For many years Quebec courts have been faced with the question as to whether or not an injunction for reinstatement of a senior management employee should be granted as a result of the individual also being a director and a shareholder of a company.
The sections of the Civil Code of Quebec which govern contracts of employment do not confer the right to file for reinstatement upon termination of employment, a right which is granted to non-senior management employees pursuant to the Labour Standards Act. As such, senior management employees in specific circumstances have been turning to civil courts in order to obtain a ruling for reinstatement by way of an injunction.
For over a decade, and more specifically since the Quebec Court of Appeal's decision Computertime Network Corporation v. Zucker (1994), issuing injunctions in the context of reinstatement of a senior management employee have become the exception.
In this case, the Superior Court of Quebec allowed the plaintiff's motion for an interlocutory injunction and reinstated the plaintiff into his position as an employee and a shareholder of the company. The Court concluded that the plaintiff would suffer serious or irremediable prejudice without an interlocutory injunction as the plaintiff's presence is required to "monitor the company's actions and to keep an eye on things in order to protect his interests on a day-to-day basis as one of the two major shareholders, as well as an officer and top management-level employee".
However, the Court of Appeal overturned the Superior Court's decision stating that a company cannot not be forced to reinstate a senior management employee in order to protect the individual's interests as a shareholder or a director of the company.
More specifically, the Court of Appeal relied on articles 2091 and 2094 (a contrario) of the Civil Code of Quebec in order to overturn the Superior Court's decision and to dismiss the plaintiff's motion for an injunction for reinstatement, stating that the employer has the discretionary power to terminate an employment contract with an indeterminate term either with serious reason or by providing the employee with reasonable notice of termination of employment. Therefore, forcing the reinstatement of the employee would undermine the employer's discretionary power provided pursuant to the Civil Code of Quebec.
In a more recent decision rendered on May 3, 2007, Guy Dallaire v. Infusion Intégral Inc., the Superior Court of Quebec was once again faced with a motion for the issuance of an injunction for reinstatement of the petitioner as an employee, director and shareholder of a company.
More specifically, in this decision, the plaintiff filed a motion for a provisional interlocutory injunction seeking the following: (i) reinstatement as an employee of the company, (ii) nullification of the resolution of the Board of Directors of the company excluding the plaintiff as a director, and (iii) nullification of all resolutions which have the effect of forcing the buy back of the shares which the plaintiff holds in the company.
In this case, the Court relied on the opinion that a provisional injunction should only be issued in extremely urgent cases or when the delay to obtain an interlocutory judgment is susceptible to permanently prejudice the rights of the plaintiff. The Court emphasized that the plaintiff's argument that loss of salary fulfills the urgent criteria to obtain the injunction was unfounded as an injunction is not the appropriate remedy to obtain the payment of a claim.
With respect to nullifying the resolutions of the Board of Directors which exclude the plaintiff as a director and a shareholder of the company, the Court relied on the terms of the unanimous shareholder agreement which states that once the plaintiff ceases to be an employee of the company, regardless of the reason for the termination of employment, the plaintiff grants an exclusive and irrevocable option to the company and its shareholders to buy back all of his shares. As such, the Court not only dismissed the plaintiff's motion for the injunction for reinstatement as an employee but also ruled that the Court cannot reinstate the petitioner as a shareholder and a director of the company.
Once again the Court has favored the argument that employers, pursuant to the Civil Code of Quebec, have the discretionary power to terminate the employment of a senior management employee in the case where serious reason exists or by providing the appropriate notice of termination of employment, even if the employee is a shareholder and a director of the business.
However, companies must be cautious in drafting unanimous shareholder agreements as debates regarding reinstatement of employees who are also shareholders of the company will often revolve around the language contained in the agreements.