On July 9, 2019, the Superior Court of Justice released its decision in McGuinty v 1845035 Ontario Inc. (McGuinty Funeral Home), a decision which represents one of the largest monetary awards on record in Canadian employment law. This case reiterates the factors considered in a finding of constructive dismissal and affirms an employee’s entitlement to payment of the entire fixed term contract when breached. It also provides an interesting discussion on an employee’s acquiescence of an employer’s unilateral changes to the employment relationship and the weight attributed to self-interested witnesses.
The plaintiff, Grant McGuinty, sold his family’s funeral home to the defendant corporation. It was a term of the share purchase agreement that the plaintiff would enter into a Transitional Consulting Services Agreement (the “Agreement”) with the defendant for a ten-year fixed term. Under the terms of the Agreement, the plaintiff was entitled to an annual salary of $100,000, commission payments, the use of a company vehicle and fuel, group benefits, along with other fringe benefits. The Agreement did not contain an early termination provision. One year into the ten-year term, the relationship between the plaintiff and the new owner of the funeral home began to deteriorate. A relationship of mistrust began to formulate, which resulted in the plaintiff’s activities being closely tracked by the funeral home and the removal of the plaintiff’s use of the company vehicle without proper notice. A dispute also arose with respect to the payment of the plaintiff’s commissions under the Agreement. Eleven months into the relationship, the plaintiff went on sick leave and the defendant changed the locks of the funeral home. The plaintiff never returned to work, and two years later, commenced a constructive dismissal claim.
Constructive Dismissal. The Court found that the plaintiff was constructively dismissed from his employment. Following the seminal decision of the Supreme Court in Potter v. New Brunswick (Legal Aid Services Commission)1, the Court found that the cumulative action of the defendant evinced an intention that it no longer intended to be bound by the terms of the Agreement
The finding of constructive dismissal included the fact that:
(1) the Plaintiff’s company vehicle was improperly taken away;
(2) his hours were tracked by a subordinate employee without notice to him and at the request of the defendant;
(3) the defendant failed to pay the plaintiff commissions to which he was entitled to under the Agreement; and
(4) the defendant changed the locks to the funeral home without advising or consulting the plaintiff.
The court was satisfied that this course of conduct, in light of all of the circumstances, would lead a reasonable person in the plaintiff’s position to conclude that the defendant no longer intended to be bound by the terms of the Agreement.
As a result, the defendant was held to owe the plaintiff $900,000 for loss of salary, along with the value of the plaintiff’s commissions, vehicle allowance and other benefits for the remaining nine years of the Agreement.
Fixed-Term Contracts. This decision relies on the Ontario Court of Appeal’s decision of Howard vs. Benson Group Inc.i that in the absence of an enforceable termination clause, fixed term employment contracts obligate employers to pay employees to the end of the contract, and employees will be under no duty to mitigate.
Acquiescence. The defendant argued the two-year period in which the plaintiff remained on sick leave prior to serving his claim represented an acquiescence to the defendant’s conduct and precluded the plaintiff from commencing a constructive dismissal claim. The court rejected this argument and held that a finding of acquiescence would require an acceptance of the new terms of employment, which may be inferred by the employee’s willingness to remain in the altered position for a significant period of time, absent mitigating factors. In this case, it was clear that the plaintiff had not acquiesced to the changes in his employment because the plaintiff did not remain in his position. He in fact never returned to work due to the depression and anxiety caused by the very conduct of the defendant. This could not be said to be indicative of acquiescence. The decision sheds some light into the test for acquiescence, which has long been a grey area in constructive dismissal claims.
Witnesses. The Court was also critical of the witness statements provided by two of the defendant’s key witnesses. The statements demonstrated that the witnesses had ulterior motives in providing the written statements to the Court, namely, their loyalty to the defendant and their self-interest in the removal of the plaintiff from the workplace. In particular, the Court did not hold back in its negative assessment of one of the defendant’s main witnesses, upon whom it relied to demonstrate that the plaintiff had voluntarily left the funeral home. The Court considered how much this witness had to gain and her active role in making a case against the plaintiff when deciding to discount her testimony for the most part. The Court found that the witness’s statements were “little more than a self-serving indictment of [the plaintiff]”.
Lessons for Employers
This case serves as a cautionary tale to employers on the perils of entering into fixed term contracts. It is critical for employers to ensure that fixed term contracts contain enforceable termination language which limits the employees’ entitlement upon the early termination of the contract. Fixed term contracts of a lengthy duration are also risky business, particularly in the absence of enforceable early termination language. In the end, this was critical to the outcome of this decision, which resulted in the Court awarding the plaintiff damages in the amount of $1,274,173.83, plus costs.