Wrongful Dismissal and Mitigation: Can a Fired Worker Start His Own Business?

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The recent case of Leeming v. IBM Canada Ltd. includes a useful review of the law relating to mitigation of damages in the context of wrongful dismissal. It provides some particularly useful insights into the issue that arises when the fired employee, unable to find comparable employment, starts his or her own business.

In this case, the plaintiff was wrongfully dismissed from IBM from her position as a Senior Managing Consultant. In that position, she had been responsible for various project management duties including project scheduling, tracking budgets and interfacing with clients to ensure deliverables were met.

After eight years of employment at IBM, IBM decided to eliminate her position and terminated her employment. At that time, she was 60 years old.

In the following four months, she applied for 20 positions in various industries and job types. She searched job search websites and spoke to recruiters. She tried to find jobs through outplacement counselling, by networking with friends and business contacts and through any leads that those people provided to her. She created a LinkedIn profile through which she was approached about potential job opportunities.

She had two job interviews but she received no offers.

When her efforts to find a new position failed, she decided to start her own business specializing in digital marketing solutions for small and medium-sized companies. Marketing was not an area in which she had either experience or training. She obtained a franchise with a franchisor in that industry but by the time her lawsuit reached trial over one year later, her business had not yet become profitable.

IBM took the position at trial that she had failed to mitigate and was therefore disentitled to damages for wrongful dismissal.

The court was satisfied that the plaintiff did not fail to mitigate. The judge found that she had made reasonable efforts to find a new job and ultimately that her decision to become her own employer by training herself for a new career as a franchisee, was reasonable. The judge pointed out that it was easy enough for IBM to say that she should have stayed in the labour market longer but in the judge’s opinion, she tested the market long enough to make a reasonable decision to retrain for a new career.

The judge referred to a previous Court of Appeal decision in which case the court had said that the fact that the early years of a worker’s self-employment did not live up to his monetary expectations does not mean that this was an unreasonable attempt to mitigate. A fired worker is entitled to consider his own long term interests when seeking another way to make a living. His attempts at mitigation cannot be considered unreasonable just because he fails to focus exclusively on his short term obligation to mitigate damages for the sake of his former employer.

The idea of starting one’s own business always raises difficult questions in the context of a former employer’s mitigation arguments. In this case, the plaintiff spent what the court considered to be a reasonable amount of time and made reasonable efforts without success. Presumably, her age had something to do with her inability to find another job. Nevertheless, the question of when it is safe for a fired worker to give up the job search and retrain for a new career will always be a tricky one, since the odds that the new career will pay dividends during the notice period are usually quite low.

Some Thoughts and Observations By a Toronto Mediator – Part 2

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In this post, once again, I thought I would provide some additional observations on an aspect of the mediation process.  This post will comment on the relationship between neuroscience and conflict.

There are a number of studies in the booming area of neuroscience that focus on how the human brain relates to conflict and specifically on how male and female brains differ in that connection.  For example, psychologically, females are usually thought to be superior in inter-personal sensitivity than males.  That is a factor that is highly relevant to the issue of empathy, a critical element in the mediation context.

The entire issue of neuroscience is attractive because it deals with physical phenomena.  It produces pictures of brain activity which may suggest universal behavioural features.  In turn, this might enable mediators, counsel and parties to better understand decision-making processes and predict responses which people of a given gender, for example, may exhibit.

In my view, this type of study is particularly valuable to pick up where a mere economic analysis leaves off.  Economics gives us expected value calculations and litigation risk analysis.  It is based on the theory that decisions are made by rational people, who will act in a rational and logical manner in all circumstances.

Anyone with any life experience at all knows that this is simply not the case.  Firstly, people do not act on a rational basis in every case and every time.  Secondly, even where a party strives for rationality, what is rational behaviour to one person will not be rational to another.  Put another way, many if not most decisions are capable of more than one approach which may appear to be rational to some but not to others.  Variables in this connection likely include both culture and gender.  They will also include neuroscientific considerations.

For example, according to neuroscience, people speak in a universal emotional language.  The entire theory behind parties to a mediation gathering in a room and delivering opening statements is probably based on, or at least supported by, the theory of mirror neurons.  The assumption is that people are hardwired for empathy which, as we now know, probably varies with gender. Taken at face value, this may suggest that as a practical matter, the extent to which mediators should permit parties to engage in face-to-face discussion may be influenced by whether or not one or both is male or female.

Unfortunately, the literature is not at all consistent in this area.  Perhaps this is not surprising given the relative infancy of this area of study.  For example, one author suggests that the ability to interpret facial expressions is unconnected with culture.  On the other hand, there is evidence that suggests that the manner in which people perceive the facial expressions of others will indeed differ across cultures.

There is even controversy in the literature as to what mediators ought to do with this type of information.  There are those who consider face-to-face discussion to be important to any party interested in convincing the opposing party of his or her sincerity.  On the other hand, others consider face-to-face discussion to be highly problematic, at least in instances in which there is a perceived power imbalance between the parties.

While these nuances may be controversial, however, there appears to be solid evidence from neuroscientific studies as to the manner in which the brain reacts to emotionally charged issues such as those typical of conflict and efforts to resolve conflict.

For example, while it is normal and natural for a party to a legal dispute to feel angry, it would appear clear that such feelings represent an obstacle to settlement at least in the sense that angry people are less likely to make decisions in their own best interests.

Feelings of anger generally begin with a triggering event which causes a party to assess the relevance of a given situation to his own aspirations and the likelihood of achieving his own goals.  The party will then focus on who is to blame for the problem and assess whether or not the person will be able to cope with the situation as well as the likelihood that the situation will improve.  In the meantime, however, the party dealing with feelings of anger will be subject to an excessive amount of adrenaline produced in the brain.  This hormone is produced by the adrenal glands when the body is in a state of high anxiety, fear or excitement.  While it enhances alertness, and while neuroscience teaches us that emotion of this nature is an integral part of reason and the decision-making process, anger will affect cognitive processing and interfere with the ability to solve complex problems.  It has even been suggested that regardless of personal levels of intelligence, during anger arousal, people perform generally as if they have a learning disability.  Even subtle forms of anger impair problem-solving and general performance.  In addition to increasing error rates, anger narrows mental focus, obscuring alternative perspectives.

The angry person has one “right way” of doing things, which, if selected in anger, is seldom the best way.

Neuroscience tells us that this limitation to a person’s access to rational cognitive functions will arise whenever a person is under stress or threat or feels shame.  On the other hand, when the body senses safety, the nervous system becomes receptive to new information.  This suggests that there is a need for mediators, counsel and parties to be aware of physical dynamics in order to reduce a party’s perception of threat and thereby increase the chances of a successful resolution.

When Will A Suspension From Employment Amount To A Constructive Dismissal?

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In the recent case of Potter v. New Brunswick Legal Aid Services Commission, the Supreme Court of Canada provided some interesting clarifications on the law of constructive dismissal.

In this case, Potter was appointed by the defendant as its executive director for a seven-year term.

During the first half of the term the relationship between the parties deteriorated and they began to negotiate a buy-out. Potter became ill before the negotiation was completed. Just before he returned to work, the Commission suspended him indefinitely with pay and delegated his powers and duties to another person. At the same time, it wrote to the Minister of Justice recommending that his employment be terminated for cause. It refused to give Potter any clear reason for the suspension.

Potter claimed that he had been constructively dismissed and sued. He lost at trial and at the Court of Appeal.

The Supreme Court of Canada had a completely different view and allowed the appeal.

The Supreme Court of Canada pointed out that in order to find that a constructive dismissal has taken place, the court must first identify an express or implied term of the contract that has been breached. The court will then determine whether or not that breach was sufficiently serious to constitute a constructive dismissal. The point of the exercise is to determine whether the employer’s conduct shows that it does not intend to be bound by the employment contract any longer.

The primary burden is on the employee to establish constructive dismissal but where an administrative suspension is at issue, as in this case, the burden will shift to the employer to show that the suspension was reasonable or justified. If the employer cannot do so, a breach will have been established and the employee will then have to satisfy the court that the breach substantially altered an essential term of the contract.

In this case, the contract had no express provision for a suspension. The Commission did have an implied authority to relieve Potter from his duties provided that it could show a business justification for doing so. The Commission could not show a business justification, for at least two reasons. Firstly, Potter was never given any reason for his suspension. To the court, an administrative suspension cannot be justified without basic level of communication with the employee. Secondly, the Commission’s claim that the suspension was simply to facilitate a buy-out was undercut by its own conduct, namely its letter to the Minister recommending a termination, the fact that Potter was replaced during a suspension period, and the fact that the suspension was indefinite.

As a result, the unilateral suspension constituted a breach and it was reasonable for Potter to perceive the breach as a substantial change to his contract. There had been a constructive dismissal and Potter was entitled to damages.

This case is a useful reminder to employers who are under the impression that suspensions are a viable alternative to outright terminations. If a suspension is merely a preliminary step towards a termination, which an employer chooses to take in the hope that the employee will simply get the message that is intended to be sent and resign, the employer is taking a risk that might not be worthwhile.

Injuries During Sporting Events: When Does a Participant Give Up His Right To Sue?

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Last month my recreational hockey career was (temporarily) interrupted by a season-ending injury suffered during a game. While it would never occur to me to blame anyone for the injury, it is interesting to consider when a participant in a sporting event might actually have the right to sue someone who causes him or her an injury.

The issue was addressed by the Ontario Court of Appeal in the recent case of Kempf v. Nguyen.

This was a case arising out of an incident that took place in 2008 during a charity bicycle ride to benefit the Heart & Stroke Foundation.  In that ride, which was is an annual event, over 12,000 cyclists took to the Don Valley Parkway in Toronto.  The ride was open to cyclists of all abilities.  Participants could choose a 25, 50 or 75 kilometre route.  The road was closed to cars for the event.

Like most charity rides, this was not a competitive event.  There were no prizes.  Having said that, many cyclists at these events tend to ride as fast as they can.  The entire roadway was open to the cyclists but experienced cyclists at these events often ride in packs to take advantage of the ability to draft.  Inside the packs, riders roughly organize into lines with one cyclist following immediately behind another.  The front wheel of a cyclist is often within a foot or less of the back wheel of the cyclist ahead.

The parties in this action, Mr. Kempf and Mr. Nguyen, were both experienced cyclists and members of cycling clubs, riding several times a week.  Both were familiar with the generally understood rules pertaining to cycling safely in a group.

To participate in the ride, Kempf and Nguyen signed a waiver that made it clear that each cyclist was releasing the Heart & Stroke Foundation of Canada and its sponsors from any liability arising out of the cyclist’s participation in the event.

Shortly after the ride started, Nguyen was at the back of the first group of cyclists intending to ride 75 kilometres.  A second group was slightly behind. Kempf was at the front of the second group.

Wanting to join the first group, Kempf approached Nguyen’s left side.  At a point at which Kempf’s front wheel overlapped Nguyen’s back wheel, Nguyen swerved to the left, clipping Kempf’s front wheel with his back wheel.  Kempf fell to the ground.  A number of other cyclists rode over him.  Some of them fell as well. Kempf was seriously injured.

It appears that Kempf tried but was unable to avoid the contact with Nguyen.  Both cyclists were travelling between 20 and 25 kilometres per hour and the contact happened in a split second.

Nguyen did not stop after the impact of the two bicycles.  Kempf was later able to identify Nguyen as the rider who collided with him by looking through pictures of the ride posted online.

Kempf sued Nguyen for damages for negligence.  Nguyen’s evidence at trial was that immediately before the impact, the rider two places ahead of him suddenly slowed down.  This caused the rider directly ahead of him to take the evasive measure of decelerating and swerving to the right.  Nguyen was not forewarned of this and had no time to consider his options.  To avoid impact with the riders ahead, he swerved to his left.  He had no time to shout out a warning.  He was not aware that there was someone moving up behind him on his left.  In cross-examination, he admitted that his sudden movement to the left was not one that he would ordinarily make in a group ride.

Immediately after swerving to the left, he heard a crash behind him.  He did not look back as he was concentrating on the rider in front of him.  He carried on with the ride apparently unaware of his involvement in what had just happened.

The trial went on for five days. The trial judge found that Nguyen’s actions had caused Kempf’s injuries.

Nguyen appealed to the Court of Appeal on a number of grounds, including the fact that at the outset of the trial, the trial judge had dismissed the jury and proceeded with the trial on a “judge alone” basis for certain technical reasons.

At the appeal, in a two-to-one decision, the majority set aside the judgment on the basis that the jury notice should not have been struck, and ordered a new trial.  However, the interesting point in my view has to do with the court’s views as to Kempf’s right to recover on any basis.

Kempf had signed a waiver at the outset.  However, the waiver was very clearly intended to benefit the ride organizer.  No document was signed in which Kempf waived his rights against other cyclists acting negligently.

However, Nguyen argued at trial that Kempf should not have been able to recover anything on the basis of a doctrine of law identified by the Latin phrase volenti non fit injuria – literally, “to one who is willing, no harm is done”.  Kempf had agreed to participate in this event knowing full well that people sometimes fall off bicycles and hurt themselves.  As a result, when that happened to Kempf, he had no one to blame but himself.

This type of argument is not new. People have tried to sue each other over injuries suffered, for example, during fights on the ice at hockey games. There is always an argument about whether or not a participant voluntarily assumes the risk of an injury arising out of that type of violent event, given that hockey typically involves physical contact.

The Court of Appeal made it clear that in sports such as hockey or basketball, for example, players have to assume some risk of injury from bodily contact even if it is intentional or in breach of the rules. This type of thing is part of the ordinary risk of the game. Nevertheless, such conduct in these contact sports will be unacceptable where it is malicious, out of the ordinary or beyond the bounds of fair play.

Having said that, sports participants are not exempted from the application of ordinary negligence law. If a defendant conducts himself in a negligent manner, he will have to answer for the damages that he causes. When Kempf decided to participate in the ride, he assumed the usual risks associated with it including the actions of reasonable cyclists who could be expected to follow the known rules governing group rides. However, in the view of the court, by its nature “cycling is not a contact sport or one that involves physical encounters with opponents such as football or rugby”. Since Nguyen’s actions went beyond what Kempf agreed to reasonably expect given the nature of the activity, he was liable for damages.

In my view, it would seem that the extent to which a participant accepts the risk of injury will actually depend on two things. The first is the nature of the activity.  Clearly, the more violent the activity, the less likely an injured party will be able to sue.  Secondly, it seems fair to say that any negligence on the part of a participant causing injury to another will be actionable. However, the question of whether or not a participant’s conduct was negligent will be related to the nature of the sport. In other words, the more inherently violent the sport, the less likely that violent conduct on the part of a participant causing injury will be considered to be negligent.

“Hard and Pointed” Conduct Does Not Pay

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The recent decision of the Ontario Court of Appeal in High Tower Homes Corporation v. Stevens is a useful illustration of the extent to which the court will go to deprive a party of relief where that party has acted in a way which some might consider unfair, even if the conduct was not unlawful.

In this case, a vendor owned two adjacent properties. One contained the principal residence of the vendor and his wife. They decided to sell the properties together, having decided that doing so would maximize their value.  For tax planning purposes, they wanted to allocate as much of the total purchase price for the properties as possible to one containing their personal residence.

The purchaser, a builder, submitted offers to buy both properties. The first offers contained conditions that made the sale of each property conditional on the sale of the other. After a series of revised offers went back and forth, the purchaser revised the offer for the parcel that did not contain the principal residence to provide that the sale of that property was not conditional on the sale of the property containing the principal residence. That change was not black-lined or otherwise drawn to the vendor’s attention. No such change was made to the corresponding clause in the offer involving the principal residence. The vendor did not notice the change.

As the vendor had preferred, the bulk of the amount offered for the properties together was attributed to the property containing the principal residence.

The agreement for the property that did not contain the principal residence had a clause making the purchaser’s obligation to close that purchase conditional on a variety of items.  The clause indicated that if the conditions were not waived by a particular time “by notice in writing to the seller”, the agreement would become null and void.

The two agreements were signed. On the deadline date for the waiver of conditions with respect to the property that did not contain the principal residence, the purchaser attempted to waive those conditions by delivering a notice to that effect to the vendor’s lawyer by fax.

By doing so, it appears that the purchaser tried to put into effect a plan that it must have concocted right at the outset. That plan involved purchasing the property that did not contain the principal residence at a bargain price while allowing the agreement for the other parcel, in respect of which the price was somewhat inflated, to go by the wayside.

As the Court of Appeal indicated, “the vendor was stunned when he learned of his mistake, and the purchaser’s attempt to take advantage to buy only Blue Water at a bargain price.”

The vendor refused to proceed. The purchaser sued for specific performance and in the alternative, damages of $5 million. The purchaser brought a motion for partial summary judgment.

The motion judge declared the agreement unenforceable on the very technical ground that notice of the waiver of conditions should have been delivered personally to the vendor and not by fax to his lawyer.

The purchaser appealed to the Court of Appeal, arguing in essence that the delivery of the notice by fax to the vendor’s lawyer was good enough based on a variety of legal doctrines.

The only doctrine that would appear to have had a glimmer of hope of success for the purchaser involved the equitable doctrines of waiver and promissory estoppel. The purchaser argued that by his conduct throughout, directly and through his lawyer, the vendor had demonstrated that he was not going to insist on strict compliance with the requirement that the purchaser’s notice in writing of its waiver of the conditions be delivered personally to the vendor. The purchaser argued that having been led to believe that strict compliance would not be required, he had somehow acted to its financial detriment in proceeding with the transaction, at least up to the date that the vendor pulled the plug on it.  As a result, it would be unfair for the vendor to be able to terminate the deal.

The Court of Appeal dismissed these arguments for a number of reasons. Most interestingly, however, the Court of Appeal pointed out that promissory estoppel is equitable relief. Therefore, a party seeking to invoke it must show that its past record in the transaction is clean. In this case, the Court of Appeal stated that it would decline to grant relief to the purchaser in view of the purchaser’s conduct at the outset. The motions court judge had concluded that while the purchaser’s conduct in changing the condition clause without notifying the vendor was not equivalent to fraud, the purchaser must have known that it was important to the vendor that the properties be sold together. The motion judge characterized the purchaser’s conduct as “hard and pointed”. Given that conduct, the purchaser was held not to be entitled to equitable relief.

The law now appears to be clear that there is a duty of good faith on parties to a transaction in terms of the manner in which they deal with each other after an agreement is made. There is no such duty on parties before they enter into a transaction.  Accordingly, this purchaser’s conduct during the negotiation process was not unlawful.  However, as it learned the hard way, conduct that might be characterized by a court as “hard and pointed” – to say the least – may well give rise to a negative result in court later on.

Some Thoughts and Observations by a Toronto Mediator

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In this post, rather than discussing a recent case, I thought it might be useful to provide observations on an aspect of the mediation process based on my training and recent experience conducting mediations in commercial disputes.  In particular, I would like to address the role of lawyers in managing their clients’ expressions of anger or high emotion.

Anger is almost an inevitable part of conflict.  A party believing his position to be right will likely believe the other side to be wrong and unreasonable in refusing to meet his demands.  As a result, parties in a mediation often blame each other and the resulting anger is one of the most commonly experienced emotions during a conflict.

One of the challenges for a mediator is to recognize the emotional states of the parties to the dispute, assess them in the context of the dispute and make an appropriate decision as to the circumstances under which each party is to be encouraged to express his or her emotions. At the very least, that analysis is critical to the decision as to whether to permit each party to vent or otherwise express emotion in the presence of the opposing party or merely in caucus.

One of the critical elements in the process has to do with the mediator’s own emotional self-awareness or emotional intelligence. Self-awareness will alert a mediator to feelings that might otherwise threaten his or her impartiality. Emotional self-regulation prevents these feelings from being expressed and acted upon in a manner that undermines the mediation.

A point that appears to receive little attention in the literature has to do with the importance of emotional intelligence of self-awareness among lawyers.

In a sense, the task of mastering one’s emotions is even more difficult for the lawyers than it is for mediators. Unlike the third party neutral mediator, each lawyer has been immersed in his client’s case, likely from the outset. The lawyer has been exposed primarily to his own client’s side the of the story, subject only to whatever documentary and oral discovery may have taken place by the time of the mediation. While any lawyer will recognize the importance of providing advice that is as objective as possible, the fact remains that many lawyers will, either deliberately or subconsciously, adopt their client’s cause as their own.  As a result, it may be more likely for the negotiations at mediation to give rise to emotional upset for the lawyer than for the mediator. This is particularly true if the lawyer for the opposing side is able to press the right triggers, for example by challenging the lawyer’s integrity, pride, ego, or skill level.  In that event, the need for lawyers to regulate their own emotions becomes even more important, but more difficult, than for the mediator.

Furthermore, unlike the mediator, a lawyer acting on behalf of an angry client in an emotionally charged dispute may find himself in a different predicament. Angry clients have a rather disturbing tendency to turn their anger upon their own lawyers, sometimes at the drop of a hat.  Whether that is a function of the often irrational behavior that characterizes angry outbursts and attitudes filled with blame and resentment is beyond the scope of this post.  However, most lawyers will have gone through this experience and may well have to confront it once again at or after mediation.  This will particularly be so if the mediation does not go well for the client, either because of hostility created by the opponent’s expressions of anger or for any other reason.

A lawyer confronted by his own angry client with attacks on his own integrity and threats to his own ego will have to manage his own emotions in order to respond appropriately and constructively.  This reality will represent a very real challenge.  A lawyer will approach the negotiation, presumably, with a view to obtaining the best result reasonably available to his client given the strengths and weaknesses of his case, the likely outcome and costs of trial, and the other usual considerations.  It may well be that this objective would be best served by permitting his client to express anger and high emotion, although presumably under controlled circumstances.  On the other hand, permitting a client free rein with his emotions may result in a backlash against the party’s own lawyer if the desired result is not achieved.  Furthermore, there are clients who seem to feel that their lawyer ought to share their anger, particularly if it is based in righteous indignation.  Lawyers who join in with their clients in expressing those sorts of sentiments may ingratiate themselves with their clients but, by doing so, will rarely contribute to the objective of settlement.

There is an additional reason why the need for lawyers to help regulate their clients’ conduct is even more significant than that of the mediator.  The mediator’s involvement in the matter will conclude at the end of the mediation whether the case has settled or not.  If the case has not settled, the action will proceed, the lawyer will continue to be involved, and the lawyer will next face the task of assisting the client to regulate his emotions when the matter reaches the courtroom.  In the courtroom, of course, the consequences of failure are far greater than they are at mediation, the atmosphere is likely to be even more emotionally charged, the need to regulate emotion is even higher, and the difficulty of doing so is even greater.

These observations are not just directed to lawyers.  A party involved in a mediation with a genuine interest in settlement will have to be able to “read” not only the opposing side but also his own lawyer, to be satisfied that the advice and guidance being provided is truly objective and dispassionate.

Warranties in Sale Agreements

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The recent case of French Family Funeral Home Limited v. Player et al. provides a useful review of the rights and obligations of parties to a real estate transaction where one party misrepresents the state of the property but the innocent party knows about it before closing, and goes ahead and closes anyway.

In this case, the property in question was located in Kirkland Lake, Ontario. The parties entered into an agreement of purchase and sale that included a warranty on the part of the vendor that there were no environmental issues concerning the property.

After a number of hiccups, the deal finally closed. As part of the deal, a portion of the purchase price was covered by way of promissory note from certain individuals involved in the company that took title to the property. The note was never paid and the vendor sued the individuals who had signed the note.

Part of the defence set up by the defendants concerned the fact that notwithstanding the representation contained in the sale agreement, the property did have environmental issues and as a result, the warranty given by the vendor had been breached. The defendants claimed that they were relieved from any obligation to pay the note and furthermore, that the entire transaction should be set aside.

The plaintiff moved for summary judgment.

The motions court judge granted the motion. The judge made a careful review of the evidence including a report prepared prior to closing, revealing that the property had previously been a mine site and that there existed a possibility of some non-native material buried on it including potentially hazardous chemicals.

The defendants had relied on this report in support of their argument that the vendor had made false representations upon which the defendants were entitled to rely, to avoid their contractual obligations.

However, the judge also found that the defendants were aware of this information for over a year before closing and possibly even before entering into the sale agreement itself.  They had the report in hand before closing together with similar information from the municipality. They did obtain additional information on the point after closing, but the judge found that this added little or nothing to what they already knew. Accordingly, the judge found that there had been no misrepresentation. In the view of the judge, the warranty contained in the sale agreement was not intended to cover matters of which the defendants were aware prior to closing.

This case highlights the importance of giving careful thought to deficiencies in a property of which one becomes aware prior to closing.  Making a choice to complete a transaction knowing of these deficiencies may well deprive the purchaser of any remedies after closing that might otherwise have been available.