In Gagnon c C2C inc.,1 the Quebec Court of Appeal upheld the firing of the president of a Quebec-based mining company who refused to travel to Ecuador to resolve a situation with a local partner when requested to do so by the board of directors.

The mining company, C2C Inc., sued its former president, Yves Gagnon, claiming reimbursement of a $60,000 promissory note that it had issued him. In his counterclaim, Mr. Gagnon sought compensation of $518,305.75, including moral and punitive damages.

Background

C2C retained Mr. Gagnon’s services for a project in Ecuador to act as a director and the chief operating officer of the company. Mr. Gagnon was a geologist and had already worked in Ecuador with C2C’s local partner. A few months after his appointment, Mr. Gagnon was appointed CEO and President of C2C.

In the months following Mr. Gagnon’s appointment as CEO, C2C signed a joint venture agreement with a local partner. Mining operations commenced and quickly became profitable, but the local partner refused to turn over a share of the profits to C2C. A few months later, a business trip was organized to obtain payment of the sums owed by the local partner. Despite meetings held in Ecuador, Mr. Gagnon was unable to recover any share in the profits from the mine operations.

C2C’s board of directors formally asked Mr. Gagnon either to return to Ecuador quickly in order to resolve matters with the local partner or to resign. Mr. Gagnon refused and the board moved to replace him as president.

Quebec Superior Court decision2

The parties requested the Quebec Superior Court to characterize the contractual relationship between the parties. The parties requested the Court, if it found that Mr. Gagnon did indeed have a contract of employment with C2C, to consider whether the dismissal was lawful and what, if any, damages could be awarded.

The contractual relationship

C2C claimed that Mr. Gagnon was never an employee and that he had a contract for services with the company. Although the parties had never signed a contract of employment, the evidence showed that at least seven drafts of a contract of employment were discussed. Moreover, Mr. Gagnon’s status at the company changed when he was appointed as president. At that time, C2C confirmed his right to a fixed annual income, paid annual vacation, statutory holidays and benefits. In addition, C2C issued him shares in the company and told him that he would receive an annual bonus. His moving costs were reimbursed by the company and he was asked to devote himself to his role at C2C and to travel to Ecuador as often as possible.

Following its review of all these elements, the Court found that the contractual relationship between Mr. Gagnon and C2C was a contract of employment.

Termination

Regarding Mr. Gagnon’s termination, the evidence shows that C2C had hired him primarily for his geology expertise and his experience with the local partner. Mr. Gagnon’s role was to focus on the development of the project in Ecuador and to personally act as a trusted interlocutor of the local partner. According to the Court, Mr. Gagnon overestimated his authority as president of C2C. Despite his title, he was subject to the authority of the board of directors. Being aware of his importance to the Ecuador project and of the legitimate requests of the board of directors, he should have complied. The board of directors’ requests were neither abusive nor unreasonable in the circumstances and Mr. Gagnon’s insubordination was a serious ground justifying the termination of his contract of employment.

Damages

The Court awarded only the sums owed by C2C to Mr. Gagnon for work performed but not compensated at the time of his termination (salary, vacation and expenses).

Quebec Court of Appeal decision

Mr. Gagnon appealed and C2C filed an incidental appeal.

The appeal court noted that the trial judge had reviewed the evidence carefully.

The Court of Appeal upheld the characterization of the relationship as a contract of employment. It repeated that Mr. Gagnon was subject to the authority of the board of directors and that he could not refuse to comply with the order to travel to Ecuador to follow up with the local partner. Thus, his insubordination resulting from his refusal to comply with a formal request by the board of directors was a sufficient ground for dismissal. In this regard, the Court of Appeal observed that Mr. Gagnon was specifically hired for his ability to bring C2C’s Ecuador project to fruition. Finally, the Court noted that Mr. Gagnon should not be awarded any moral and punitive damages, as C2C had not behaved in a vexatious or malicious fashion or in bad faith.

With this judgment the Court of Appeal confirms the relationship of subordination between the president of a company and its board of the directors. Insofar as an order is reasonable and not abusive, the president of any company must comply, even if that entails travelling abroad.