DOWNLOAD & SHARE
September brought us a variety of interesting cases on different topics. In this article we summarize four of these cases.
- A case about a 3-year employee being awarded 10 months notice.
- A cautionary tale on exiting a long service employee, offering them minimal compensation or alternative work that is not comparable.
- A case where an employee guilty of sexual harassment was awarded $25,000 in punitive and aggravated damages.
- A case about the obligation of good faith in setting discretionary bonuses.
Pavlov v. The New Zealand and Australian Lamb Company Limited
The Ontario Court of Appeal upheld the decision of the Superior Court granting Mr. Pavlov 10 months notice of termination and the possibility of a bonus.
Mr. Pavlov was the Director of Marketing, Communications and Public Relations for the employer. He was terminated without cause on May 28, 2020. At that time, Mr. Pavlov was 47 years old and had been employed for just under three years. He was earning $131, 943 per year plus benefits. Mr. Pavlov was also eligible to receive an annual bonus up to 15% of his base pay depending on the performance of the Company and Mr. Pavlov himself. Prior to the termination of his employment, Mr. Pavlov received a variable bonus in each year of his employment. For 2020 very few employees received a bonus due to the financial performance of the company.
There were two key issues here: (1) what reasonable notice, or pay in lieu thereof, was Mr. Pavlov entitled to; and (2) was Mr. Pavlov entitled to a bonus payment during the notice period.
i. Reasonable Notice Period
The trial court found that 10 months’ reasonable notice of termination or pay in lieu thereof was appropriate given the timing of Mr. Pavlov’s dismissal, in addition to his position, duties, responsibility, age, and level of remuneration.
Regarding the timing of his dismissal, the Court noted that the effects and uncertainties of the pandemic were obstacles to Mr. Pavlov’s efforts to obtain similar alternative employment, and these obstacles would, or should, have been known to the Company at the time of Mr. Pavlov’s dismissal.
ii. Bonus Entitlement
With respect to his bonus entitlement, the Court agreed with the Employer’s interpretation of the bonus provision, that Mr. Pavlov was entitled only to be “eligible to participate” in a yearly bonus if there was one. The Court did not see the entitlement amounting to an annual bonus guarantee. This was supported by the fact that throughout his employment, Mr. Pavlov received different annual bonuses on different calculations.
The Court accepted that Mr. Pavlov would not have received a bonus for 2020 because only very senior employees received one, excluding those who were similarly situated to Mr. Pavlov. However, the Court concluded that if a bonus is paid out to other similarly situated employees for the following fiscal year over which the applicable notice period is operative, then Mr. Pavlov is entitled to his bonus payment on a pro rata basis. The determination of his exact bonus entitlement was remitted to the parties.
The Ontario Court of Appeal dismissed the employer’s appeal.
Pohl v. Hudson’s Bay Company
The Ontario Superior Court awarded $45,000.00 in moral damages and $10,000.00 in punitive damages for terminating a long service employee in an unduly insensitive manager.
Darren Pohl worked for the Hudson’s Bay Company for 28 years, working his way up to the position of Sales Manager in HBC’s Eglinton Square store. On September 15, 2020, HBC terminated Mr. Pohl’s employment without cause, and he was walked out of the store by his supervisor.
Mr. Pohl did not have a written contract of employment with HBC at the time they terminated his employment.
The Employer submitted that it did not wrongfully terminate Mr. Pohl’s employment contract as they offered him a voluntary separation package providing 40 weeks of pay in lieu of notice of termination.
One of the arguments made by HBC was that it offered Mr. Pohl “continued employment” as an Associate Lead, and he failed to mitigate his losses by refusing to accept the offer.
Regarding the reasonable notice period, the Court noted that the 40 weeks offered at the time of termination was not reasonable. Indeed, the employer’s submission before the court was that reasonable notice was in the range of 14 to 18 months. Mr. Pohl requested 28 months notice. The Court did not find that there were exceptional circumstances present to justify a period of notice in excess of 24 months.
Regarding the employer’s mitigation arguments, the Court did not accept the submissions for the following reasons:
- The salary offered was a significant reduction in income compared to his former salary.
- HBC included a “sweeping reservation of rights” clause in its offer, which purported to allow HBC to make any change to Mr. Pohl’s employment contract, at any time, for any reason, without such a change constituting a constructive dismissal. The Court found the ambition of the clause to be “breathtaking”, and assuming the clause could be enforced, to accept HBC’s offer, Mr. Pohl had to give up his common law entitlements arising from his termination.
- The offer that HBC made to Mr. Pohl was not one of continued employment because it required him to “voluntarily relinquish” his former position along with all his acquired service.
c) Moral or Aggravated Damages
The Court found that there were four factors that justified an award of moral damages in the amount of $45,000:
- HBC’s decision to walk Mr. Pohl out the door was unduly sensitive;
- The offer of the Sales Associate job was misleading and a breach of the duty of good faith and fair dealing;
- HBC violated the Employment Standards Act, 2000 (“ESA”), by not paying out the wages it owed to Mr. Pohl in a lump sum within the required period of time; and
- HBC did not issue a record of employment (“ROE”) within five (5) days after the interruption of Mr. Pohl’s employment as required under the Employment Insurance Regulations, SOR/96-332.
d) Punitive Damages
The Court also awarded Mr. Pohl $10,000 in punitive damages for HBC’s failure to pay out the wages owing to Mr. Pohl in accordance with the ESA and its failure to issue a timely or correct ROE.
Cho v Café La Foret Ltd.
Those who read our article on sexual harassment from last month may be surprised to find out that a Court awarded punitive and aggravated damages to a sexual harasser. However, even harassers are entitled to due process and to be terminated in good faith.
Based on the evidence before her, including witness testimony and CCTV footage, Justice Shergill of the Supreme Court of British Columbia concluded that Mr. Cho’s actions on November 9, 2020 constituted harassment of his subordinate, Ms. Lee, particularly when:
- Cho touched Ms. Lee on her shoulder while discussing a massage her obtained the day prior; and
- Cho touched Ms. Lee’s buttocks.
The Employer alleged that it had just cause to terminate Mr. Cho’s employment because he had sexually harassed the other employee. Mr. Cho was 60 years old at the time of the termination and was employed as a Head Baker at La Foret.
After the incident of touching was reported to the employer, an investigation was conducted. There was discussion of an apology by Mr. Cho to Ms. Lee. However, the apology somehow became a draft affidavit that Mr. Cho refused to sign. The draft affidavit included a statement the effect that Mr. Cho admitted to being an “sexual offender”. The employer asserted that the refusal to sign the affidavit as drafted was a sign that Mr. Cho was not remorseful and supported their argument for just cause for dismissal.
Justice Shergill notes that even though the touching of Ms. Lee’s shoulder was brief, it was intentional, unwarranted, non-consensual, and was a violation of Ms. Lee’s bodily integrity and caused her emotional distress. Further, even if Mr. Cho’s hand or finger on Ms. Lee’s buttocks was in the form of a “tap” and was not committed for sexual gratification or with the intention of violating Ms. Lee’s bodily integrity, it was entirely inappropriate, a gross error of judgment, and fell within the scope of sexual harassment.
Nevertheless, Justice Shergill found that the sexual harassment was not sufficient to justify dismissal. She did not find that this was a situation where the misconduct was irreconcilable with sustaining the employment relationship. She noted that following its investigation, the Employer did not make the decision to terminate Mr. Cho’s employment, which reflects the Employer’s view that the employment relationship had not irretrievably broken down. The Employer maintained that Mr. Cho could keep his job if he provided the affidavit admitting his guilt, indicating that the Employer did not consider his misconduct against Ms. Lee to be sufficiently serious to justify termination.
Justice Shergill then turned to the issue of whether Mr. Cho’s refusal to sign the affidavit was sufficient to establish just cause. She did not find that this was the case. The requirement that Mr. Cho sign the affidavit prior to being reinstated at his job was wholly inappropriate. The Employer effectively forced Mr. Cho to choose between incriminating himself and facing possible criminal charges as a result and keeping his job. Justice Shergill was of the view that it was reasonable for Mr. Cho to refuse to sign the affidavit and the termination that flowed from this refusal constituted unjust dismissal.
The Court awarded $25,000 in aggravated and punitive damages to Mr. Cho for the manner of the termination of his employment. The Employer was highly blameworthy for putting Mr. Cho in a position where it knew that he would risk criminal proceedings if he signed the affidavit. The individual who proposed the idea of drafting an affidavit rather than an apology letter had previously practiced law, and by extension, the Employer was aware of the significant legal jeopardy that Mr. Cho would place himself in by signing the affidavit. Further, the Employer took advantage of Mr. Cho’s emotional and financial vulnerability by refusing to provide him with a record of employment unless he signed the affidavit.
Bowen v. JC Clark Ltd.
In this case, the employer argued that a bonus was entirely discretionary and that they were entirely unconstrained as to how that discretion was exercised. The Ontario Court of Appeal disagreed. The Court wrote that where an employment agreement provides for a discretionary bonus, there is an implied term that the discretion will be exercised in a fair and reasonable manner.
In 2012, James Bowen and Jonathan Wiesblatt were managing the Adaly Investment Fund under senior investment professional, Martin Braun. The Fund was then sold to JC Clark Ltd. (the “Employer” or the “Firm”) and at Mr. Braun’s request, the Firm hired the Plaintiffs as portfolio managers to manage the day-to-day activities of the Fund.
Both Plaintiffs received identical employment agreements, which contained a discretionary bonus provision, which reads: “At the total discretion of the [Firm], you may be eligible for a bonus at the end of each fiscal year depending on factors that include your personal performance and the profitability of the [Firm]” (“Paragraph 5”). Mr. Braun also reached a separate agreement with the Plaintiffs to share performance fees paid to him from the Fund. That agreement was not included in the employment agreements.
The Firm terminated the Plaintiffs’ employment in July 2014 on a without cause basis.
b) Ontario Superior Court of Justice
The Court found that the Plaintiffs had two (2) sources of remuneration:
- The Firm paid them employment income, a discretionary bonus, and benefits under the employment agreements; and
- Braun paid them a percentage of the performance fees of the Fund from the 40% share paid to him by the Firm.
The Court dismissed the Plaintiffs’ claim for the additional performance fees given that they had knowledge of the above-mentioned sources of remuneration and their only entitlement to a percentage of the performance fees of the Fund was through a side agreement with Mr. Braun. Mr. Braun gave the Plaintiffs their full 40% entitlement to the 2014 performance fees, and the Plaintiffs were therefore not entitled to a share of performance fees directly from the Firm.
The Court declined to allow the Plaintiffs to make submissions on their entitlement to a discretionary bonus under Paragraph 5 on the basis that the claim was not sufficiently pleaded and it would there be unfair to the Firm.
c) Ontario Court of Appeal
The Ontario Court of Appeal found that the lower court erred in precluding the Appellants from arguing their entitlement to a discretionary bonus.
The Firm submitted that the discretionary nature of the bonus provision under Paragraph 5 meant that they were entirely unconstrained as to how that discretion was exercised. The Court of Appeal disagreed and found that where an employment agreement provides for a discretionary bonus, there is an implied term that the discretion will be exercised in a fair and reasonable manner.
The issue, then, was whether a fair and reasonable exercise of the discretion provided for in Paragraph 5 would result in the Appellants being awarded a discretionary bonus for the period they worked in 2014 plus the notice period.
The Appellants submitted that the discretionary bonus amount should be calculated by comparison with the discretionary bonus amounts that were paid in 2014 to two employees who were similarly situated to the Appellants. The Court accepted that the two employees, who were also portfolio managers, were similarly situated to the Appellants. Both employees received roughly $200,000 each in discretionary bonus for the full year of 2014.
The evidence demonstrated that there was a significant bonus pool in 2014 and it was uncontradicted that the Fund managed by the Appellants earned remarkable returns during the portion of 2014 prior to their terminations. The Court found that a fair and reasonable exercise of the discretion under Paragraph 5 would be to award each appellant a discretionary bonus in the same range awarded to the similarly-situated employees. The Court awarded damages to each Appellant in the amount of $115,000 for the discretionary bonus that each of them was entitled to for the seven months of 2014 they worked at the Firm.
The article in this update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hunter Liberatore Law LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hunter Liberatore Law LLP. ©
Leave a Comment