Cautionary tale cuts a wide swath
Appeal judge finds issue with company’s action
‘The law should not encourage employers to assume the role of employment archaeologists, looking through the remnants of an employee’s work history in an effort to unearth grounds for dismissal. The employer’s cry of ‘ Eureka’ should fall outside the audible range of those judges who are tuned into the channel of righteous suspicion.” — Justice Robertson, New Brunswick Court of Appeal, Doucet et al vs. Spielo Manufacturing Incorporated and Manship.
The decision on Doucet et al vs. Spielo Manufacturing Incorporated and Manship provides a cautionary tale that covers many evolving areas of employment law, including what constitutes breach of duty to bargain in good faith, employees’ expectations of privacy while using company technology and when an employer can raise new issues in its defence.
Yves Doucet, vice-president of Spielo Manufacturing, and solicitor Peter Dauphinee, found their negotiations to buy the online division of their employer abruptly cut short when they were dismissed. Doucet received 12 months’ severance and $250,000 for shares for which he had paid $44,000. Dauphinee received six months’ severance and $83,000 for shares costing him $6,500. Twelve months later, Spielo was sold to a third party for $225 million, a deal that would have made those shares worth $5 million.
The men sued under the oppression remedy, wrongful dismissal and for a breach of duty to bargain in good faith. Four years later and just before trial, Spielo made a counterclaim against Doucet, claiming it had found evidence in his emails and electronic calendar that he had been actively managing his own company using Spielo employees and while in its employ. Spielo asked for repayment of his $250,000 severance.
At trial, Doucet’s and Dauphinee’s claims were rejected and they were ordered to pay $839,000 in cost, plus disbursements to Spielo, the largest cost award to date in New Brunswick. The oppression remedy claim was rejected by the trial judge because the employer’s conduct had been sanctioned by the contract between the parties. Not surprisingly, the pair appealed.
On appeal, Justice Robertson found that if these employees had been terminated so that the employer could seize their shares knowing they were about to increase in value, that would be oppressive conduct. “Greed as a motive has yet to be formally recognized as an acceptable component of corporate law,” he said.
“If an employer terminates an employee for reasons not tied to a valid corporate objective (e.g. employee effectiveness) but rather for the purpose of acquiring and realizing the fair market value of company shares that were issued as an incentive to ensure employee loyalty and productivity, surely the employer is guilty of bad faith when it comes to insisting on the contractual right to re-acquire the shares without proper compensation. The employer is guilty of engaging in opportunistic behaviour under the guise of exercising a contractual right.
“To be blunt, what employee would want to be part of a share purchase scheme which provides the employer with an additional incentive for dismissing that employee without cause? Surely, that could not have been the reasonable expectations of the parties at the time the share purchase agreements were signed. For greater certainty, and lest there are those who hold a contrary view, I find it paradoxical that an employee could be forced to explain to family members that his or her dismissal was a consequence of the company doing too well,” the judge said.
However, he agreed with the earlier result in this case, based on the fact the sale of Spielo had not even been contemplated at the time of the dismissal.
The judge also noted that an employer is entitled to amend its defence to raise new issues of cause if they are unaware of that cause at the time of dismissal. However, he said, if an employer failed to supervise an employee to assess their competence, that is the employer’s problem. However, Justice Robertson added, an employee should not be able to benefit from successfully concealing their misconduct or from their dishonesty.
The new defence and counterclaim based on Doucet’s involvement in the other business was developed through a search of his emails and electronic calendar. “This is scary stuff for those employees who use their employer’s computers during working hours to attend to matters that do not fall within the employer’s corporate agenda,” Justice Robertson noted. In reversing the trial judge’s finding for cause, he said Doucet’s business was not competitive with Spielo and his involvement in it was well known so there was no conflict of interest or deceit.
Justice Robertson also noted there is no general duty to bargain in good faith in Canadian law unless a company knowingly caused the employee to waste time and money pursuing negotiations that the company knew would never lead to a contract.
As he noted, “the law should not embrace the business morals of the opportunist. The intentional infliction of economic harm requires redress in the form of compensation tied to the innocent party’s reliance interest.”
And Justice Robertson offered this warning against going to trial over matters that could have been dealt with otherwise. “It is simply too expensive for parties to persist with litigation erected on the foundations of straw, anchored in sand,” he said.
Law should not embrace the business morals of the opportunist