Lana Li
Thursday, May 21st, 2015    Posted by Lana Li (posts)

Under the Family Law Act, S.B.C. 2011, c. 25 (the “FLA”) unless property is “excluded property”, property owned by at least one spouse upon separation is family property and presumptively to be equally divided.  “Excluded property” includes property which is owned by one of the spouses before the relationship began, inheritances to a spouse and gifts to a spouse from a third party (s. 85(1) of the FLA).

In VJR v SKW, 2015 BCSC 593, a husband successfully argued that a $2 million payment to him was a gift, by way of inheritance, from his former employer, with whom he had developed a father-son relationship.  However, upon receiving the $2 million payment, the husband then used the funds to purchase property registered in his wife’s name only and to pay off family debts.  The husband argued that he had just placed the property in the wife’s name to protect him and his family from his creditors and that the wife held the entire property in trust for him.  The wife argued that the husband had gifted the money to her based upon how the property was registered and his use of the money to pay family debt.  The Court held that the husband could not argue that the registration of the property to the wife was to shield him from his creditors and then argue the property was held in trust for him.  The Court would not assist a sham arrangement and help the husband to establish a trust arrangement for his benefit.  It determined that the husband had gifted the property to the wife, such that it was found to be family property, and the net sale proceeds were divided equally between them.  Even if the $2 million payment was “excluded property”, it was significantly unfair not to divide it with the wife as she had contributed to the property, the household, and she had supported the husband for over 10 years, which helped him to develop his relationship with his former employer.

Therefore, if property is “excluded property”, it is best to keep it separate, such as putting the money in a separate bank account, and not use it to purchase family property or pay down family debt.

Alisha Parmar
Monday, April 27th, 2015    Posted by Alisha Parmar (posts) and Shafik Bhalloo (posts)
Alisha Parmar
Alisha comes to Kornfeld LLP from University of British Columbia as an Articling Student. Her primary area of interest lies in: general corporate commercial law.
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.

The Potter Decision – When an Administrative Suspension Goes Too Far

 

By Alisha Parmar and Shafik Bhalloo

 

The Potter Decision – When an Administrative Suspension Goes Too Far

Constructive dismissal is a fascinating concept for employment lawyers, employees, and employers alike.   When an employer is found to have “constructively dismissed” an employee, it means that the law characterizes the employer’s conduct as amounting to dismissal.  Whether or not the employer intended to dismiss the employee, a finding of constructive dismissal can have significant consequences – an offending employer will be liable for damages in lieu of the notice that ought to have been provided to the employee when she was dismissed.   Thus, it seems all the more important that the law governing this legal creature be well-defined, lest an unwitting employer accidently “dismiss” an employee. 

In Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (“Potter”), the Supreme Court of Canada recently provided an in-depth examination of how the test for constructive dismissal is to be applied and the rules of evidence for each branch of the test.  Further, in the context of administrative suspensions, the decision explicitly recognizes that an employer must provide legitimate business reasons for suspending an employee – otherwise the employer might be constructively dismissing the employee.

As background, an administrative suspension is the broad ability of an employer to temporarily discontinue an employee’s work in a non-union workplace for administrative reasons.[1] This stands in contrast to a suspension for disciplinary reasons.  Further, in this case, the administrative suspension was not for administrative reasons unrelated to the employee’s conduct.  To clarify, the reason for an administrative suspension may be that there is an economic downturn or something else unrelated to the employee – this was not the case in Potter.[2]

The Two Branches of the Legal Test for Constructive Dismissal

Previously, in Farber v. Royal Trust Co., [1997] 1 SCR 846 (“Farber”), the Supreme Court of Canada had held that:

A constructive dismissal occurs where an employer makes a unilateral and fundamental change to a term or condition of the employment contract without providing reasonable notice of that change to the employee.[3]

In Potter the Court further recognized that there are two branches of the test for constructive dismissal.  First, the employee may demonstrate that the employer breached an express or implied term of the contract and then show that the breach was serious enough to constitute constructive dismissal.[4]  The majority explained that a sufficiently serious breach is one which “substantially alters an essential term of the contract” or evinces an intention on the part of the employer to no longer be bound by the contract.[5]  As explained in Farber, this involves asking the question whether a reasonable person in the same situation as the employee would feel that the essential terms of the contract were altered.[6]

Under the second branch, the employee may prove more generally that the employer intended not to be bound by the employment contract, even without showing that there was a breach of a specific term.[7]  This branch takes a retrospective look at whether the employer’s cumulative past acts evince an intention to no longer be bound by the contract.[8]  The question under this branch is whether a reasonable person in the position of the employee, in light of all the circumstances, would conclude that the employer no longer intended to be bound by the contract.[9]

Constructive Dismissal in the context of an Administrative Suspension

Notably, the majority explained that under the first branch in the case of an administrative suspension, the burden shifts to the employer to show that a breach of the employment contract has not occurred.[10]  In order to do this, the employer must show that there were legitimate business reasons for the suspension:

In my view, legitimate business reasons constitute a requirement for a finding that an administrative suspension based on an implied authority to suspend is not wrongful.  Other than in the context of a disciplinary suspension, an employer does not, as a matter of law, have an implied authority to suspend an employee without such reasons.  Legitimate business reasons must always be shown, although the nature or the importance of those reasons will vary with the circumstances of the suspension.[11]

Thus, without legitimate business reasons for the administrative suspension, the employer fails the first part of the test, and the analysis moves onto whether the unauthorized suspension constitutes a substantial breach.  This involves considering whether a reasonable person in the employee’s circumstances would have perceived, inter alia, that the employer was acting in good faith to protect a legitimate business interest, and that the employer’s act had a minimal impact on her in terms of the duration of the suspension.[12]

Application to the Facts

In Potter, the plaintiff employee was appointed the Executive Director of the New Brunswick Legal Aid Services Commission for a seven year term.  About half-way into the term, the plaintiff and the defendant began negotiating for a buyout of the plaintiff’s employment contract.  However, prior to the conclusion of these negotiations, the plaintiff delegated his responsibilities to another director and went on medical leave.

Following this, the defendant unilaterally decided to put a deadline on the buyout negotiations.  If the negotiations were not resolved prior to a certain date, the defendant’s plan was to make a request to the Lieutenant-Governor in Council to revoke the plaintiff’s appointment for cause.  A week before the plaintiff was scheduled to return from medical leave and unbeknownst to the plaintiff, a letter was sent to the Minister of Justice by a representative of the defendant requesting that he be dismissed for cause.  On the same day, the defendant’s solicitor sent the plaintiff’s solicitor a letter which effectively placed the plaintiff on an indefinite administrative suspension without any explanation, but with pay.  Meanwhile, the defendant designated a replacement for the plaintiff.  Two months after being suspended, the plaintiff commenced an action for constructive dismissal.  The defendant contended that by commencing the action the plaintiff had voluntarily resigned, and stopped paying his salary and benefits.

The majority analyzed the facts in Potter using the first branch of the test for constructive dismissal and held that the defendant had in fact constructively dismissed the plaintiff. 

Under the first step, the majority found the defendant did not have express or implied authority to suspend the plaintiff.  The reasons for this finding included the fact that the suspension was of indefinite duration, the defendant had failed to act in good faith, and that it had concealed the intention to have the plaintiff’s employment terminated.[13]  The majority pointed out that as the analysis under this step was conducted from an objective point of view, it was appropriate to consider the letter sent on behalf of the defendant to the Minister of Justice requesting the plaintiff’s dismissal.

The majority further accepted, under the second step, that a reasonable person in the position of the plaintiff would view the breach as substantial, despite the fact the defendant continued to pay the plaintiff.  The defendant had a duty to provide the plaintiff with work, and moreover the suspension was neither reasonable nor justified, since inter alia, no reasons were provided to the plaintiff.[14]  However, the majority emphasized that at this point in the test, it was not appropriate to consider the letter requesting the plaintiff’s dismissal, because it was completely outside the realm of the plaintiff’s knowledge at the time.[15]

Conclusion

There a number of important takeaways in this decision:

  1. Acting within the confines of the employment contract:  Where an action is not expressly authorized by the employment contract, a careful analysis should be conducted as to whether the action is impliedly authorized or consented to by the employee – if not, the employer runs the risk of having constructively dismissed the employee.
  2. Legitimate business reasons:  Employers do not have the implied authority to place an employee on non-disciplinary administrative suspension without legitimate business reasons.  If the employer desires to have this ability, it should be provided in the contract.
  3. Continuing to pay is insufficient:  There is a duty for employers to continue to provide work.  When this duty is interfered with, continuing to pay the employee may be insufficient to show that the employee was not constructively dismissed.



[1] Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (“Potter”) at para. 68

[2] Ibid at paras. 69 -70

[3] Farber v. Royal Trust Co., [1997] 1 SCR 846 (“Farber”) at para. 34

[4] Potter, supra note 1 at para. 32

[5] Ibid at para. 34 to 35

[6] Ibid at para. 26

[7] Ibid at para. 33

[8] Ibid at para. 33

[9] Ibid at para. 42

[10] Ibid at para. 41

[11] Ibid at para. 98

[12] Ibid at para. 45

[13] Ibid at para. 46

[14] Ibid at para. 81, 99

[15] Ibid at para. 63

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Posted by Alisha Parmar (posts) and Shafik Bhalloo (posts) | Filed under Labour & Employment | ...
Herb Silber, Q.C.
Wednesday, March 25th, 2015    Posted by Herb Silber, Q.C. (posts)
Herb Silber, Q.C.
Herb Silber, QC brings a strong combination of experience, knowledge and empathy to the arbitration process as Arbitrator or Counsel. Herb’s approach creates the positive, respectful atmosphere critical to a successful arbitration process.

This topic can be divided into two parts – research of the facts and research of the law. This comment will focus on whether an Arbitrator can conduct independent research of the facts outside of the evidence presented at the Arbitration.

The British Columbia Court of Appeal has recently addressed this issue in a criminal case, R. v. Bornyk 2015 BCCA 28. I believe the Court’s findings are instructive for arbitration as well. In this case, the trial judge did his own reading of expert articles on the reliability of finger print evidence, which was key to the finding of guilt or innocence and concluded that the expert evidence presented by the prosecution was not reliable. The Appeal Court admonished the trial judge for doing so and overturned the not guilty verdict. The Court noted that ‘ It is basic to trial work that a judge may only rely upon the evidence presented at trial, except where judicial notice may be taken…” (which can only arise in exceptional circumstances where there is indisputable accuracy of the assertion, such as January 1, 2015 fell on a Thursday). The Court went on to state:

“[11] By his actions, the judge stepped beyond his proper neutral role and into the fray. In doing so, he compromised the appearance of judicial independence essential to a fair trial. While he sought submissions on the material he had located, by the very act of his self-directed research, in the words of Justice Doherty in R. v. Hamilton (2004), 189 O.A.C. 90, 241 D.L.R. (4th) 490 at para. 71, he assumed the multi-faceted role of ‘advocate, witness and judge’.”

As noted in the passage above, even where the trier of fact gives the parties an opportunity to make submissions on the factual findings made by relying on extrinsic evidence that is not sufficient as it ultimately for the trier of fact to ensure a fair trial, in this case not introducing evidence on his own initiative.

The Arbitrator must also conduct a ‘fair hearing.” One distinction between an arbitrator and a trial judge is that Arbitrators are often chosen because of their particular knowledge or expertise in an area and it may be reasonably expected by the parties that the Arbitrator will not ignore this expertise. However, general knowledge of the industry is not a substitute for the requirement that evidence on a specific matter ought to be expected to be presented by one or other of the parties so the other party has an opportunity to test the proposition on cross examination or respond with their own evidence. Given the requirement to conduct a fair hearing and to avoid being the “advocate, witness and judge”, it is best practice, in my view, for the Arbitrator to tread carefully on assumptions he or she makes based on their “general knowledge” of an industry and when in doubt, offer the parties the opportunity to address the issue if they choose to do so by the parties presenting evidence.

One area that an arbitrator can initiate a process is to order a view or inspection of property (see Section 29 (1) (d) of the BCICAC Rules). Thus if the Arbitrator concludes, as an example, where value is in issue, that he or she wishes to view a real property after hearing evidence in connection with the same, the appropriate practice, in my view, is for the Arbitrator to give notice to the parties of his or her desire to view or inspect the property. At that point an Order should be made to that effect, notice of the date and time of attendance given to the parties so that the parties and their representatives may be present, and given an opportunity to provide comments when the view or inspection takes place.

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Jennifer MacGregor-Greer
Monday, March 9th, 2015    Posted by Jennifer MacGregor-Greer (posts)
Jennifer MacGregor-Greer
Jennifer MacGregor-Greer is a senior associate with a broad corporate, securities and business transactions practice.

In a previous article, we considered some of the situations in which a closely-held company might wish to expand its board.  This article will go on to consider how to identify possible board candidates.

Selecting board candidates is a process not to be taken lightly.  A company’s directors are responsible for setting its direction and maintaining its corporate governance standards – so the composition of a company’s board can have long-term implications.  If you simply plan to formalize an existing mentorship or adviser role, or if a large investor has negotiated a board seat as one of its investment conditions, you may know already who the director candidate is.  However, in all other cases, identifying suitable candidates is an important step.

The basic requirements for eligibility as a director under the Business Corporations Act (British Columbia) are that the director candidate:

  • is at least 18 years of age;
  • has not been found by a court to be incapable of managing his or her own affairs;
  • is not an undischarged bankrupt; and
  • has not been convicted of an offence in connection with the promotion, formation or management of a corporation or unincorporated business, or an offence involving fraud, with a few exceptions (including the person having received a pardon under the Criminal Records Act (Canada)).

Directors of BC companies are not required to be Canadian residents.  This is, however, not the case for corporations organized under the Canada Business Corporations Act, which requires 25% of a corporation’s directors to be Canadian residents.

Directors are also not required by statute to be shareholders of a company.  However, your company’s Articles may require directors to hold shares.  It is important to review your Articles to determine whether this is the case.

You may next wish to consider the strengths and weaknesses of the existing directors.  If the company’s founder is its sole director, typically that person may have industry expertise, but lack other skills – for instance, a high degree of financial literacy.  In other cases, especially if the founder is a serial entrepreneur, the founder may have excellent business skills but wish to add industry knowledge.  Since the board will set the company’s direction, oversee its finances and safeguard its governance practices, having the necessary skill set to do so is critical.

Another item to consider is your company’s goals and objectives.  Are you hoping to build a particular line of business in the next few years?  It may be useful to have a director who is knowledgeable about that line of business.  Are you intending to enter a certain market?  Having a director who knows the particular issues surrounding that market could be a determining factor in your success.

Finally, you may wish to consider independence and gender diversity when building your board.  Board independence has long been a requirement for public companies, and gender diversity is quickly becoming an important element in corporate governance best practice.  While securities laws require boards of public companies to consist of a majority of independent directors (i.e. directors who are not related to the management of the company and who have no other material relationship with the company), best practices for private issuers also require a meaningful number of independent directors.  Canadian securities regulators have also recently brought into effect “comply or explain” standards that require reporting issuers to disclose recruitment of women directors, and if no such recruitment has occurred, to explain why not.  While these diversity standards currently do not apply to companies that are not reporting issuers, it is reasonable to expect a trickle-down effect whereby investors in smaller companies will begin to demand a higher rate of diversity on boards.

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Jennifer MacGregor-Greer
Tuesday, March 3rd, 2015    Posted by Jennifer MacGregor-Greer (posts)
Jennifer MacGregor-Greer
Jennifer MacGregor-Greer is a senior associate with a broad corporate, securities and business transactions practice.

Many companies start their lives as closely-held entities with few shareholders and only one director, who is often the company’s founder and/or principal shareholder. However, as your company grows you may find that you feel uncomfortable being the sole decision-maker, or that others are asking you to add more directors.

Of course, if your company is a closely held family business, or if you are a sole shareholder, there may never be a need to bring on additional directors. The role of a company’s directors, according to the Business Corporations Act (British Columbia), is to “manage or supervise the management of the business and affairs of the company.” If the nature and extent of your company’s business is such that this role can be carried out effectively by a single director, having one director may be sufficient. But if it appears that this role can no longer be adequately fulfilled by a single director, it is time to consider your options. The following are some situations where it may be in the company’s best interest to appoint additional directors:

  • The company is seeking to attract large investors who wish to have a formal role in influencing corporate direction;
  • The company is expanding either geographically or by adding new business divisions, making it desirable to add a diversity of expertise to the board;
  • The company’s business is becoming more complex, making it desirable to add a range of skill sets (such as financial, legal, or industry-specific) to the board;
  • You wish to formally recognize a mentorship or advisory role by appointing a mentor or adviser to the board;
  • Your company’s Shareholders’ Agreement requires multiple directors;
  • You wish to add independent, objective viewpoints to the board; or
  • The company intends to become a reporting issuer under relevant securities law, making it necessary to raise its corporate governance standards in order to comply with best practices.

While having multiple directors generally enhances the governance of a company, this will only be the case if the directors are sufficiently knowledgeable and have the necessary skills to understand the company’s business and effectively carry out their roles. Other limitations to keep in mind include the following:

  • It is generally advisable to have an odd number of directors rather than an even number, since, depending on the company’s Articles, in many cases board decisions are made by a majority of directors. Having an odd number eliminates the uncertainty that could occur if a board decision is split 50/50.
  • The number of directors that your company may have might be limited by the provisions of your company’s Articles. It is worthwhile checking the Articles to determine if they contain any restrictions in this regard, and whether your Articles need to be amended before appointing additional directors.
  • Typically, directors are elected by the shareholders of the company who hold shares that carry voting rights. Depending on the number of shareholders in your company, it might be necessary to hold a shareholders’ meeting at which the new directors are elected.
  • If a company has too many directors, the governance benefits experienced by having a diverse board could be hampered by inefficiency. In all but the largest companies, typically it is not necessary to have more than five directors.

In a future article, we will consider the types of individuals you may wish to appoint as directors.

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