Posts by Shafik Bhalloo

Shafik Bhalloo
Tuesday, January 7th, 2014    Posted by Shafik Bhalloo (posts) and Devin Lucas (posts)
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.
Devin Lucas
Devin Lucas maintains a general civil litigation practice with a focus on corporate and commercial litigation and landlord tenant and real property disputes. His commercial litigation experience includes contractual disputes, employment matters, and debtor-creditor law.

 

by Devin Lucas and Shafik Bhalloo

In IBM Canada Limited v. Richard Waterman[1], Richard Waterman (“Waterman”) was employed by IBM Canada Ltd. (“IBM”) for approximately 42 years before he was dismissed on March 23, 2009 without cause.  Waterman, aged 65, was given two months’ notice.  Prior to his dismissal, Waterman had been a long-standing member of IBM’s defined benefit pension plan (the “Plan”).  According to the terms of the Plan, IBM contributed a portion of Waterman’s salary to the Plan on his behalf.  The Plan guaranteed certain benefits upon Waterman’s retirement.  Upon termination, Waterman was eligible for a full pension; however, both his employment contract and the Plan did not address whether Waterman could receive his salary and pension concurrently.  Waterman refused to accept the severance package offered by IBM and filed suit, claiming damages for wrongful dismissal.

 

Trial Decision

One of the primary issues before the British Columbia Supreme Court was whether the pension benefits paid to Waterman should be deducted from an award for damages for wrongful dismissal.   After a summary trial hearing, the Trial Court awarded Waterman 20 months’ notice and refused to deduct the pension benefits paid to Waterman during the notice period in determining his damages.  With respect to the issue of the deductibility of pension benefits, the Trial Court held that it was bound by the British Columbia Court of Appeal decision in Girling v. Crown Cork & Seal Canada Inc. [2]  In Girling, the Court of Appeal had expressly rejected the argument that retirement benefits must be deducted from an award of damages.  The Trial Court cited Girling, at paragraph 46, as follows:

It was argued on behalf of the employer that the governing principle in awarding damages for wrongful dismissal is prima facie the amount the employee would have earned had the employment continued, in this case, until the end of the notice period.  It was submitted that this employee would not have been entitled to receive a retirement pension while still working and receiving pay. In short, an employee is not entitled to pension and pay at the same time and without deduction one from the other.  I do not accept this.

I am in accord with the resolution of this conundrum by the Chambers judge who determined that the pension benefits of the employment contract are collateral benefits of the employment contract which should not be considered income and should not be deducted from damages which are income in lieu of notice. The damages (pay in lieu of notice) flow from breach of the employment contract and the collateral pension benefits are payable pursuant to the contractual arrangements therefor. They are not to be modified by the appearance of duplication.

In the Trial Court’s opinion it was bound by Girling and noted that until a higher court holds to the contrary, pension benefits are not deductible from an award of damages for wrongful dismissal.

The British Columbia Court of Appeal Dismisses Appeal

IBM appealed the decision to the British Columbia Court of Appeal and asked for an order that pension benefits paid to Waterman during the applicable notice period be deducted from the award of damages against IBM.   Madam Justice Prowse, writing for a unanimous court, dismissed IBM’s appeal.  In so holding, Madam Justice Prowse found that the pension benefits paid to Waterman were not a substitute for salary, nor were they payments made in lieu of salary.

According to Madam Justice Prowse, whether or not a dismissed employee would be entitled to both salary and payment of his or her pension benefits during the notice period turns on the interpretation of the contractual relationship between the employer and the employee.  As noted above, there was nothing in the Plan or the employment contract that prohibited Waterman from receiving pension benefits and salary simultaneously.

Madam Justice Prowse went on to hold that it is not inherently contradictory for an employee to receive both a salary and pension benefits and, in fact, there are many examples of that occurring in today’s workforce, including employees receiving statutory pension benefits, private pension benefits from employment, and payments from an employer where the employee has earned a pension, retires, and is subsequently hired back.

In obiter, Madam Justice Prowse briefly considered broader policy arguments and stated at para. 64:

[64]   I would add that I do not take the position that Mr. Waterman is entitled to his pension benefits because it would be “wrong” for IBM to receive a set-off of these benefits against salary.  In other words, my decision is not predicated in any way on the concept of punishing a wrongdoer.  I do not think that notions of “right” and “wrong” are useful in dealing with what is essentially a contract analysis.  I note as a practical matter, however, that if pension benefits could be deducted from salary in circumstances such as these, the result could be viewed as an invitation to employers facing economic hardship to terminate senior employees with many years of service who have vested pension rights and entitlement to a significant pension, rather than more junior employees without vested rights, since laying off the former would result in a significant offset of pension against salary in estimating damages for wrongful dismissal.  A policy argument could be mounted for arguing that the employment contract should be interpreted in such a way to avoid such a result, but no such policy argument was advanced in this case.

 

The Supreme Court of Canada Decision

On Appeal by IBM, the Supreme Court of Canada considered the issue of whether Waterman’s pension benefits should be deducted from the wrongful dismissal damages payable by IBM.  In a 7-2 divide, the majority of the Supreme Court of Canada dismissed IBM’s appeal and ruled that Waterman’s pension benefits were not deductible.

Justice Cromwell, writing for the majority, held that employee pension payments, including payments from a defined benefits plan, should normally not reduce the damages otherwise payable for wrongful dismissal.  Justice Cromwell found that pension benefits are a type of deferred compensation for the employee’s service and can be likened to a form of retirement savings.  Justice Cromwell rejected the proposition that pension benefits are intended to protect an employee from wage loss due to unemployment.  According to Justice Cromwell, two factors weighed heavily in favour of not deducting Waterman’s pension benefits from his damages award.  Firstly, Waterman had contributed to the Plan from his salary.   Secondly, as noted above, pension benefits are not intended to indemnify an employee for lost wages.  On this basis, Justice Cromwell concluded that Waterman’s interest in the pension benefits had similar hallmarks to property rights and, accordingly, Waterman had enforceable rights over the benefits.

Justice Cromwell briefly touched upon certain policy concerns.  Specifically, Justice Cromwell expressed unease regarding possible incentives for employers to terminate employees possessing pensions rather than non-pensionable employees and stated at para. 93:

[93]   These factors are also relevant here, although, in this case, they support not deducting rather than deducting the benefits. Unlike in Sylvester, non-deduction in this case promotes equal treatment of employees. If deduction is permitted, an employee who is eligible to receive his or her pension but has not reached 71 years of age can, by means of wrongful dismissal, be forced to retire and draw on his or her pension benefits. By contrast, an employee who is not entitled to his or her pension receives either a deferred pension or the commuted value of it plus full damages for wrongful dismissal and an employee over the age of 71 receives both pension and employment income.  Deducting the benefits only in the case of employees in Mr. Waterman’s situation would constitute unequal treatment of pensionable employees. Moreover, deductibility seems to me to provide an incentive for employers to dismiss pensionable employees rather than other employees because it will be cheaper to do so. This is not an incentive the law should provide. While this is a broader policy consideration, it is directly related to the benefit in question and has a reasonable basis in fact.

In a strong dissent, Chief Justice McLachlin and Justice Rothstein found that Waterman’s pension benefits should be deducted from the calculation of his damages award for wrongful dismissal.  The dissent focused on the governing principle of damages in the case of breach of contract, which is to put the non-breaching party in the position he or she would have been in had the contract been performed.  By declining to deduct Waterman’s pension benefits, the dissent ruled that Waterman was receiving a windfall, and that Waterman would get more than he bargained for and would charge IBM more than it agreed to pay.  In contrast to the majority’s approach, the dissent found that employer-provided benefits could not be separated from an employment contract.  In the dissent’s view, they are to be considered as one “single contract” and, as such, Waterman’s entitlements largely depend on the ordinary rule of contract damages.

The Effect of the Supreme Court of Canada’s Ruling

This leading decision of the Supreme Court of Canada is noteworthy as it affirms the view that pension benefits should not ordinarily be deducted from wrongful dismissal damages.  This ruling favours pension-eligible employees and provides some much-needed certainty to this area of law.  Nevertheless, given the strong dissent advanced by Chief Justice McLachlin and Justice Rothstein, there is still some possibility of debate in future cases on the deductibility of pension benefits from wrongful dismissal damages.  Moreover, it is unclear how a Court would rule in the face of an employment contract or pension plan that contained a clause holding that wrongful dismissal damages and pension benefits are not to be paid concurrently.


[1] 2013 SCC 70

[2] (1995), 9 B.C.L.R. (3d) 1

 

Posted by Shafik Bhalloo (posts) and Devin Lucas (posts) | Filed under Other | ....
Shafik Bhalloo
Tuesday, September 17th, 2013    Posted by Shafik Bhalloo (posts)
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.

Employment Contracts and Fresh Consideration

By Shafik Bhalloo, Sasha Ramnarine, Devin Lucas

 

An essential element in the formation and enforceability of any contract is consideration. Each party receives a benefit from the contract and may suffer corresponding detriment. This benefit and detriment are referred to as consideration. Without it, a contract is not binding or enforceable.

Employment contracts are no exception to this rule. Without consideration, any employment contract that is formed between an employer and employee is not enforceable.  In today’s economy, many employers are involved in reorganizing or downsizing. This often leads to the employer unilaterally changing the terms of employment of an existing contract by adding significant duties or reducing compensation or other benefits. An employer may ask an employee to sign a new contract with introduce more restrictive terms which have not previously been discussed with the employee. The employee often agrees to these changes without much question. The issue that arises in such situations is whether unilateral changes to a contract of employment made by the employer after the employee has started employment are enforceable if there is no new consideration provided to the employee.

Courts in Canada have held that fresh consideration must be given by the employer to the employee in exchange for modified terms to an existing employment contract.  The following cases demonstrate this principle.

In Singh v. Empire Life Insurance Co.[1], the primary issue before the British Columbia Court of Appeal was whether or not the terms of an Employment Agreement were enforceable.  Harry Singh commenced work on September 1, 1998 as the Regional Manager for the Vancouver Bayshore.  At Mr. Singh’s request, a representative of the employer provided a letter of comfort dated September 1 to Mr. Singh.  The letter stated:

This is a Letter of Comfort stating that Harry Singh is offered the position of Regional Manager of Empire Financial Group with a total compensation package of $170,000 made up a number of components.  Effective September 1, 1998.  A formal letter and contract will follow.

Subsequently, Mr. Singh received another letter dated the same day under the heading “Re Confirmation of Offer – Regional Manager, Vancouver Bayshore”.  This letter confirmed specific details of Mr. Singh’s employment with respect to his salary and the fact that the initial term would be for 2 years.  Mr. Singh continued in that employment for five months before the Employment Agreement was executed.  This agreement contained a termination clause stating that “the termination will be effective at the end of the appropriate period of notice according to applicable provincial legislation”.  In November 2012, Mr. Singh’s position became redundant and he was let go.  Mr. Singh then commenced an action against the employer claiming damages for the remaining ten months in the two year term.  The employer argued that the contract was terminable on two weeks’ notice pursuant to the Employment Standards Act.

 

The Court of Appeal upheld the lower court’s finding that the employer could not rely on the provisions of the subsequently signed agreement, which were less favourable to Mr. Singh than the terms of the original contract.  In so holding, the Court affirmed the leading British Columbia Court of Appeal decision of Watson v. Moore Corporation Ltd.[2]

 

In Watson, McEachern C.J.B.C., writing for the majority, found that unless the employer had a clear intention of terminating the employee’s employment prior to the employee executing the contract amendment, the mere forbearance from termination at this juncture was not adequate consideration for the amendment.

The Court of Appeal in Singh ultimately found that when the Employment Agreement was signed there was no benefit passing to Mr. Singh that he would not otherwise be entitled to.  As such, the contract was held to be unenforceable.

In the Ontario Court of Appeal case of Hobbs v TDI Canada Ltd.[3], the Plaintiff, Hobbs, was an experienced advertising salesperson who took a job with TDI Canada Ltd. (“TDI”). Prior to his start date, there was an oral agreement between Hobbs and TDI on the commission rates Hobbs was to receive. Shortly after Hobbs commenced his employment, he was given a non-negotiable Solicitor’s Agreement.  The Solicitor’s Agreement provided for a more restrictive commission rate than what was previously agreed to.  Further, the Solicitor’s Agreement allowed TDI to revise the commission rate at its sole discretion. Hobbs subsequently signed the document as he would otherwise not receive payment. As time passed, Hobbs was not paid the commissions that he believed were owed to him; therefore, he resigned from the company and sued TDI for the outstanding commissions.

The Ontario Court of Appeal considered the enforceability of the Solicitor’s Agreement. The Court of Appeal determined that the agreement did not form part of Hobbs’ employment contract for lack of consideration. As a result, the Court of Appeal ordered TDI to pay Hobbs the commissions he was owed based on the earlier oral agreement.  In reaching this decision, the appellate court reviewed a number of leading authorities on the requirement of consideration in employment contracts and stated:

[32] … [Francis v Canadian Imperial Bank of Commerce] makes it clear the law does not permit employers to present employees with changed terms of employment, threaten to fire them if they do not agree to them, and rely on the continued employment relationships as the consideration for the new terms.

[35] In Techform Products Ltd., Rosenberg J.A. similarly recognized that new consideration is required in order to modify an existing employment contract. He stated at para. 24:

It is also consistent with the principle fundamental to consideration in the context of an employment contract amendment — that in return for the new promise received by the employer something must pass to the employee, beyond that to which the employee is entitled under the original contract. Continued employment represents nothing more of value flowing to the employee than under the original contract.

The Court of Appeal further addressed the power imbalance in employment relationships and the vulnerability of employees in relation to their employers at para. 42:

The requirement of consideration to support an amended agreement is especially            important in the employment context where, generally, there is inequality of         bargaining power between employees and employers. Some employees may enjoy             a measure of bargaining power when negotiating the terms of prospective       employment, but once they        have been hired and are dependent on the remuneration of the new job, they become     more vulnerable.

What do these cases mean for employers?

The above noted decisions clearly stand for the proposition that an amendment to a pre-existing employment contract will not be enforced unless there is an added benefit to both parties. A basic rule of thumb for employers to follow is to have an employee sign a contract that is suitable to the employer before the employee commences his or her employment.  Alternatively, it is critical when introducing new terms to a pre-existing employment contract that employers provide fresh consideration to the employee.  The lack of fresh consideration increases the risk that the modified terms of an employment contract will not be upheld by a court of law.

What would be considered adequate consideration?

There are no cases that outline a specific test to determine what constitutes adequate consideration when an employer modifies the terms of employment.  In Krieser v. Active Chemicals Ltd.[4], Neilson J. provides some guidance as to what would form adequate consideration in the employment context. At para. 35, Neilson J. stated:

I have found, however, that the defendant must show something more than continuation of the plaintiff’s employment on more onerous terms for an uncertain time to establish adequate consideration. Some additional advantage must flow to the plaintiff for agreeing to the new terms. I find that the defendant has failed to establish that here. There is nothing in the terms of the Contract that confers a benefit on the plaintiff. Nor do I see any basis for concluding that signing it provided him with any increased security of employment, either expressly or implicitly. The plaintiff remained a probationary employee under both the Contract and the Act, and could be dismissed with no notice during the first six months of his employment. While the Contract thereafter provided more generous notice provisions than the Act, these were less generous than his common law rights once several years of employment had been completed.

Neilson J. indicated that the consideration must be some ‘additional advantage’ moving to the employee.  Yet, it is unclear what this additional advantage must be.  In the writer’s view, the nature of this advantage would invariably depend on the type of position that is held by an employee.  Some advantages may include an increase of vacation pay, notice requirements, life insurance, severance pay, or health and dental benefits. The sufficiency of consideration is still an open question at this point; however, it is a significant issue that will likely have far reaching implications for employers and workers throughout Canada.


[1] 2002 BCCA 452.

[2] (1996), 21 B.C.L.R. (3d) 157.

[3] (2004), 246 D.L.R. (4th) 43.

[4] 2005 BCSC 1370.

 

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Posted by Shafik Bhalloo (posts) | Filed under Labour & Employment, Other | ....
Shafik Bhalloo
Tuesday, August 6th, 2013    Posted by Shafik Bhalloo (posts)
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.

Limiting Common Law Notice in Employment Contracts

By Shafik Bhalloo and Devin Lucas

It is settled law in Canada that an employer may displace an employee’s right under the common law to reasonable notice of termination by contracting to a lesser notice or severance entitlement. However, the notice or severance period must meet the statutory notice requirements outlined in the applicable provincial employment standards legislation; otherwise it will be of no effect. In British Columbia for instance, Section 4 of the Employment Standards Act provides that the requirements of the Act are minimum requirements and any agreement to waive those requirements has no effect In Machtinger v. HOJ Industries Ltd.[1], where the employer had contracted to give its employees notice or severance below the minimum provided in the Ontario Employment Standards Act, the Supreme Court of Canada declared the provision null and void for all purposes and held that the provision could not be used to interpret the parties’ intentions with respect to notice entitlement upon termination. The Court then went on to conclude that the employees were entitled to reasonable notice because the presumption of reasonable notice was not rebutted. In so concluding, the Court reasoned that such a conclusion was consistent with the legislative intent of the Act which expressly preserved the civil remedies otherwise available to an employee against his or her employer and provided employers an incentive to comply with the minimum statutory provisions of the Act. Not only must the notice provision comply with the minimum applicable employment standards legislation, it must be drafted carefully if the employer is to successfully limit the common law notice. In British Columbia, in McLennan v. Apollo Forest Products Ltd.[2], the province’s Supreme Court considered a wrongful dismissal action brought by Marvin McLennan, a former “bin chaser” at a sawmill.  Part of Mr. McLennan’s employment contract was contained in an employee handbook.  The handbook contained the following termination provision:

The terms and conditions of employment at Apollo Forest Products Ltd. are in accordance with the Employment Standards Act and other legislation of the Province of British Columbia governing the Employer/Employee relationship in the workplace.

Upon being dismissed, Mr. McLennan brought a wrongful dismissal action against his employer arguing that he was entitled to common law severance pay.  In response, the employer argued that the two weeks’ pay that was provided as severance pay pursuant to the Employment Standards Act[3] was adequate.  The B.C. Supreme Court held that the express provisions of the contract did not restrict the notice to the minimum set out in the Employment Standards Act; therefore, making it necessary and appropriate for the Court to determine the reasonable notice period to which the employee was entitled at common law.

McLennan provides support for the proposition that an employment contract, which incorporates provisions of employment standards legislation by reference, will not be sufficient to provide the clarity of intention required to rebut the presumption that reasonable notice in accordance with the common law applies.  In order to do so, the contract would have to go further and clearly limit the reasonable notice period to the applicable statutory legislation.

Recommendations for Employers

It is recommended that employers, when attempting to limit common law notice or severance, do not violate the minimum provincial employment standards legislation. Where the employer is trying to limit the notice to the minimum in the employment standards legislation, it is recommended that the employer draft the limiting clause in very clear and unambiguous terms limiting to such statutory notice or payment in lieu of notice.


[1] [1992] 1 S.C.R. 986

[2] 1993 CarswellBC 1250.

[3] R.S.B.C. 1996, c. 113.

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Posted by Shafik Bhalloo (posts) | Filed under Labour & Employment | ....
Shafik Bhalloo
Monday, January 7th, 2013    Posted by Shafik Bhalloo (posts)
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.

By Shafik Bhalloo

In a recent criminal decision, R. v. Cole[1], the Supreme Court of Canada provided much needed guidance on when an employee may reasonably expect  data stored on his work issued computer will be treated as private. In this case, a high school teacher, who also worked with the school’s IT department in supervising computer use by students and staff, had authority to remotely access the data stored on student computers connected to the school network and accessed a student’s email account. The teacher found nude photographs of another student and copied them onto the hard drive of his school-issued laptop. Under the school’s Acceptable Use Agreement (“UA”), the teacher was allowed to use his work-issued laptop for both work and personal purposes. When a technician employed by the school, while performing regular maintenance work on the teacher’s laptop, discovered a hidden folder on the teacher’s laptop containing the said photographs, he notified the school’s principal. Pursuant to the latter’s instructions, the technician copied the pictures to a compact disc. The principal, subsequently, seized the laptop and, thereafter, the technician copied, on a second compact disc, temporary internet files from the laptop. The laptop was then turned over to the police, together with the two discs. The police, without obtaining a search warrant in advance, examined the contents of the laptop and the two discs and created a mirror image of the laptop’s hard drive. The teacher was later charged with possession of child pornography.

At trial, the teacher applied and was successful under section 8 and subsection 24(2) of the Canadian Charter of Rights and Freedoms to have the evidence against him excluded on the basis that it was obtained in a manner violating his constitutional rights under the Charter. On appeal by the Crown, the Ontario High Court of Justice reversed the lower court’s decision, finding that the trial judge erred in law in concluding that Mr. Cole had an objectively reasonable subjective expectation of privacy stating that the judge erroneously ignored the following contextual factors:

  • The teacher’s acceptance of the employer’s UA as terms of his employment, which afforded him knowledge that the data and information on the computer and drives assigned to him by the employer were not private;
  • The teacher also worked with the school’s IT department staff to supervise and monitor both the computer use by students and staff of the high school and the overall integrity of the school’s network, and, in this supervisory capacity, the teacher had domain-wide privileges which demonstrated to him that the data on his computer drives was accessible by employer representatives such as himself;
  • In light of the first two points above, indicators such as the teacher’s password and his exclusive possession of the laptop as part of his employment were not privacy indicators;
  • The teacher’s knowledge that the hardware and software in and connected to the laptop belonged to the employer.

On appeal by the teacher, the Court of Appeal of Ontario set aside the latter decision in part holding that the disc containing the temporary internet files, the laptop and the mirror image of its hard drive should be excluded. The Court of Appeal reasoned as follows:

[76] … the fact that the discs and laptop in this case had been lawfully seized by the principal and the school board and delivered to the police does not affect the continuing privacy expectations of the appellant. Police are not relieved from the stringent standard of obtaining judicial authorization to conduct a search or seizure based on reasonable and probable grounds, simply because they are provided with evidence in circumstances where the accused’s Charter rights were either not engaged or were not infringed in the initial gathering of that evidence….

[77] …The appellant’s privacy interest with respect to his laptop continued throughout its transfer to police, notwithstanding that it was the property of the school board, and already lawfully seized by them. Personal information was also stored on the laptop.

The police conducted a search and seizure of the laptop and seized the mirror image of the hard drive, capturing every piece of personal information the appellant may have stored on it, including the photographs of his wife, without a warrant.

[78] The appellant also had a privacy interest in his personal internet browsing history and what it revealed about his personal predilections and choices. In R. v. Morelli, 2010 SCC 8 (CanLII), [2010] 1 S.C.R. 253, at para. 3, the Supreme Court referred to this as ‘the electronic roadmap of your cybernetic peregrinations, where you have been and what you appear to have seen on the Internet’. Because the appellant had a continuing privacy interest in this information, the transfer of the disc with the temporary internet files to the police was a ‘seizure’ within the meaning of s. 8 of the Charter.

[79] The police search of the laptop and the disc with the temporary internet files is therefore prima facie unreasonable. The onus shifts to the Crown to establish that this warrantless search by police was nonetheless reasonable. There were no exigent circumstances. Both the school environment and the evidence were secure; the teacher was suspended and the police were in possession of the discs and the laptop. The school board had no authority to consent to the search. This warrantless search was not reasonable. Therefore, the police violated the appellant’s s. 8 rights when they searched the laptop and the disc with the temporary internet files.

However, the Court of Appeal viewed the disc containing images of the student differently, stating:

Given that the photographs were taken from the school’s network, using the school’s computer and were the subject of the privacy interest of a student, the appellant had no personal privacy interest in the data. The photographs were found by the technician in plain view, while engaged in permissible access. They were lawfully seized by the principal and transferred to police. As the functional equivalent of photographs in an envelope, the police did not need to conduct a further search of this evidence. Because the appellant had no privacy interest in the photographs themselves (as opposed to the presence of those photographs in the laptop), the delivery of the disc to police was not a seizure.

On Appeal by the Crown, the Supreme Court of Canada, while agreeing with the Court of Appeal that the teacher had a reasonable expectation of privacy in the circumstances and the police infringed the teacher’s privacy protected under section 8 of the Charter, allowed the appeal and set aside the decision of the Court of Appeal. In arriving at this conclusion, Mr. Justice Fish, writing for the majority of the Supreme Court, delineated the following instructive principles:

  • Whether at home or in the workplace, computers are reasonably used for personal purpose and contain information that is meaningful, intimate and touching on the user’s biographical core;
  • The user may reasonably expect privacy in the information contained on their computer particularly where personal use is permitted or reasonably expected;
  • While ownership of the computer and workplace policies are relevant considerations, neither is determinative of a person’s reasonable expectation of privacy;
  • The totality of all the circumstances will need to be considered to determine whether privacy is a reasonable expectation in any particular case;
  • Workplace policies and practices may diminish an individual’s expectation of privacy in a work computer; however they may not in themselves remove the expectation entirely;
  • A reasonable, though diminished expectation of privacy, is nonetheless a reasonable expectation of privacy, protected by s. 8 of the Charter and subject only to state intrusion under the authority of a reasonable law.

Applying the above principles to the facts in this case, Fish J. stated the operational realities of the teacher’s workplace consisted of factors that pulled in competing directions. In particular, Fish J. noted that while the written policy, and actual practice at work, permitted the teacher to use his work-issued laptop for personal purpose, the policy and technological reality deprived him of exclusive control and access to the personal information he recorded on the laptop. More particularly, Fish J. noted that the written policy of the school, of which the teacher was reminded by the principal annually, provided that the data and messages generated on or handled by the employer’s equipment was owned by the employer and he was aware that the contents of his hard drive were available to all other users and technicians with domain administration right. On the totality of the circumstances, Fish J. concluded that the teacher had a reasonable subjective expectation of privacy in his internet browsing history and the informational content of his work-issued laptop; it contained information that was meaningful, intimate and touching on his biographical core.

Having said this, however, the Supreme Court did not find the school to have acted unreasonably or in breach of s. 8 of the Charter when its technician inspected the teacher’s laptop in context of routine inspection or when the school subsequently seized the laptop at the instruction of the principal because the school’s principal had a statutory duty to maintain a safe school environment. However, the school’s lawful authority did not afford the police lawful authority to conduct a warrantless search and seizure of the computer material and examine its contents, according to the Supreme Court. In particular, Fish J. reasoned:

[67] In taking possession of the computer material and examining its contents, the police acted independently of the school board (R. v. Colarusso, 1994 CanLII 134 (SCC), [1994] 1 S.C.R. 20, at pp. 58-60). The fact that the school board had acquired lawful possession of the laptop for its own administrative purposes did not vest in the police a delegated or derivative power to appropriate and search the computer for the purposes of a criminal investigation.

[73] The school board was, of course, legally entitled to inform the police of its discovery of contraband on the laptop. This would doubtless have permitted the police to obtain a warrant to search the computer for the contraband. But receipt of the computer from the school board did not afford the police warrantless access to the personal information contained within it. This information remained subject, at all relevant times, to Mr. Cole’s reasonable and subsisting expectation of privacy.

Having found that the police breached the teacher’s privacy rights under section 8 of the Charter, Fish J. embarked on an inquiry under s. 24(2) of the Charter, namely, whether the unconstitutionally-obtained evidence by the police should be excluded. Here, Fish J. considered a three-part balancing test set out in the Supreme Court’s decision in R. v. Grant[2]. In particular, Fish J. considered (i) the seriousness of the Charter-infringing conduct of the police; (ii) the impact of the breach on the Charter-protected interest of the teacher; and (iii) the society’s interest in the adjudication of the case on its merits. In setting aside the decision of the Court of Appeal and allowing the unconstitutionally-obtained evidence, Fish J. stated with respect to the first part of the Grant test:

[84] Regarding the seriousness of the Charter-infringing conduct, the courts below focused on the actions of Detective Constable Timothy Burtt, the officer who took possession of the computer material, who searched the discs, and who sent the laptop away for forensic examination. The trial judge concluded that this officer’s actions were ‘egregious’ (para. 26), and the Court of Appeal considered his conduct serious enough to favour exclusion.

[85] I am unable to share either conclusion.

[86] The police officer did not knowingly or deliberately disregard the warrant requirement. As events were unfolding in this case, the law governing privacy expectations in work computers was still unsettled. Without the guidance of appellate case law, D.C. Burtt believed, erroneously but understandably, that he had the power to search without a warrant.

[87] He did not act negligently or in bad faith. Nor does his conduct evidence insensitivity to Charter values, or an unacceptable ignorance of Mr. Cole’s rights under the Charter. The officer did not rely exclusively, as the courts below suggested, on his mistaken belief that the ownership of the laptop was necessarily determinative. While this was an important factor underlying his decision not to obtain a search warrant, the officer also turned his mind to whether Mr. Cole had an expectation of privacy in the laptop (p. 130). He was alert to the possibility that the hard drive contained private or privileged material (pp. 130-31 and 164). And he testified that he intended to respect Mr. Cole’s privacy interest in this regard (p. 131).

[89] …Where a police officer could have acted constitutionally but did not, this might indicate that the officer adopted a casual attitude toward — or, still worse, deliberately flouted — the individual’s Charter rights (Buhay, at paras. 63-64). But that is not this case: The officer, as mentioned earlier, appears to have sincerely, though erroneously, considered Mr. Cole’s Charter interests.

[90] Accordingly, in my view, the trial judge’s finding of ‘egregious’ conduct was tainted by clear and determinative error (Côté, at para. 51). On the undisputed evidence, the conduct of the officer was simply not an egregious breach of the Charter. As earlier seen, the officer did attach great importance to the school board’s ownership of the laptop, but not to the exclusion of other considerations. He did not ‘confuse ownership of hardware with privacy in the contents of software’ (trial reasons, para. 29).

With respect to the second part of the Grant test, Fish J. stated:

[91] Turning then to the impact of the breach on Mr. Cole’s Charter-protected interests, the question relates to ‘the extent to which the breach actually undermined the interests protected by the right infringed’ (Grant, at para. 76). In the context of a s. 8 breach, as here, the focus is on the magnitude or intensity of the individual’s reasonable expectation of privacy, and on whether the search demeaned his or her dignity (R. v. Belnavis, 1997 CanLII 320 (SCC), [1997] 3 S.C.R. 341, at para. 40; Grant, at para. 78).

[92] In his s. 24(2)analysis, the trial judge neglected entirely to consider the diminished nature of Mr. Cole’s reasonable expectation of privacy. Likewise, the Court of Appeal overlooked the fact that the operational realities of Mr. Cole’s workplace attenuated the effect of the breach on his Charter-protected interests.

[93] Moreover, the courts below failed to consider the impact of the ‘discoverability’ of the computer evidence on the second Grant inquiry. As earlier noted, the officer had reasonable and probable grounds to obtain a warrant. Had he complied with the applicable constitutional requirements, the evidence would necessarily have been discovered. This further attenuated the impact of the breach on Mr. Cole’s Charter-protected interests (Côté, at para. 72).

Finally, with respect to the third part of the Grant test, Fish J. stated:

Finally, I turn to the third Grant inquiry: society’s interest in an adjudication on the merits. The question is ‘whether the truth-seeking function of the criminal trial process would be better served by admission of the evidence, or by its exclusion’ (Grant, at para. 79).

[95] Not unlike the the considerations under the first and second inquiries, the considerations under this third inquiry must not be permitted to overwhelm the s. 24(2) analysis (Côté, at para. 48; R. v. Harrison, 2009 SCC 34 (CanLII), 2009 SCC 34, [2009] 2 S.C.R. 494, at para. 40). They are nonetheless entitled to appropriate weight and, in the circumstances of this case, they clearly weigh against exclusion of the evidence.

[96] The laptop, the mirror image of its hard drive, and the disc containing Mr. Cole’s temporary Internet files are all highly reliable and probative physical evidence. And while excluding it would not “gut” the prosecution entirely, I accept the Crown’s submission that the forensic examination of the laptop, at least, is “critical”: the metadata on the laptop may allow the Crown to establish, for example, when the photographs were downloaded and whether they have ever been accessed.

[97] In sum, the admission of the evidence would not bring the administration of justice into disrepute. The breach was not high on the scale of seriousness, and its impact was attenuated by both the diminished privacy interest and the discoverability of the evidence. The exclusion of the material would, however, have a marked negative impact on the truth-seeking function of the criminal trial process.

For the above reasons, Fish J. did not exclude the evidence unlawfully obtained by the police.

While the case is a criminal one and engages an individual’s privacy rights under s. 8 of the Charter since it involves state (police) intrusion of an individual’s privacy rights, the privacy principles articulated by Fish J. will undoubtedly be considered by courts in future employment law cases and employers should be mindful of those principles in structuring their relationship with their employees.

It is recommended that employers should implement clear policies that define, in unequivocal terms, the employer’s expectations surrounding workplace computer use, including smartphone use, if employers provide such equipment to employees in an employment context. Although Fish J., in R. v. Cole, stated that workplace policies are not determinative of a person’s reasonable expectation of privacy, if properly drafted a workplace policy combined with consistent employer actions in the workplace, may diminish, objectively, the employee’s reasonable expectation of privacy. For example, where both the employer’s workplace policy and the employer’s actions in the workplace are consistent in prohibiting any personal use by employees of employer-issued computers or smartphones and where the employee has acknowledge receipt of employer’s policy that provides that any data sent, stored or received using the employer’s computer or smartphone is the property of the employer and the employer reserves the right to perform random checks or audits of the employee’s computer or smartphone use, the employee may be hard pressed to argue that he or she has a reasonable expectation of privacy.


[1] 2012 SCC 53

[2] 2009 SCC 32

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Posted by Shafik Bhalloo (posts) | Filed under Labour & Employment | ....
Shafik Bhalloo
Tuesday, October 23rd, 2012    Posted by Shafik Bhalloo (posts)
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.

 By Devin Lucas and Shafik Bhalloo

In Globex Foreign Exchange Corporation v. Kelcher[1], three employees, David Kelcher, Mark MacLean, and Luciano Oliverio entered into employment contracts with Globex Foreign Exchange Corporation, a business engaged in foreign currency exchange. In 2003, each employee signed a non-competition and non-solicitation agreement comprising restrictive covenants.  MacLean agreed to the restrictions as part of his initial employment. Both Kelcher and Oliverio agreed to the restrictions during their employment, but did not receive any additional benefits as a result. In March 2005, the three employees were asked to sign more burdensome non-competition and non-solicitation restrictive covenants.  Objecting to these new restrictive covenants, Kelcher resigned and MacLean was fired.  Oliverio signed the new agreement, but resigned shortly thereafter. All three employees joined a rival firm.  In April 2005, Globex filed suit, claiming damages from loss of clients.

The Alberta Court of Queen’s Bench ruled against Globex and held that MacLean had been wrongfully dimissed and was therefore relieved of the restrictive covenants he had consented to.  Further, the Court found that the restrictive covenants were unenforceable as against Kelcher and Oliverio for want of consideration, as the agreements were signed by both employees during the course of their employment, but had received nothing in return.  The Court found that consideration could be present in instances where there is mutual understanding between employer and employee that the employer will not exercise its right to lawfully terminate the employment if the employee agrees to the restrictive covenant; however, the Court found that such mutual understanding did not exist in this case. If such consideration had been present, the Court held that only Kelcher’s non-solicitation clause would have been enforceable because Oliverio’s non-solicitation clause was overly broad and thus unenforceable.

Globex appealed the decision to the Alberta Court of Appeal.  Madam Justice Hunt, writing for the majority, dismissed Globex’s appeal. In so holding, Madam Justice Hunt affirmed the trial court’s ruling that the wrongful dismissal of an employee will render that employee’s restrictive covenants unenforceable. 

Madam Justice Hunt provided a number of legitimate reasons for this longstanding principle of employment law.  The Court said:

Most particularly, to hold otherwise would reward employers for mistreating their employees. For example, an employer could hire a potential competitor, impose a restrictive covenant on the employee, then wrongfully dismiss her a short time later and take advantage of the restrictive covenant. This would be a highly effective, but manifestly unfair, way of reducing competition. A second justification (alluded to by Simon Brown L.J. in Rock Refrigeration) may be that enforcing a restrictive covenant in the face of wrongful termination prima facie negates the consideration (whether continued employment or something else) given by the employer to the employee when she accepted the restrictive covenant.

Madam Justice Hunt also affirmed the trial court’s conclusion that some fresh consideration must be provided by the employer when employees accept restrictive covenants during their employment.

In order for an employer to validly enforce a restrictive covenant against a departing employee, the Alberta Court of Appeal held that three criteria would have to be met.  First, the restrictive covenant has to be reasonable with respect to the geographic scope, length of time and the activity that is restricted.  Second, an employee must be dismissed either with cause or notice or, alternatively, the employee must have resigned. Third, if the employer imposes a more stringent restrictive covenant during the course of employment, the employer must provide fresh consideration such as a raise or bonus. Alternatively, there must be some understanding that the employment would continue as a result of the employee agreeing to the addition or amendment of the restrictive covenant.

This case provides a useful guide with respect to the factors a court will look at when determining the enforceability of restrictive covenants in employment agreements.


[1] 2011 ABCA 240

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Posted by Shafik Bhalloo (posts) | Filed under Corporate Governance, Labour & Employment | ....