Posts by Shafik Bhalloo

Shafik Bhalloo
Monday, September 29th, 2014    Posted by Shafik Bhalloo (posts) and Alisha Parmar (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.
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.

 

INTRODUCTION

In today’s workplace, privacy is an evolving issue and Canadian privacy law is developing rapidly. Perhaps surprisingly, only a handful of Canadian jurisdictions, (including British Columbia, Saskatchewan, Manitoba and Newfoundland) have privacy legislation that creates a statutory tort or civil right of action for invasion of privacy. Until recently, most Canadian jurisdictions could only rely on legislative schemes that applied in very specific contexts – there was no general remedy for an invasion of privacy, unless the claimant managed to successfully establish the existence of a common law right to bring a civil action.

That changed when the common law tort of invasion of privacy was given teeth by the Ontario Court of Appeal in Jones v Tsige, 2012 ONCA 32 (“Jones”), wherein the Court definitively recognized the common law cause of action for intrusion upon seclusion. In Jones, the tort of intrusion upon seclusion enabled the plaintiff to recover not insignificant damages for the invasion of her privacy where no legislative scheme applied and where she had suffered no pecuniary loss.

But the bite of Jones and the tort of intrusion upon seclusion do not stop there. This year, the Ontario Superior Court of Justice relied on Jones to certify a class action proceeding against an employer for, inter alia, vicarious liability of an employee’s tort of intrusion upon seclusion. While the case, Evans v The Bank of Nova Scotia, 2014 ONSC 2135 (“Evans”), has yet to proceed to trial, the decision is one to watch out for. Whether or not the employer is ultimately found liable for the employee’s breach of privacy, Evans serves as a reminder that the law around breach of privacy is progressing swiftly and that employers must keep up.

JONES V TSIGE

The Facts

The plaintiff, Ms. Jones, and the defendant, Ms. Tsige, were both employees of the Bank of Montreal (“BMO”). Another coincidental common factor was that Ms. Jones’ former husband had formed a common law relationship with Ms. Tsige. However, Ms. Jones and Ms. Tsige did not know each other, and they worked at different branches of the BMO in different positions.

By virtue of her position with the BMO, Ms. Tsige had access to Ms. Jones’ personal information, and on at least 174 occasions, using her computer at her workplace, Ms. Tsige did in fact access Ms. Jones personal information. The information included Ms. Jones’ date of birth, marital status, language spoken, residential address, and details of her financial transactions in her personal accounts with the BMO.

The BMO discovered Ms. Tsige’s activities and confronted her. Ms. Tsige admitted to the BMO that she had no legitimate reason for accessing Ms. Jones’ personal information. Instead, Ms. Tsige explained she had been accessing Ms. Jones’ information since she was in a financial dispute with her common law spouse (Ms. Jones’ former husband) and wanted to find out if he was paying Ms. Jones child support. Notably, Ms. Tsige did not make any copies of or disseminate Ms. Jones’ personal information.

The BMO disciplined Ms. Tsige by meting out a five-day suspension and denying her a yearly bonus. The BMO also issued her a warning that future repetition of her conduct would result in termination of her employment. Ms. Tsige was asked to review and discuss the BMO privacy principles and standards.

The Ontario Superior Court

Ms. Jones lodged an action in the Ontario Superior Court of Justice asserting that her privacy interest in her confidential banking information was “irreversibly destroyed” and claimed damages of $70,000 for invasion of privacy and breach of fiduciary duty, and punitive and exemplary damages of $20,000 against Ms. Tsige.

The Court held there was no fiduciary duty owed by Ms. Tsige to Ms. Jones and dismissed the breach of fiduciary duty claim, finding there was no fiduciary relationship between them in the traditional or non-traditional sense.

With respect to the invasion of privacy claim, the Court rejected the notion that in Ontario a common law tort of invasion of privacy exists. As a result, the privacy claim was also dismissed. The Court stated that in spite of the dismissal, Ms. Jones was not without remedy because she could bring an action for invasion of privacy under the federal Personal Information Protection and Electronic Documents Act, 2000 c. 5 (“PIPEDA”).

The Ontario Court of Appeal

Ms. Jones appealed the Superior Court’s ruling to the Ontario Court of Appeal only on the ground that Ontario law does not recognize the tort of invasion of privacy. The Court of Appeal reversed the lower Court’s decision, recognized the tort of intrusion upon seclusion, and awarded Ms. Jones damages.

In order to come to the conclusion that the tort of intrusion upon seclusion exists in Ontario, the Court of Appeal conducted an extensive review of Canadian, American, and English jurisprudence on the tort of invasion of privacy. The Court found the comments of Professor Prosser particularly compelling, and stated that if Ms. Jones did have a cause of action for the invasion of her privacy, it would fall in Professor Prosser’s first category of invasion of privacy, namely intrusion upon seclusion.[1]

For her case, Ms. Tsige submitted that the existing Ontario and federal legislative framework addressing privacy is an adequate basis for the Court to refuse to recognize the emerging tort of intrusion upon seclusion. To that end, Ms. Tsige argued that expansion of the law in the area should be left to Parliament and the legislature.

The Court of Appeal considered and rejected this argument, pointing out the various deficiencies in the legislative framework with respect to Ms. Jones’ case. Namely, the legislation that Ms. Jones could use, PIPEDA, only deals with “organizations” that are within federal jurisdiction and does not address the existence of a civil cause of action for invasion of privacy within provincial jurisdiction. In addition, Ms. Jones would only be able to use PIPEDA to lodge an action against the BMO, not Ms. Tsige, and the statute would not permit her to recover damages. Further, the Court of Appeal identified that existing Ontario legislation does not provide for a private cause of action between individuals; it merely addresses individual privacy rights in the context of governmental and other public institutions.

The Court of Appeal then confirmed the existence of a right of action for intrusion upon seclusion, reasoning as follows:

Recognition of such a cause of action would amount to an incremental step that is consistent with the role of this court to develop the common law in a manner consistent with the changing needs of society.

For over one hundred years, technological change has motivated the legal protection of the individual’s right to privacy. In modern times, the pace of technological change has accelerated exponentially…

It is within the capacity of the common law to evolve to respond to the problem posed by the routine collection and aggregation of highly personal information that is readily accessible in electronic form. Technological change poses a novel threat to a right of privacy that has been protected for hundreds of years by the common law under various guises and that, since 1982 and the Charter, has been recognized as a right that is integral to our social and political order.

The Legal Elements of Intrusion upon Seclusion

The Ontario Court of Appeal expressly adopted the key features of intrusion upon seclusion as delineated in the Restatement (Second) of Torts (2010). The legal elements are that:

  1. The defendant’s conduct must be intentional, which includes reckless conduct;
  2. The defendant must have invaded, without lawful justification, the plaintiff’s private affairs or concerns; and
  3. A reasonable person would regard the invasion as highly offensive causing distress, humiliation, or anguish.

The Court of Appeal opined that recognizing intrusion upon seclusion as a cause of action does not pose a serious risk of opening the proverbial “floodgates”. The Court stated only “deliberate and significant invasions of personal privacy” are caught by the tort and not de minimus cases:

Claims from individuals who are sensitive or unusually concerned about their privacy are excluded: it is only intrusions into matters such as one’s financial or health records, sexual practices and orientation, employment, diary or private correspondence that, viewed objectively on the reasonable person standard, can be described as highly offensive.

Nonetheless, the Court indicated that a plaintiff is not required to establish actual loss or damages as part of the cause of action. In this respect, the tort of intrusion upon seclusion is similar to the statutory causes of action for invasion of privacy which exist under the legislative schemes implemented in the four provinces, including British Columbia.

Having said this, the Court stated that where the plaintiff has suffered no pecuniary loss, only “symbolic” or “moral” damages are appropriate to acknowledge the wrong done. After considering Ontario case law and the Manitoba Privacy Act, the Court of Appeal established the upper range for damages where no pecuniary loss is suffered at $20,000. The Court then awarded Ms. Jones $10,000, the mid-point of the range, stating that Ms. Tsige’s conduct was “highly offensive to the reasonable person and caused humiliation, distress and anguish”, but that it did not qualify as “exceptional circumstances” meriting an award of punitive or exemplary damages – those awards were to be left for “truly exceptional circumstances”.

EVANS V THE BANK OF NOVA SCOTIA

The Facts

Evans also involves another major bank, the Bank of Nova Scotia (“BNS”), where an employee illegitimately accessed customer information. The employee, Mr. Wilson was a mortgage administration officer for the BNS, and as such had access to highly confidential customer information.

Over the course of approximately one year, Mr. Wilson accessed the files of 643 customers of the BNS and forwarded private information to his girlfriend. His girlfriend then distributed the information to individuals who used it to commit identity theft and other fraud. Unlike Jones, it was law enforcement and not the bank that uncovered the scheme. The arrangement and Mr. Wilson’s involvement was exposed by the Calgary Police in the course of executing a search warrant against individuals who were attempting to use the information to perpetrate fraud in Alberta. Mr. Wilson was confronted and confessed to improperly printing and accessing customer profiles for individuals who had applied for mortgages.

The BNS gave notice to the 643 individuals whose profiles had been accessed by Mr. Wilson (the “Notice Group”). Over 130 individuals from the Notice Group have since informed the BNS that they have been victims of identity theft or fraud. The BNS compensated those individuals for their financial losses and offered each individual in the Notice Group a complimentary subscription to credit monitoring and identity-theft protection service.

In spite of these efforts, the BNS, in addition to Mr. Wilson, was named as a defendant in a class action, with the class being the entire Notice Group. The Ontario Superior Court certified the Notice Group’s class action for, inter alia, the BNS’ vicarious liability for intrusion upon seclusion.

Vicarious Liability and Intrusion Upon Seclusion

The Ontario Superior Court relied on the Supreme Court of Canada’s decision Bazley v Curry, [1999] SCR 534 (“Bazley”) for the rationale to impose vicarious liability on an employer. In Bazley, McLaughlin J (as she then was) stated:

The fundamental question is whether the wrongful act is sufficiently related to conduct authorized by the employer to justify the imposition of vicarious liability…

In determining the sufficiency of the connection between the employer’s creation or enhancement of the risk and the wrong complained of, subsidiary factors may be considered. These may vary with the nature of the case. When related to intentional torts, the relevant factors may include, but are not limited to, the following:

    1.  the opportunity that the enterprise afforded the employee to abuse his or her power;
    2.  the extent to which the wrongful act may have furthered the employer’s aims (and hence be more likely to have been committed by the employee);
    3.  the extent to which the wrongful act was related to friction, confrontation or intimacy inherent in the employer’s enterprise;
    4.  the extent of power conferred on the employee in relation to the victim;
    5.  the vulnerability of potential victims to wrongful exercise of the employee’s power.

[Emphasis in original]

The Ontario Superior Court further specified that “vicarious liability ‘is strict, and does not require any misconduct on the part of the person who is subject to it’: Straus Estate v Decaire, 2011 ONSC 1157, 84 C.C.L.T. (3d) 141 at para. 49.”

Applying this legal test to the conduct of the BNS, the Court found that, at least to the extent required to certify the class action, the BNS had enabled Mr. Wilson to commit the tort of intrusion upon seclusion:

[BNS] created the opportunity for Wilson to abuse his power by allowing him to have unsupervised access to customer’s private information without installing any monitoring system… Wilson was given complete power in relation to the victims’ (customers) confidential information, because of his unsupervised access to their confidential information. Bank customers are entirely vulnerable to an employee releasing their confidential information. Finally, there is a significant connection between the risk created by the employer in this situation and the wrongful conduct of the employee.

Furthermore, the Court’s decision to certify the class action for the tort of intrusion upon seclusion was not influenced by the BNS’ admission of responsibility to compensate the Notice Group for any financial losses. The BNS submitted that it accepted liability for the pecuniary losses of the individuals, as evidenced by the BNS’ willingness to financially compensate the members of the Notice Group that came forward as being victims of fraud. The Court refused to accept the BNS’ argument that it was not liable for further damages through vicarious liability for the tort of intrusion upon seclusion. Conversely, the Court distinguished the two types of damages and stated that the BNS’ “admission of responsibility to pay for the pecuniary damages suffered is a different situation from the absence of claim for compensatory damages”.

COMMENTS

Jones and Evans raise a number of thought-provoking issues for employers to consider, and the ramifications of the two cases extend well beyond Ontario.

Though it has yet to proceed to trial, Evans clearly brings to light the necessity of employers to keep up with the demands of privacy law. Employers who are neglectful in this regard may be held liable for not only the pecuniary damages associated with illegitimate access or use of private information, but also the moral or compensatory damages that may flow from a successful claim of vicariously liability for intrusion upon seclusion or applicable statutory causes of action for invasion of privacy.

In an increasingly technological world, employers have the responsibility to adequately supervise employees in their access to confidential or private information when such access is granted by virtue of employment. To this end, employers should have up-to-date privacy policies in place and ensure that employees are aware of what constitutes unauthorized access or use of private information. Employers should take active measures to ensure that these policies are implemented and followed, and it is recommended that the policies include mechanisms to monitor employee access to private information in order to identify potential abuse. Being proactive and having effective policies in place may assist employers in decreasing liability in the event that a claim of vicarious liability for an invasion of privacy is brought against the employer, or, in any event, may reduce the number and severity of potential claims by exposing unauthorized access sooner rather than later.

In addition, while the courts in British Columbia are not bound by the decisions of Ontario courts, the decision of the Ontario Court of Appeal in Jones and that of the Ontario Superior Court in Evans may still be relied upon as persuasive authority. In particular, the two decisions may be used to delineate the scope of privacy protection afforded in other jurisdictions, including provinces with general privacy legislation, since “privacy” is not defined in the statutes.

Moreover, Jones is a well-reasoned decision with an extensive overview of the relevant jurisprudence, legislation and authoritative academic literature on the tort of invasion of privacy. The Ontario Court of Appeal took judicial notice of the role of technological change and the growing threat it poses for privacy, making a highly persuasive case for other courts to “develop the common law in a manner consistent with changing society”.

Finally, the tort of intrusion upon seclusion may affect individuals outside of Ontario even before a decision is made to import the new cause of action to other jurisdictions. The Notice Group in Evans includes individuals who are residents of British Columbia and New Brunswick. The BNS attempted to argue that as against those 35 individuals, the claim of vicarious liability for intrusion upon seclusion could not disclose a reasonable cause of action, since the two jurisdictions have not yet recognized the tort.

The Ontario Superior Court chose not to preclude these individuals from utilizing the cause of action and instead commented that “[w]hile the Courts in British Columbia and New Brunswick have not as of yet recognized the tort of intrusion upon seclusion, I was not given caselaw to suggest that they have definitively shut the door on this cause of action.” In the end, the courts of British Columbia may decide to open the door to intrusion upon seclusion, and employers should be prepared for if, and when, they do.


[1] William Prosser, Law of Torts, 4th ed. (West Publishing Company, 1971) at p. 389:

  1. Intrusion upon the plaintiff’s seclusion or solitude, or into his private affairs.
  2. Public disclosure of embarrassing private facts about the plaintiff.
  3. Publicity which places the plaintiff in a false light in the public eye.
  4. Appropriation, for the defendant’s advantage, of the plaintiff’s name or likeness.

 

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Shafik Bhalloo
Tuesday, April 29th, 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.

INTRODUCTION

The steps to receiving a suspension when appealing a determination of the Director of Employment Standards (the “Director”) to the Employment Standards Tribunal (the “Tribunal”) can be confusing and full of potholes, so it is best to plan ahead and know the terrain.  For applicants wanting to map out their route, this article will provide a brief primer of the law governing a suspension request when appealing a determination by the Director.  It will also serve as a practical guide for adjudicators who are reviewing these applications.  Part I examines the statutory scheme behind this remedy.  Part II documents a number of previous decisions where suspensions have been ordered and where they have been refused, as well as decisions regarding reconsideration of appeals and suspension orders rendered moot.  Part III sets out five common errors made by applicants and seven instructive principles for consideration by both applicants and adjudicators.

PART I.         LEGISLATIVE FRAMEWORK

Section 113 of the Employment Standards Act (the “Act”) and Rule 31 of the Tribunal’s Rules of Practice and Procedure (the “Rules”) govern requests to suspend a Director’s determination.  The two provisions are complementary and should be viewed collectively by an applicant seeking a suspension of a determination:

Director’s determination may be suspended

113     

(1)        A person who appeals a determination may request the tribunal to suspend the effect of the determination.

(2)        The tribunal may suspend the determination for the period and subject to the conditions it thinks appropriate, but only if the person who requests the  suspension deposits with the director either

(a)        the total amount, if any, required to be paid under the determination, or

(b)        a smaller amount that the tribunal considers adequate in the circumstances of the appeal.

Rule 31           Request to Suspend a Determination

Requirements for application to suspend a determination

(1)        In order to request a suspension under s. 113 of the Act an appellant or applicant must, in writing, at the same time as filing the appeal or application for reconsideration:

(a)        state the reasons for the request to suspend the determination;

(b)        state the amount to be deposited with the Director; and

(c)        if that amount is less than the amount required to be paid by the Director, state the reasons why depositing a lesser amount would be adequate in the circumstances.

Notice of suspension request

(2)        The Tribunal may notify the other parties of the request to suspend the determination and set a time limit for responding to the request.

Suspension decision

(3)        If the request is not otherwise resolved, the Tribunal will advise the parties in writing of its decision on the request.

Section 113(1) of the Act grants an applicant appealing a determination the ability to seek a suspension of a determination pending an appeal; subsection (2) gives the Tribunal the authority to consider such an application.  The language of subsection (2) is permissive and vests in the Tribunal the sole discretion to grant a suspension.  As such, a suspension is not granted by the Tribunal as a matter of course.  Further, respondents are given the opportunity to file submissions in response to an applicant’s suspension request.

Subsection (2) holds that the Tribunal is to exercise its discretion to suspend a determination subject to terms and conditions considered sufficient by the Tribunal.  The Tribunal has the option of ordering either the total amount, if any, required to be paid under the determination to be deposited with the Director, or a smaller amount that the Tribunal considers appropriate in the circumstances of the appeal.  The amount is held in trust by the Director pending a further order by the Tribunal on the merits of the appeal.

Rule 31(1) goes further and explains the procedural requirements governing a suspension request.  It requires the applicant to submit in writing, “at the same time as filing the appeal or application for reconsideration”, the reasons for the request to suspend the determination, the amount the applicant is willing to deposit with the Director, and if that amount is less than the full amount ordered by the Director in the determination then the reasons why the lesser amount would be adequate in the circumstances.

It is important to note that an applicant is only permitted to request the Tribunal to suspend a determination that was issued pursuant to section 79 of the Act.  Section 113 does not apply in respect of a determination issued under section 119.  Section 119 deals with reciprocating jurisdictions under the Act and allows an employee in a reciprocating jurisdiction to have an order from that jurisdiction enforced in British Columbia.  Pursuant to section 119, a determination can be appealed, but only to the Supreme Court of British Columbia and not to the Tribunal.  Accordingly, only the Supreme Court of British Columbia has the authority to suspend a section 119 determination.

PART II.        HELPFUL DECISIONS DEALING WITH SECTION 113 AND RULE 31

Numerous Tribunal decisions have considered section 113 applications.  The practice that has emerged recently with respect to these decisions is for the Tribunal to issue its reasons on an application to suspend the effect of a determination separately from the reasons regarding the actual merits of an applicant’s appeal.

A.        Suspensions Ordered

The 1997 Tribunal ruling in Tricom Services Inc.[1] is a leading decision on the factors that a Tribunal must evaluate when considering a suspension of a determination request.  In that decision, a security business appealed a determination by the Director, whereby the employer was ordered to pay the total sum of $34,076.82 representing unpaid wages and interest.  The employer, Tricom Services Inc. (“Tricom”), also sought a suspension of the determination pending the outcome of the appeal.

The Tribunal released an initial decision regarding the employer’s request to suspend the determination.  The Director strenuously objected to the suspension request because the company was in a financially precarious position.  The Director raised the concern that if the determination was suspended without any monetary deposit the employees would be severely financially prejudiced.  In response, the employer stated that although it was able to pay the full amount of the determination, such payment would have a significant negative effect on its cash flow and, on the basis of its strong meritorious appeal, the suspension ought to be ordered with no, or very little, money being deposited.

In its preliminary decision on the suspension request, the Tribunal made reference to two earlier Tribunal decisions.  First, the Tribunal distinguished Motion Works Group Ltd.[2], where the Tribunal ordered the suspension of a determination (in the amount of $16,039.58) upon deposit of the sum of $5,000.  In Motion Works Group Ltd., the Tribunal issued an order suspending the determination primarily for the reason that the determination appeared to overstate the unpaid wage entitlement of the employees.  The Tribunal, in Tricom, noted that, unlike the case at bar, the allegation had been particularized in Motion Works Group Ltd.  In that regard, the Tribunal stated:

… Tricom simply makes a general assertion that the Determination may be in error as to the calculation of the amounts due to the various employees.  However, given that the Determination was based on Tricom’s own payroll records, I would have thought it not a Herculean task for the appellant to more fully particularize its claim that the Determination contains calculation errors.

Despite the lack of particularity regarding the Director’s apparent overstatement of wages, the Tribunal was satisfied that the employer’s appeal may be meritorious.  The Tribunal went on to consider the Tribunal decision in TNL Paving Ltd. et al.[3]  In TNL Paving Ltd. et al., the Director had opposed a suspension request on the basis that if the determination was suspended, an ongoing investigation would be prejudiced.  The Director had issued a determination that the records pursuant to an earlier Demand by the Director could be utilized in an investigation into whether the employers had complied with its statutory obligations.  This was a unique case as the determination did not involve a monetary order.  The Director, in response to the applicant’s request, had opposed it as it submitted only determinations for a specific monetary sum could be suspended.  The Tribunal noted that section 113(2)(a) referred to depositing with the Director the “total amount, if any…”.  In the Tribunal’s opinion, the words “if any” specifically contemplated an applicant seeking a suspension of a determination that did not involve the payment of money.  Further, the Tribunal found that the Director’s submission that it would be prejudiced if a suspension was granted failed for lack of particularity.  The Director had not established how it would be prejudiced if the determination were to be suspended.

Similarly, the Tribunal in Tricom Services Inc.[4] found that the general claim of prejudice on the part of the employer regarding its cash flow was insufficient to justify an order to suspend the determination upon deposit of little or no monetary security.  According to the Tribunal, the adequacy of any proposed deposit must be viewed not only from the perspective of the employer, but from the point of view of the employees as well, as their rights could be affected by a suspension order.  The Tribunal took into account the fact that Tricom appeared to be having financial difficulties and there was a risk that the employees would not be able to recover their unpaid wages. The Tribunal ordered that the determination be suspended until the appeal had been heard or decided, or until further order of the Tribunal, on the condition that Tricom deposited with the Director the full amount of $34,076.82 required to be paid under the determination.

The Tribunal in Miller[5] provided a useful summary of the governing principles in a section 113 application.  In this decision, the Tribunal Member approved of a two-stage analysis for adjudicators considering section 113 suspension applications.  First, the Tribunal should determine whether it should suspend the determination.  If the Tribunal decides that a suspension is warranted, it should then contemplate what terms and conditions are appropriate in the circumstances.  In considering whether it should suspend the determination, the Tribunal should consider whether the grounds of appeal appear to raise a “justifiable issue” based on any of the three statutory grounds of appeal.  Moreover, at this stage, the Tribunal ought to consider whether the applicant will likely endure unreasonable financial hardship if a suspension order is not granted and whether one or more of the respondent parties will be unjustly prejudiced if a suspension order is granted.  If the Tribunal is satisfied that a suspension order is justified, the “default” order is that the full amount of the determination be paid into trust with the Director pending the outcome of the appeal.  If, however, the applicant seeks an order that a lesser sum be deposited, the applicant must establish why that would be appropriate taking into account all the relevant circumstances.

The Tribunal Member recognized that an appeal from a decision of the Director does not grant a right to the applicant for a fresh trial.  On this basis, he advised that the Tribunal should not suspend a determination if the applicant’s appeal documents fail to raise, on their face, an arguable case that the appeal might succeed on one or more of the enumerated grounds of appeal pursuant to section 112 of the Act.  As such, the Tribunal Member warned that a general claim that the Director failed to observe the principles of natural justice in making the determination will not be adequate.  The Tribunal Member identified that the applicant is the party that bears the burden of satisfying the Tribunal, on a balance of probabilities, that a suspension order is warranted.

In light of these principles, the Tribunal found in Miller[6] that the applicant raised an arguable case, but had failed to provide any support for its contention that the award would raise undue financial hardship.  Therefore, the Tribunal Member ordered that the suspension order should be granted provided the appellant deposit the full sum required to be paid under the determination.

The Tribunal in Kootenai Community Centre Society[7] was asked to consider a request for suspension of a determination requiring a non-profit society to pay $18,171.74, representing wages and accrued interest owed to a former employee and an administrative penalty in the amount of $500.00.  The society deposited the amount of $7,359.75 with the Director in its appeal.  This amount reflected what the society submitted was the employee’s entitlement less statutory deductions.  The society also gave an undertaking to pay out the outstanding balance of the award, if necessary, following the Tribunal’s decision on the merits.  The Tribunal found that the society’s submissions regarding the substantive aspects of the appeal had merit.   Further, the Tribunal considered the fact that neither of the respondents had taken a position with respect to the suspension application and found that the granting of the suspension would not be prejudicial towards these parties.   In the end, the Tribunal concluded that a suspension order was warranted and that the lesser amount was sufficient to act as security pending the outcome of the appeal.

In many section 113 suspension application decisions, the Tribunal takes a middle of the road stance that seeks to balance the competing interests of the applicant and the respondent.  This was illustrated in the Tribunal decision of Wen-DI[8], in which the Tribunal fashioned a creative remedy that sought to satisfy the interests of both the applicant and the respondent.  In that case, the applicant employer requested that the determination ordering the applicant to pay $10,451.36 be suspended upon the deposit of $1,200 with the Director pending the appeal.   The applicant raised the issue of potential cash flow problems. In response, the Director submitted that the full amount ought to be deposited.  The Tribunal felt neither proposal was appropriate.  The Tribunal framed an order that secured the employee’s claim while, at the same, did not unduly constrain the employer’s cash flow.  The Tribunal accomplished this by ordering the applicant to provide to the Director an irrevocable letter of credit in favour of the Director for the full amount ordered to be paid under the determination.

In Chatzispiros[9], the Director issued a determination against a number of related companies, including 553334 B.C. Ltd., for $435,905.05 on account of unpaid regular wages, statutory holiday pay, vacation pay, individual compensation for length of service and group termination pay owed to 64 former employees of an intermediate care facility.  A subsequent determination was issued against Kosta Chatzispiros, in the amount of $121,253.56, in his capacity as a director and officer of 553334 B.C. Ltd.  In his suspension request, Mr. Chatzispiros claimed that if he was required to pay the full amount of the determination, he would be forced to file for bankruptcy.  According to Mr. Chatzispiros, a deposit of $1,000 would be suitable in the circumstances of the appeal.  The Director took the position that 10 percent of the determination would be an adequate, being $12,125.  The Tribunal agreed with the Director’s proposal given the fact that $1,000 was inadequate security for the 64 complainant employees, the lack of merit of Mr. Chatzispiros’s appeal, and that it appeared the applicant had no intention of paying the determination amount should it be upheld on appeal.  As such, the Director ordered that the determination be suspended provided the applicant deposited $12,125 with the Director.

In Holt[10], William Holt was found personally liable for two months of unpaid wages, in the total amount of $11,786.67.  The Director had found that Mr. Holt, as a director or officer of a software company, had breached the Act by failing to pay regular wages to a former employee.  Mr. Holt appealed the determination and requested a suspension of the determination.  Counsel for Mr. Holt submitted that Mr. Holt was retired and requiring a deposit of any amount would cause a considerable hardship to the applicant.  The Tribunal found that Mr. Holt had made out an arguable case, and that his appeal had some merit.  On this basis, the Tribunal suspended the effect of the determination.  Because of the fact that Mr. Holt was retired, the Tribunal considered it appropriate that the entire amount be suspended pending the result of the appeal.

B.        Suspensions Refused

In the Tribunal decision in RTS[11], an employer requested a suspension of the effect of a determination, in the amount of $4,346.78, pending the outcome of a hearing and a final decision made by the Tribunal.  The Tribunal quoted with approval a passage from the leading decision of Tricom Services Inc.[12], where the Tribunal stated:

… it is important to note that the legislature has provided, as a first proposition, that a suspension should only be ordered if the ‘total amount’ of the determination is posted; a ‘smaller amount’ should only be ordered if such lesser amount would be ‘adequate in the circumstances of the appeal’.

The Tribunal Member noted that there was not any indication in the appeal that the employer deposited any amount with the Director that was required to be paid pursuant to the determination.  Without some indication that that this condition has been fulfilled, or that the Tribunal approved of a lesser amount being deposited, the Tribunal was not prepared to exercise its discretion under section 113 and issue a suspension of determination.

In Strauss[13], an employee filed a complaint pursuant to section 74 of the Act based on the allegation that her employer, Strauss Herb Company, had failed to pay her annual vacation pay, statutory holiday pay and compensation for length of service.  The employee was ultimately successful and was awarded vacation pay, statutory holiday pay, and compensation for length of service.  Further, the employer was ordered to pay interest and three administrative penalties.  The company subsequently appealed on the basis that the Director failed to observe the principles of natural justice in making the determination and also requested that the Tribunal suspend the determination.  Contrary to the principles espoused in Miller[14], the applicant failed to provide an arguable case for the appeal on its merits, and instead relied on a bare allegation that the Director had failed to comply with the principles of natural justice in making its determination.  Moreover, the applicant did not provide any written submissions in support of its suspension request, nor deposit any amount with the Director.  Given that the applicant had the onus of establishing the basis for suspension, the Tribunal quite rightly refused suspension.  The Tribunal Member stated that “it is not for the Tribunal to divine the basis of an applicant’s suspension application.  The onus is clearly on the applicant to persuade the Tribunal on a balance of probabilities, the merits of its suspension request.”

The decision in Golden Crown[15], underscores the confusion that applicants, and their counsel, encounter when requesting a suspension of a Determination.  The applicant in this case had been ordered to pay a former employee $4,158.74, representing wages, annual vacation pay and interest.  Prior to submitting a suspension request, the applicant’s counsel had requested an explanation of the process governing the suspension of a determination.  An officer of the Tribunal responded to the applicant’s request and clarified the process.  The officer clearly laid out what was required if the applicant intended to proceed with the suspension request.  The applicant’s counsel was told the applicant was required to provide written submissions as to why the suspension should be granted.  As well, counsel for the applicant was informed that the applicant would be required to explain if any deposit would be offered to the Director in respect of the determination and if not, the reason why.  Despite receiving these instructions, the applicant failed to make any written submissions whatsoever.  The Tribunal Member found, in the circumstances, the applicant had abandoned the suspension request.  In any event, the Tribunal Member would have denied the applicant’s request for suspension as the applicant failed to discharge its burden that a suspension order was warranted in the circumstances.

In 0708964 B.C. Ltd. [16], the Tribunal considered a request to suspend a determination by an applicant that owned property on which a school was situated.  The applicant requested a suspension on the basis that the Director made an error in law and further that it would be required to sell the property in order the raise the necessary funds to post security.  While the Tribunal was not prepared to characterize the appeal as destined to fail, it did not accept the applicant’s argument that selling the land was the only practical option open to the applicant.  In addition, the Tribunal noted that the applicant was the only likely source of recovery of the complainants’ unpaid wages.  On this basis, the application to suspend the effect of the determination was refused.

Another Tribunal decision where suspension was refused occurred in Wren.[17]  The applicant applied for an order pursuant to section 113 of the Act suspending the effect of the determination pending the result of the appeal.  The applicant asserted a strong case on the merits and, accordingly, submitted that the determination should be suspended without him having to pay any funds, or alternatively, only a nominal sum.  The Tribunal briefly reviewed the merits of the appeal, as well as the financial circumstances of the applicant.  The Tribunal noted that the applicant had failed to provide any corroborating information about his financial circumstances.  The Tribunal also emphasized the fact that the applicant did not appear to have any close personal connections to the province of British Columbia apart from keeping a business office, that he “rarely visits”, in New Westminster.  The Tribunal thus concluded that a suspension order was not appropriate.

In the decision of Judy Harvey and Melvin Martin operating as The Sportsman Country Inn[18], the Tribunal refused the applicant’s suspension request.  At the time the Tribunal heard the suspension request, the Director had already taken steps to collect on the amount ordered to be paid under the determination.  In particular, the Director had issued a garnishment order on the applicant employer’s bank account.  The appeal hearing had been originally scheduled at an earlier date but was subsequently adjourned at the request of the employer.  At that time, no collection action had been commenced by the Director.  However, the Director stated that subsequently it had learned that the applicant was diverting funds into another company and that the applicant was actively trying to sell the operation.  In these circumstances, the Director felt justified in taking action on collecting on the determination.  The Tribunal noted that the employer did not respond to the submissions of the Director, nor did it offer any particulars to support the application apart from its claim that the garnishment created a financial hardship.   The Tribunal held that the applicant had not met its burden that the determination should be suspended.

In Pacific Western Costal Constructors Ltd.[19], the Tribunal considered a suspension request by the applicant employer who appealed a determination of the Director ordering it to pay $51,056.60, representing wages and accrued interest to 30 former employees.  The applicant was a subcontractor that had commenced proceedings in the British Columbia Supreme Court against the developer as the applicant alleged it was due unpaid amounts.  The applicant did not dispute that the employees were entitled to wages.  However, the applicant took the position that the disputed funds in respect of the Supreme Court action included the outstanding wages and that it was not in a position to deposit any funds with the Director.  The applicant had filed a lien against the property and the funds in dispute had been paid into the Supreme Court by the developer pending a trial.  The applicant submitted that the Director should attach the funds in Court to recover the outstanding wages instead of pursuing the applicant company.  The Director had already commenced collection procedures against the applicant, and submitted that an order to suspend the collection would unduly prejudice the collection of the unpaid wages.  The employees argued that the dispute between the applicant and the developer should not preclude them from seeking payment of their wages.

In denying the application to suspend the determination, the Tribunal was convinced that the appeal had no merit.  The Tribunal found that a dispute with a third party could not result in depriving the employees of their wages.  Further, the Tribunal emphasized the risk that the employees would never completely recover their wages given the fact that the employer had stated it had no funds to deposit pending the appeal of the determination.

In Lowan[20], the applicants appealed a determination issued by the Director ordering the applicants to pay their former employee the sum of $15,664.01 on account of unpaid wages and interest.  The applicants’ counsel requested that the determination be suspended without any deposit with the Director.  In response, the Director submitted that the determination should be suspended only if the applicants deposit the full amount required to be paid under the determination.  The applicants’ submission that a suspension order was warranted in the circumstances rested primarily on the fact that the applicants’ business was no longer operating and both applicants had limited liquid financial assets.  The Tribunal came to the conclusion that a suspension was not appropriate given the legitimate concern of whether the applicants would be able to pay the determination should it be confirmed on appeal.

C.        Reconsideration of Appeals

In The City of Surrey[21], the Tribunal Panel considered a suspension request from a determination, whereby the applicant municipality applied for a reconsideration of a decision issued by the Tribunal.  In this case, the City of Surrey (the “City”) had applied for a reconsideration of a determination that was confirmed on appeal requiring it to pay approximately $205,000 to the Director, to cover wages and other statutory entitlements to 32 persons receiving firefighting instruction.  In connection with its reconsideration application, the City applied under section 113 of the Act to have the Tribunal suspend the effect of the determination pending the outcome of the reconsideration proceedings.  The Director and the Surrey Firefighter’s Association both objected to the City’s section 113 application.

The City submitted in support of its suspension request that it did not wish to be in the position of having to recoup significant amounts of money from a number of individuals in the event that the reconsideration application was successful.  Moreover, the City confirmed that there was no issue in respect of its ability to pay.  In response, the Director submitted that a suspension request was not available pending a reconsideration application and, further, the Director maintained that the City had not followed through with an earlier promise to have funds paid to the Director.  The City responded that it was prepared to deposit the full amount with the Director in trust pending the outcome of the reconsideration provided the Director would not disburse the funds until after a decision was made.  The Tribunal first addressed the threshold question of whether it had the legal authority to suspend the effect of a determination pending a reconsideration decision.  The Tribunal held that the language, context and legislative intent of section 113 was that the power exercised by the Tribunal ought to be only exercised in the context of appellate proceedings over which it has exclusive jurisdiction.  The Tribunal then cited two earlier Tribunal decisions for the following proposition:

The language should not be read so as to permit the Tribunal to encroach on the role of      the courts or other adjudicative bodies merely because a person has appealed sometime in          the past: see Re New Pacific Limousine Service Inc.[22] and Re Paradon Computer Systems.[23]

The Tribunal rejected the Director’s narrow interpretation of the legislation whereby section 113 would only apply in the period between the determination and the original Tribunal appeal decision.  Instead, the Tribunal took a middle ground approach and interpreted the provision to read that a “person who appeals” a determination may make a section 113 request at any point while the statutory appeal process, including the reconsideration process, is ongoing.  The Tribunal felt the broad authority given to the Tribunal to suspend a determination under section 113 to ensure justice is done during an appeal supported this view.  According to the Tribunal, to exclude section 113 from the reconsideration process would prevent the Tribunal from ensuring that justice is done with respect to reconsiderations.

The Tribunal found the Director’s submissions to be more convincing with respect to discretion than that of jurisdiction.  The Tribunal identified two factors that become particularly important when a suspension request is made in the context of a reconsideration application.  First, the suspension request will generally occur prior to the Panel even making a decision on the preliminary issue of whether to even engage in the reconsideration process.  Second, the application will arise from a considered appeal decision by an Adjudicator.  In consideration of those factors, the Tribunal took the position that for the Tribunal to allow a suspension request in the context of a reconsideration application, an applicant must make a “clear and compelling” case to the Tribunal that it will suffer prejudice if a suspension order is denied.  As such, the party requesting a suspension should demonstrate to the Tribunal that it has contacted the Director in good faith, was not able to reach an agreement with respect to payment and disbursement pending the reconsideration, and that the Director’s stance pending the outcome of the reconsideration will cause them serious hardship.

Applying those principles to the case at bar, the Tribunal found that a mutually agreeable situation was available whereby the City would forward the funds to the Director on the condition they would not be paid until after the reconsideration decision was made.  It was not clear on the evidence, however, whether the City had actually forwarded the funds to the Director.  On this basis, the Tribunal encouraged the parties to resolve the disbursement issue.  In any event, the Tribunal was not prepared to suspend the determination pending the reconsideration process.  The Tribunal noted that it did not have sufficient evidence regarding the prejudice that the City would suffer if the money were paid out to the employees, nor did it have clear evidence that the Director was insisting on ordering the funds disbursed prior to the reconsideration decision.

In The City of New Westminster[24], the Tribunal considered a suspension request, in conjunction with an application for reconsideration brought by the City of New Westminster (the “City”).  The City applied for reconsideration of an Adjudicator’s decision confirming a determination finding that the City had breached the Act when it charged job applicants a $50 non-refundable fee as part of the application process.  In support of its suspension application, the City submitted that it had a meritorious appeal, that its conduct throughout the investigation process had been excellent, and that it was financially solvent.  Further, the City submitted that it would suffer prejudice because of the difficulty the City would face in recovering the amount ordered in the determination from the individuals in the event the Tribunal cancels or varies the determination.  In response, the Director raised a preliminary objection that a suspension pending a reconsideration decision was not contemplated by section 113 of the Act.  The Director also submitted that the matter was at a point at which the full amount of the determination should be deposited with the Director.  Finally, the Director submitted that at the reconsideration stage, the employer should interact directly with the Director, as a statutory fiduciary, responsible for enforcement under the Act, with respect to disbursement of funds collected.

The Tribunal dispensed with the preliminary objection that a suspension order was not available on a reconsideration application by following the identical analysis that the Tribunal undertook in The City of Surrey.[25] The Tribunal then considered the facts in the present case.  In dismissing the suspension application, the Tribunal found that the City had failed to raise any compelling reason as to why it had failed to offer to deposit the full amount with the Director.  Moreover, the Tribunal found that the City had failed to provide any basis for its submission that the Director had taken a position to the City’s prejudice with respect to the issue of disbursement during the reconsideration process.

D.        Suspension Orders Rendered Moot

In circumstances where the Tribunal releases a decision regarding a suspension request at the same time as issuing its decision on the merits of the appeal, the suspension order will be rendered moot.  This situation was illustrated by the Tribunal decision in More Group.[26] In that case, three related companies, More Marine Ltd., More Management Ltd., and Morecorp Holdings Ltd. (collectively,  the “More Group”), appealed a determination of the Director in the amount of $4,710.37.  The Tribunal’s decision specifically related to the unpaid wages of one of its former employees.  The More Group sought a suspension of the determination pending the appeal and advised the Tribunal that it was prepared to place the amounts ordered in the determination in the trust accounts of its legal counsel.  The Tribunal was convinced that the appeal had merit with respect to More Marine Ltd. and More Management Ltd.; however, because the Tribunal ordered that the determination be cancelled as against these two companies in the same decision, the suspension issue was rendered moot.  With respect to Morecorp Holdings Ltd., the Tribunal denied the application to suspend the determination as it was not persuaded that its appeal had any merit.

PART III.      INSTRUCTIVE PRINCIPLES ARISING FROM TRIBUNAL DECISIONS

Upon reviewing a number of decisions on the suspension of a determination, it became apparent to the Author that applicants are often times confused by the process and do not adequately prepare for this application.  One plausible explanation is that applicants are primarily focus on the substantive aspects of the appeal to the detriment of the suspension application.  This may be exacerbated by the requirement set out in the Rules, whereby an applicant must file written submissions in respect of the application for suspension at the same time as filing the appeal or request for reconsideration.  No matter the reason, applicants are cautioned against taking a casual approach to these applications given that it is the applicant who bears the onus of satisfying the Tribunal that a suspension is warranted.

In many cases, applicants have relied on the strength of their appeal on its merits in support of their submission to post little or no money with the Director.  In the Author’s view, this reliance is misplaced.  In considering what terms and conditions should be placed on the suspension order, Tribunal Members place more weight on whether depositing money with the Director will have a prejudicial effect on the applicant.  Although the strength of an appeal on its merits is helpful in seeking a lesser amount to be deposited, especially if the lesser amount is supported by an applicant’s own calculations, the overriding factor that a Tribunal will consider in determining whether a lesser amount is justified is whether the applicant will be prejudiced.

Based on the decision in Tricom Services Inc.[27], applicants should be cautioned against claiming that they are able to pay the full amount under the determination, while also making a general assertion that they will be unduly financially prejudiced.  The Tribunal in that case highlighted this inconsistency and noted that without some “unique prejudice flowing from having to post the full amount of the Determination” it was of the view that a determination should only be suspended if the full amount of the determination is deposited with Director.

A number of common mistakes made by applicants have emerged in a number of Tribunal decisions.  Five common errors are set out below:

  • Failing to deposit the full amount that is required to be paid under the determination with the Director, or some lesser amount with the Director which the Tribunal would think adequate in the circumstances; [28]
  • Neglecting to provide written reasons for why a suspension of the determination should be ordered;[29]
  • Failing to provide corroborating  documents in support of a contention of undue financial hardship;[30]
  • A bare and unspecified claim that the Director failed to observe the principles of natural justice in reaching its determination; [31] and
  • Failing to set out the nature of the prejudice in requesting a suspension on the ground of prejudice.[32]

The following seven instructive principles for both applicants and adjudicators are set out as follows:

  • Adjudicators should review section 113 applications through a two-stage analysis[33]:

(1)        The Tribunal should determine whether it should suspend the determination.

(2)        If a suspension is warranted, the Tribunal should then consider what terms and conditions are suitable.

  • It is the applicant’s burden to show why a determination order should be suspended;[34]
  • If there is a risk that employees will not be able to fully recover what is owed to them, the Tribunal is unlikely to grant a suspension request made by an employer;[35]
  • A suspension of a non-monetary determination is permitted;[36]
  • A suspension will not be granted where it appears the company is trying to actively avoid collection actions;[37]
  • A Tribunal will view the adequacy of a proposed deposit not just from the perspective of the applicant employer, but also from the perspective of any employees whose rights may be affected by the granting of a suspension order;[38] and
  • For a Tribunal to award a suspension in conjunction with a reconsideration application, an applicant must demonstrate a “clear and compelling” case that it will suffer serious prejudice if a suspension order is not granted.[39]

CONCLUSION

The issuance or denial of a suspension may have serious financial consequences for both the applicant and respondent in a dispute.  The granting of a suspension is a discretionary remedy and applicants should not assume their request will be approved as a matter of course.  With careful planning, however, chances for a successful outcome are significantly increased.  Prior to initiating a request, an applicant must ensure compliance with the legislative framework and provide a detailed evidentiary record for all submissions.



[1] Tricom Services Inc., BC EST #D420/97

[2] Motion Works, BC EST #D345/946

[3] TNL Paving Ltd. et al., BC EST # D002/97

[4] Tricom Services Inc., supra

[5] Miller, BC EST # D090/10

[6] Miller, supra

[7] Kootenai Community Centre Society, BC EST # D001/12

[8] Wen-Di, BC EST # D307/99

[9] Chatzispiros, EST #D520/98

[10] Holt, BC EST #D123/06

[11] RTS, BC EST #D070/03

[12] Tricom Services Inc., supra

[13] Strauss, BC EST # D095/10

[14] Miller, supra

[15] Golden Crown, BC EST # D010/09

[16] 0708964 B.C. Ltd., BC EST # D126/10

[17] Wren, BC EST #D099/10

[18] Judy Harvey and Melvin Martin operating as The Sportsman Country Inn, BC EST #D411/00

[19] Pacific Western Coastal Constructors Ltd., BC EST D#074/08

[20] Lowan, BC EST D#254/00

[21] The City of Surrey, BC EST #D049/99

[22] Re New Pacific Limousine Service Inc., BC EST D#054/96

[23] Re Paradon Computer Systems, BC EST D#221/98

[24] The City of New Westminster, BC EST D#518/98

[25] The City of Surrey, supra

[26] More Group, BC EST #D078/08

[27] Tricom Services Inc., supra

[28] RTS, supra

[29] Strauss, supra

[30] 0708964 B.C. Ltd., supra

[31] Strauss, supra

[32] TNL Paving Ltd. et al,, supra

[33] Miller, supra

[34] Strauss, supra

[35] Pacific Western Coastal Constructors Ltd., supra

[36] TNL Paving Ltd. et al., supra

[37] Judy Harvey and Melvin Martin operating as The Sportsman Country Inn, supra

[38] Tricom Services Inc., supra

[39] The City of Surrey, supra

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Posted by Shafik Bhalloo (posts) and Devin Lucas (posts) | Filed under Labour & Employment | ....
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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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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