss of income by finding new employment.  If a plaintiff fails to make reasonable efforts to find new employment, the court may reduce what would otherwise have been a reasonable notice period.

This may give rise to a problem under the following scenario.  Assume that an employee loses his job and sues promptly for damages for wrongful dismissal fairly promptly.  The action is defended and the plaintiff brings a motion for summary judgment.  Assume that the motion for summary judgment is heard only a few months after the actual termination has taken place.

At that point, the motions judge will be asked to determine the notice that should have been provided to the plaintiff by the former employer. Now assume that the period of reasonable notice as set by court extends beyond the period of time between the termination and the hearing of the motion.  The court may rule that up to the date of the motion, the plaintiff has made reasonable attempts to find another job.  What is the court to do about the fact that the period of reasonable notice will extend into the future?  How is the court to make sure that the plaintiff continues to seek new employment? And what happens to the judgment if the plaintiff actually does find new employment before the end of the notice period?

This is a relatively new problem. Historically, wrongfully dismissed plaintiffs did not bring motions for summary judgment because the courts were not interested in hearing them.  This problem did not arise.

The recent case of Lalani v. Canadian Standards Association summarizes the law on the point and adds a new option for the court to consider.

Traditionally, the court employed 3 different approaches to the problem of a motion being heard before the end of the notice period.

Firstly, the court could order that the plaintiff’s damages would be discounted by a contingency for re-employment during the balance of the notice period.

Secondly, judgment could be granted subject to a trust in favour of the employer. In the event that the employee did find a new job during the notice period, he would have to account to the employer in the sense that portion of the judgment covering the period in which the employee now had a new a job would have to be refunded.

Thirdly, the court could grant the employee a partial summary judgment for the period up to the date of the motion. The parties would then have to return to court on a subsequent date, either once the employee had a new job or following the end of the notice period, for a determination of the balance payable to the employee.

In the Lalali case, the motion court judge put forward a fourth approach, which a judge described as a hybrid between the second and third approaches previously used by courts.

In this case, the judge granted a judgment for the full amount. The funds paid to the plaintiff during the balance of the notice period were impressed with a trust in favour of the employer.  However, the plaintiff was ordered to account to the employer on a monthly basis with respect to his mitigation efforts and any mitigation income earned during the notice period from a new job.  The judge’s hope was that in the way, the parties might be able to avoid the time and expense involved in returning to court on a future date to deal with any refund to which the employer was entitled.

Each of these approaches brings with it advantages and disadvantages. When it comes to mitigation, regardless of the approach taken, much will depend the honesty and good faith of the former employee in terms of his willingness to report on his or her having found new employment, and the legitimate start date of that employment.

There is yet a further approach, of course, which is to develop a policy of refusing to entertain motions for summary judgment in wrongful dismissal cases where the hearing date is likely to pre-date the expiry of the reasonable period of notice. That would avoid the problem but, on the other hand, it would also deprive a terminated employee of what might be much needed income during a period of unemployment.  It is also inconsistent with the current policy encouraging motions for summary judgment.

The recent case of The Wish Group Inc. and Cianciulli v. De Vrij and Interactive Brokers Canada Inc. is an interesting review of the “know your client” obligations of a discount broker.

In this case, Mr. Cianciulli authorized Mr. De Vrij, a person claiming to have substantial experience as a trader in the financial industry, to open a corporate account for Cianciulli’s personal holding company, The Wish Group Inc., at Interactive Brokers Canada Inc.  Cianciulli signed a corporate resolution appointing De Vrij as an officer of The Wish Group and granted him sole trading authority over the account.  He then transferred $2,000,000 into the account.

De Vrij invested those funds in commodity futures and lost over $1.8 million over a period of 3 months.

Cianciulli and Wish Group then sued De Vrij and Interactive for the losses.  The matter went to trial against Interactive only.

Interactive is a discount broker.  It does not provide investment advice to clients.

Nevertheless, Cianciulli asserted a claim against Interactive in negligence.  He alleged that Interactive breached its “know your client” and “gatekeeper” obligations by failing to make necessary inquiries of Cianciulli before opening the account under De Vrij’s trading authority.  As a result, the plaintiffs wished to hold Interactive responsible for the investment losses arising from De Virj’s mismanagement of the funds.

The expert witness testifying on behalf of Cianciulli at the trial insisted that Interactive should have been alerted to a number of red flags both before and after the account was opened.  As all brokers, including discount brokers, are subject to a “know your client” obligation, it was required to “use due diligence to learn and remain informed of the essential facts relative to every customer and to every order or account accepted”, as set out in regulatory requirements and obligations imposed by the rules governing the behavior of stock brokers in Ontario.

Even though Interactive was not in the business of providing investment advice, so that it did not have the obligation to make sure that investments were suitable for its clients, it is still required to obtain certain information before opening a corporate account.  In particular, it must identify all beneficial owners of the company with an interest of 10% or more, verify the identity of the beneficial owners, obtain the names and occupations of its Directors, and obtain a certificate of corporate status.  It must also obtain a corporate resolution to ascertain who is authorize to trade in the account on behalf of the company, and must verify the identity of that individual.

In addition, investment dealers must act as gatekeepers, meaning that they must exercise diligence when faced with situations that raise a potential of illegal activity.  In particular they must respond to red flags, such as information known to the dealer that raises an issue respecting compliance with securities laws.

In this case, Interactive knew that The Wish Group was a holding company with a net worth of about $5,000,000.  De Vrij characterized himself as President and Chief Investment Officer.  According to the plaintiff’s expert, Interactive should have questioned why a relatively small company like The Wish Group would have required a full time Chief Investment Officer.  Furthermore, Interactive should have tried to understand better the relationship between De Vrij and The Wish Group.

The principal of Interactive had known De Vrij for years and knew that he had acted as a professional investment advisor in the past.  According to the plaintiff’s expert, he should have made further inquiries to determine if De Vrij was truly a corporate officer or was in fact acting as an investment advisor.

Interactive’s expert insisted that Interactive had complied with all “know your client” requirements.

The trial judge agreed with the position taken by Interactive.  It had to seek specific instructions from De Vrij to open a corporate account and De Vrij had the authority of Cianciulli to give those instructions.  It obtained the necessary corporate documentation and information about The Wish Group and its beneficial owner and it received duly authorized trading authority.  It had obtained the corporate resolution of The Wish Group setting out who had trading authority, signed by Cianciulli as sole director and beneficial owner.  It was under no obligation to contact Cianciulli to inquire about his relationship with De Vrij, the person being granted trading authority.  It was under no obligation to question why a small company would have a chief investment officer and it had no obligation to inquire into exactly what role was being played by De Vrij.  There were no red flags warranting further action.

There are number of cases that have held dealers liable for losses for having failed to comply with “know your client” obligations.  Generally speaking these cases involving dealers that provide investment advice.  That was not the case with Interactive, a discount broker.

In the result, the action against Interactive was dismissed.

There was one other fact which, although does not relate precisely to the obligations of Interactive in this case, may well have swayed the judge’s view.

It turns out that very shortly after De Vrij began trading on the account, it sustained a loss of about $500,000.  Cianciulli found out about it and was livid.  He emailed De Vrij and demanded that the money be replaced.  De Vrij responded by indicating that the losses were not abnormal and that they could be recouped.  Cianciulli decided to give De Vrij a second chance.

De Vrij went on to lose almost all of the balance of the funds.

The trial judge was not impressed by Cianciulli’s behavior.  While he was not required to calculate damages because he had decided to dismiss the action, he did say that if he was wrong, he would have concluded that Cianciulli’s damages would be limited to the $500,000 of which he had become aware fairly early on.  His decision to leave De Vrij in place constituted a failure to mitigate his damages.  Presumably in the sense that from that point forward, Cianciulli was taking his chances.  This suggests that the decision would have been different had Cianciulli pulled the plug on De Vrij’s authority on the spot.  The fact that he left De Vrij in place may well have played a role in the judge coming to the conclusion that Cianciulli was, as they say, the author of his own misfortune.