When Can an Employment Agreement be Voided for Duress?

The recent decision of the Ontario Superior Court in Riskie v. Sony of Canada Ltd. provides a useful reminder of the way in which the court will deal with an employment agreement where the employee later complains that he executed the agreement under duress.

In this case, Mr. Riskie was a management level employee of Sony of Canada Ltd. based in Toronto. He began working at Sony in 1989 without a written employment agreement. He lived and worked in Toronto.

In the spring of 2014, after having worked at Sony for about 25 years, he announced that his wife had obtained new employment and that he and his family were planning to move to Ottawa. He asked whether he could continue in his existing job from his home in Ottawa notwithstanding that there were a number of Toronto-based employees reporting to him.

While Mr. Riskie’s immediate superior was supportive, Sony’s President and CEO was opposed to the idea.

Mr. Riskie planned to move to Ottawa in mid-June 2014, even though he knew of senior management’s opposition to the idea of his continuing to work from there. Several days before the move, his immediate superior advised him that Sony would consider accommodating his request but would require that his position change from that of an indefinite employee to a contract employee with a fixed term, as a condition of approving the arrangement.

Mr. Riskie was given a proposed contract with a fixed term ending December 31, 2014, with no renewal rights. He was able to negotiate the end date to March 31, 2015. He asked for a right to renew the contract unless he failed to prove that the new arrangement could work, but that request was denied. Ultimately, he signed the contract after he had already moved to Ottawa. At no time was he ever told that he could not remain in Toronto and continue in the same capacity as before by, for example, commuting to Ottawa on weekends.

Mr. Riskie proceeded to carry on his previous duties remotely from Ottawa. Several months later, Sony announced internally that its North American operations were being reorganized. A number of people were let go in February 2015 and at that time, Mr. Riskie was told that his contract would not be renewed on its expiration date.

At that date, he was provided with all of the benefits called for under his fixed term employment agreement. Mr. Riskie responded by suing Sony for wrongful dismissal, saying that the employment agreement was void for a variety of reasons. One of his arguments was that he signed it under duress. Sony insisted that the agreement was valid and Mr. Riskie brought a motion for summary judgment.

At the motion, Mr. Riskie argued that he had been required to sign the contract “in order to continue the teleworking arrangement from Ottawa” even though he had already moved before actually signing the contract. On cross-examination, he admitted that had had the option of signing the contract and accepting its terms, resigning and looking for alternative employment, or returning to Toronto on a full-time basis. He admitted that he preferred to sign the contract and make every effort to demonstrate its value to Sony so as to convince Sony to extend it.

The court pointed out that there is a five-part list of criteria to determine whether or not an employment agreement was executed under duress.

Firstly, the court will consider whether the party protested at the time that the contract was entered into. In this case, the court found that while Mr. Riskie had protested numerous aspects of the proposed deal, he never protested that he was being placed under duress at the time that he actually signed it. He acknowledged that he had been given several weeks to think it over and the court concluded that this was not consistent with coercion or duress.

Secondly, the court will consider whether there is an effective alternative course open to the party alleging duress. In this case, Mr. Riskie certainly had the alternative of staying in Toronto and commuting frequently but he declined to select it.

Thirdly, the court will consider whether the party received independent legal advice. The court concluded that as a highly paid senior executive, Mr. Riskie could have sought such advice if he had chosen to do so. There was no time pressure applied to him to preclude him from seeking advice and he had the means, the time and the opportunity to do so.

Fourthly, the court will consider whether, after entering into the contract, the party took any steps to get out of it. In this case, no such steps were taken and there was no suggestion that Mr. Riskie did anything other than to perform his duties to the best of his ability.

Finally, the court will consider whether the party was placed under any illegitimate pressure. In this case, the court found that Mr. Riskie could have simply resumed his duties full time in Toronto had he chosen to do so. While his reasons could be readily understood, not having a preferred option available is not a test for duress. There must be an illegitimate application of coercive pressure in order to void a contract for duress. In this case, Sony had no obligation to accommodate the move to Ottawa and every right to propose terms on which it might do so. There was nothing wrong in Sony attaching conditions to its willingness to accommodate Mr. Riskie’s request.

As a result, there was no basis for concluding that the employment agreement was entered into under duress.

After disposing of Mr. Riskie’s other arguments, the motion for summary judgment was dismissed.

With increasing frequency, companies with employees of indefinite duration are turning to written employment contracts with those employees and asking them to execute them during the course of their employment. There a number of rules that have been established by the jurisprudence that must be followed for those contracts to be enforceable. This case provides useful clarification as to the circumstances under which such an agreement may be set aside for duress.

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When Can A Former Employee Compete?

In the recent case of Optilinx Systems Inc. v. Fiberco Solutions Inc., the Superior Court of Ontario provided a useful reminder as to the circumstances in which a former employee is entitled to compete with his former employer.

In this case, Mr. Foresta had been employed by Optilinx as the project manager of its fiber optic division. He was not an owner, officer or director of the company and he was not bound by any non-competition or non-solicitation agreement. He was not involved in management at a senior level. However, he was regarded by the company as a key employee and, in fact, he was its highest paid staff employee when he resigned in August 2014 after 12 years of employment.

The company’s customers were major Canadian telecommunications companies such as Bell Canada and Rogers. It did not have exclusive contracts with its customers and it competed for their business against other fiber optic cable companies. Mr. Foresta was the company’s main but not its exclusive salesperson with its customers, reporting directly to the company’s owner.

In the months before his departure, he indicated to other employees in confidence that he was planning to leave and start his own business that would compete with the company. He suggested to them that they would be welcome to join him in the new business and that they should seriously consider doing so because his departure would imperil the company’s business success.

In the summer of 2014, he incorporated his own company and obtained $300,000 in financing. He then resigned. Shortly afterwards, four other company employees resigned to join him.

After his departure, he re-entered the fiber optic cable business through his new company.

Optilinx’s case against Mr. Foresta was that he was no ordinary employee, but rather a key employee owing fiduciary duties to his employer. The company sought an injunction to stop Mr. Foresta from doing business with several of the company’s largest customers.

To the court, however, while Mr. Foresta may have been a very important and productive employee, and even the lynchpin to the company’s success, he was not an owner, director, shareholder or a member of management. His importance as an employee did not mean that he was a fiduciary. In this case, the company was unable to establish a sufficiently strong case that Mr. Foresta occupied the position of a fiduciary.

As the court noted, there is nothing to prevent an ordinary employee from terminating his employment, at which point that employee is free to compete with his former employer unless there exists a contract preventing him to do so. On the other hand, a fiduciary occupies a position of loyalty and trust and is not permitted to allow his own self-interest to conflict with those duties. However, even a fiduciary who terminates his employment is entitled to accept business from former clients, although a fiduciary may not directly solicit business from former clients. In this case, even if Mr. Foresta did have fiduciary responsibilities, there was no evidence that he had actively solicited business from the company’s customers.

The situation would have been different had there been evidence that Mr. Foresta had taken confidential information such as customer lists, or stolen trade secrets, from his employer. That type of conduct is unlawful and the court will step in, in those circumstances. However, as this case reminds us, where the departing employee is not a fiduciary, the rules are very different.

Termination Provisions in Employment Contracts Are Not Always Enforceable

The recent decision in Miller v. A.B.M. Canada Inc. provides a useful lesson on the extent to which one can rely on the termination provisions in an employment contract.

In this case, Mr. Miller joined ABM in 2009. He was given a draft employment contract with no deadline for him to sign it. It was set up with a series of appropriate headings and a plain language description of the terms appropriate to each heading. It contained a clause entitled “Termination” and at trial, Mr. Miller testified that he saw the heading and knew what it meant but did not read the terms set out under it.

The contract provided for a salary and in addition, ABM agreed to match Mr. Miller’s personal pension contributions up to a maximum of six percent of base salary. Mr. Miller was also to be provided with a monthly car allowance. These additional items appeared under the headings “Remuneration” and “Fringe Benefits” respectively.

Under “Termination”, the contract provided that Mr. Miller’s employment could be terminated without cause “upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by the applicable legislation”.

Mr. Miller began work in September 2009. His employment was terminated in January 2011. At that point, ABM provided Mr. Miller with two weeks of salary in lieu of notice, being salary in lieu of the minimum period of notice prescribed by Ontario’s legislation. He ultimately received a pay cheque for the two weeks’ salary plus vacation pay. The cheque did not include anything for his car allowance component or pension contributions.

Mr. Miller sued for damages, taking the position that the termination provision was null and void so that his entitlement should be determined on the basis of the common law. ABM’s position was that its obligations were limited to payment of salary under the contract, which payment was made. ABM acknowledged that Mr. Miller might be entitled to the pension contribution of six percent of base salary for two weeks plus a car allowance for two weeks, but nothing more.

The court observed that employees under a contract of employment for an indefinite period are entitled to reasonable notice of termination. This is to be treated as a presumption, rebutted only if there is a contract clearly specifying another period of notice and that other period is not inconsistent with legislated minimums.

The court felt that a termination provision specifying a minimum period of notice would be effective to rebut the common law presumption if the period is not contrary to the minimum provided by the legislation. However, the court observed that the length of the notice period is only part of the termination equation. One aspect is the length of time during which the employee is to be paid in lieu of notice. The amount to be paid to the employee during that period is a separate issue.

The law is clear that any provisions that attempt to contract out of minimum employment standards by providing for lesser benefits than those legislated as minimums, are null and void.

In this case, the termination clause provided that Mr. Miller’s employment could be terminated upon being paid salary in lieu of the minimum period of notice prescribed by the legislation. Mr. Miller, however, was also entitled to additional amounts for pension contributions and car allowance as part of his remuneration package.

The court found that the termination clause actually provided for compensation in an amount that was less than required by the legislation. The minimum employment standards legislation includes benefits. Salary, as defined in the contract and specified in the termination clause, did not.

As a result, the termination clause failed to comply with the provisions of the legislation. For that reason, it was null and void and incapable of rebutting the common law presumption that Mr. Miller would be entitled to reasonable notice under common law principles. The court went on to award damages equivalent to 2.5 months of base salary together with additional amounts for benefits.

It is easy to criticize this decision for being overly technical. One would have to assume that if the person at ABM who prepared that contract had been properly advised, the word “salary” in the termination clause would have been changed to take into account the entire remuneration package being provided to Mr. Miller. The additional amounts in issue were quite trivial. Nevertheless, as technical as this approach may appear, this is a reflection of the way courts interpret employment agreements. Generally speaking, employees tend to be given the benefit of any doubt. This case is yet another illustration of the care that has to be taken in drafting employment contracts and particularly their termination provisions.