By way of background to the reported decision of Barrett v. PSI (2014 ONSC 3509), the plaintiff and a partner incorporated the defendant company together in 1989. However, beginning in 2004, the company began having financial issues and, as a result, in 2007 a letter agreement was signed between the plaintiff and the company which contemplated the buyout of some of Mr. Barrett’s shares, along with his resignation and a possible further buyout of shares. In addition, the company was to pay out the plaintiff’s commission and vacation pay and the plaintiff would provide 400 hours of transitional support and advice to the company. The parties signed the letter agreement and very shortly thereafter the company brought on new investors and the company remained viable.
The plaintiff fulfilled his obligations under the agreement and ultimately ceased working for the company. However, the company failed to fulfill their obligations under the agreement. According to the terms of the agreement, it became null and void after 90 days because the payment terms had not been met. The plaintiff brought a claim against the company and the issues at trial were:
- Whether the plaintiff was an employee or independent contractor of the company;
- Whether the plaintiff resigned or was terminated from the company; and
- If the plaintiff was terminated, what was the appropriate amount of severance.
The trial judge concluded that the evidence supported that the plaintiff had in fact been an employee of the company and not an independent contractor. The trial judge then turned to the issue of whether the plaintiff had resigned or was terminated. The court considered the fact that the letter agreement required the plaintiff to resign as both an officer and employee which he in fact did. The letter agreement became null and void when the company failed to make payments and, as such, the court concluded that the company could not now rely on the plaintiff’s resignation under the same agreement. In concluding that the plaintiff had not resigned but had been constructively dismissed, the court stated: “[t]he new financial arrangements, on which the company’s existence depended were premised on Mr. Barrett’s leaving the company. He had no real choice: for practical purposes he had no alternative to accepting the inevitable. He was required to surrender his key and ordered not to be in the office when other employees were not in the office. In these circumstances it cannot be said that he resigned. He was dismissed.”
The court fixed the plaintiff’s reasonable notice period at 21 months stating that “Mr. Barrett was in a very real sense forced out of a company he had helped to build, at which he had spent a very significant part of his adult life. He is unlikely, at his age and level of managerial seniority, to find another job of equivalent pay or level of satisfaction.” Kevin and his client were successful on all three issues before the court and the judge awarded damages and costs of approximately $175,000.00.