Humphrey v. Mene: A Mixed Decision
Hat tip to Devan Marr (Twitter: @CoffeeShopNomad) for this one: An Ontario summary judgment motion on a wrongful dismissal action where an employer was hit with significant aggravated and punitive damages.
It covers a lot of ground, and in my view the analysis is mostly good, though it has some obiter that raises concerns for me.
The issues this case include:
- Toxic work environments
- Demotions and suspensions
- Abandoned allegations of just cause
- Fresh consideration
- Contractual repudiation
- Impact of Character of Employment
- Mitigation
Background
Humphrey met her boss, Mr. Sebag, while working with a prior employer. She started working for Sebag's organization in 2016, and helped develop a subsidiary, which would become her employer (Mene).
Initially, she was retained through her corporation under a consulting services agreement. In summer of 2018, the agreement was amended as she became COO of Mene. In November, she helped take Mene public, and in December 2018, she signed an employment agreement - in her personal capacity, but for the same compensation - with a statutory minimum termination clause.
On January 22, 2019, shortly after the employment agreement took effect, Humphrey asked Sebag for a salary review. She followed up on February 16, 2019. On February 18, 2019, Sebag sent her a letter indicating that, due to an "investigation of her recent performance", she was being removed from her COO position effective immediately, suspended her with pay for two weeks, and that at the end of the two week period she would either be terminated or offered a non-executive position.
Mene immediately communicated the suspension to all employees of Mene (and that she was locked out of the premises and management should be contacted if she tried to gain entry), and sent all her business contacts emails advising that she was no longer COO of Mene and/or that she no longer worked there.
In addition to that, there was also a lengthy record of Sebag making inappropriate, vulgar, and demeaning remarks to Humphrey.
Humphrey's counsel sent a letter to Mene making it clear that she was not going to accept a different position in the organization, and a few days later, she was formally terminated, raising a host of vague allegations (mostly not articulated in the decision). Two issues that allegedly arose shortly before termination were articulated in some detail - one which involved Sebag's displeasure with her renegotiation of contract terms with a vendor, and another that says that an investigation concluded that she had failed to obtain insurance for a property that was the subject of a theft. Of the other issues, many of them pre-dated her promotion to COO. (There are significant analytical difficulties in trying to ground a 'just cause' position in conduct that arose in advance of accolades or promotions, particularly in the absence of any formal discipline. The court was clearly alive to these difficulties, and regarded the promotion to COO as an indicator that any perceived performance issues at that time could not be particularly severe.)
On the first point, the description of the dispute with the vendor leaves me unclear on exactly why the renegotiated contract was thought to be disciplinable. The disclosed terms don't seem inherently unreasonable, and if there was some standing policy or direction that the terms offended, that's not clear here.
On the second point, Humphrey's lawyer wrote to Mene promptly to insist that they preserve all relevant records related to the investigation; however, approximately a year later, Mene advised that the documents had been destroyed in accordance with their document retention policy. (Notably, the document retention policy did not contain anything that would have resulted in the automatic destruction of these records at any time. Also notably, destroying records of an insurance-related investigation after one year would be extraordinary.)
Furthermore, to the extent that Sebag alleged misconduct, the court looked to inconsistencies in his evidence and found that he was not a reliable or credible witness. (This is fairly remarkable in a summary judgment motion, but Ontario's rules expressly provide for that, and it's in keeping with a 'culture shift' in favour of summary disposition as directed by the Supreme Court.)
Fresh Consideration
Let's start with one of the toughest issues in this case.
The court found that the termination provisions in the employment agreement were void for lack of consideration.
Fresh consideration is a technical requirement, and while we ordinarily look at what's being received by the employer, that's actually a doctrinally incorrect characterization: It's more about what's being provided by each party. So I often use the example that if you agree to mow my lawn all summer for free, that's not a contract, but if you agree to mow my lawn all summer for a nickel, that is...but it's ALSO the case that if you offer to mow my lawn all summer in exchange for my promise to give a nickel to your cousin, that too is a contract.
So, inversely, the fact that the identity of the worker changed in the employment agreement - from a corporation to an individual - doesn't necessarily defeat the fresh consideration argument, because if all it's doing is shifting existing contractual obligations from the corp to the individual, that doesn't actually mean that the employer is promising anything new.
The employer argued that, by changing her status to that of an employee, she gained various protections under employment standards legislation. For instance, the consulting agreement provided for less than ESA notice.
The court noted that Mene didn't take any issue with characterization Humphrey's period of service as going back to her work with the parent company, including for the purposes of ESA notice.
I think that may be a generous interpretation of the admissions, but where the court goes from there is fundamentally sound, finding that she was always an employee at law, despite the terms of the consulting agreement. Therefore, the termination clause in the consulting agreement was void, and giving her ESA notice didn't amount to fresh consideration.
There's some complexity in the structural framework, and courts have sometimes struggled to find an employment relationship where there's an intervening corporate entity, but I would suggest that there's likely room in the common employer doctrine here. There's no discussion of that problem here, but I don't think it's a fundamental problem in the conclusion.
Constructive Dismissal
This really doesn't deserve much discussion, because fundamentally the employer couldn't really take the position that there was no dismissal: Notifying an employee "We're either firing or demoting you" is pretty straightforwardly into the constructive dismissal framework, and if it wasn't, the fact that the employer came out and expressly dismissed her afterward puts that question to bed. (I question whether the characterization of her accepting the employer's repudiation is accurate anyways, but I don't think it matters here.)
Still, some good and not-so-good analysis here.
The court found that the cumulative impact of the toxic workplace, the imminent demotion, and the employer's communications to other staff and business contacts rose to the level of constructive dismissal.
Toxic Work Environment
This turns significantly on the employer's duty to treat an employee with civility, decency, respect, and dignity - which was breached in this case. I'm not going to reproduce the communications here; look to paragraphs 41 and 42 of the decision, and log those remarks as things never to say to any employees.
But one of the things that caught my eye was this remark:
Ms. Humphrey says that while she was employed, she did not realize the toxicity of the workplace environment but she recognizes what it was now that she is gone. I accept what she says in this regard as reasonable.
This is a common feature of toxic relationships. Employees are so thoroughly under the power of the employer that they often lose track of what an employment relationship is supposed to look or feel like. Over the course of my career, I can't tell you how many people I've talked to who were reinvigorated by the loss of a job that was destroying them, or who in a relationship with a new boss came to realize just how terrible the previous relationship was.
Part of the reasoning here is that the past mistreatment informs the overall decision that a constructive dismissal occurred. In a 'cumulative effect' analysis, I don't really question that, though the authority relied upon for it is flawed, relying on the Matthews decision from the Supreme Court. In fact, that question wasn't litigated at the SCC. Still the right answer, though - provided that there's enough of a nexus to recent misconduct to justify a finding of constructive dismissal.
However, it's also relevant to mitigation, and whether or not an employee might be expected to stay in the position. Not really an issue in this case, but the 'atmosphere of hostility' is enough to justify an employee saying "No thanks, I don't want to take the changed position you're offering".
And the toxic work environment also led to an aggravated damages award of $50,000.
Demotion
In general, a demotion - particularly for disciplinary reasons - creates a strong case for constructive dismissal on its own. If it mattered, I'd think that this would have gotten Humphrey there without even needing to look at other factors.
Communications to Others
Particularly for senior management, sending communications that will undermine their authority is deeply problematic, and can amount to constructive dismissal.
This is also relevant to the question of whether or not an employee might be expected to stay in mitigation of the constructive dismissal.
In other words, if there's any question about whether or not Humphrey should have been willing to consider a non-executive position that might be offered, it's likely disposed of by the fact that it was already a toxic environment and that she would be returning to a workplace where she has been stigmatized.
Abandoned Allegations of Cause
This, too, has some good and bad treatments here.
The judge was alive to the fact that, for purposes of evaluating bad faith conduct, the question isn't whether the 'cause' allegations were proven, but rather whether their pursuit by the employer was in good faith.
And the judge was satisfied that this was NOT the case.
It appears that Menē has dredged the waters looking for anything and everything it can say which will make Ms. Humphrey look bad—even things that its own pleading shows are irrelevant and in my view it rises to the level of malice.
A few things drew the ire of the court here:
Firstly, with the issue being 'good faith', the fact that the employer tried to prove its good faith by pulling out alleged misconduct that it had no knowledge of prior to taking the just cause position is problematic. Even on an actual 'just cause' argument, after-acquired cause is tricky and only available in narrow circumstances. In most situations, if you're canvassing your staff after termination to ask "Hey, tell me something bad about this person", chances are that this is a bad faith effort to justify a termination after the fact.
Secondly, by not formally amending the public record pleadings of just cause, Mene continued to represent to the world that Humphrey engaged in misconduct.
Thirdly, it's either the case that Mene was "untruthful" about the existence of records supporting its termination letter, or else it failed to preserve those records. Either would be "reprehensible". (There's subtext here that the court appears to doubt the 'Oops, we destroyed them' explanation. Which is fair - the court doesn't reflect on the doctrine of spoliation, but at its weakest it allows a court to draw an adverse inference about the contents of records destroyed by a party.)
Fourthly, Mene's ongoing failure to provide full disclosure of the allegations against Humphrey was "less than forthright".
Fifthly, Mene drew out the production process, delivering an unsworn affidavit of documents that was clearly deficient, then failing to deliver a sworn affidavit of documents - in spite of a court order - until much later, in the mean time providing various explanations of why it couldn't deliver those documents, until finally (after a meaningful delay) admitting that it couldn't support its just cause allegations and advising that it was no longer pursuing them.
Sixthly, the inclusion of irrelevant and inappropriate allusions to Ms. Humphrey's personal life in their evidence was out of line.
This is all relevant to punitive damages, which were assessed at $25,000.
But it also led the court down a questionable rabbithole - an obiter discussion of whether or not an employer could rely on the not-for-cause provisions of the contract (if they were enforceable) after asserting cause.
Relying on the Contract After Repudiation
The court invited submissions from the parties on a passage from Matthews, and how it affected the ability of the employer to rely on a termination clause:
Similarly, where a clause purports to remove an employee’s common law right to damages upon termination “with or without cause”, such as clause 2.03, this language will not suffice. Here, Mr. Matthews suffered an unlawful termination since he was constructively dismissed without notice.
Both counsel responded that it's not relevant. (This is particularly to the credit of Plaintiff's counsel, Jordan Goldblatt, who is an excellent litigator with good employment law credentials.) The court disagreed with that, and suggested that the unlawful nature of Humphrey's termination meant that the employer could no longer rely on language that displaced common law entitlements.
Respectfully, counsel were right. The exclusion clause under consideration in Matthews was in a secondary agreement, externally referencing a potential termination of the employment agreement. The Supreme Court's commentary suggested that this secondary agreement's treatment should be interpreted as presuming that the termination of the employment agreement would occur in accordance with the express or implied terms of the employment agreement itself. Damages flowing from the breach of the underlying employment contract are, therefore, not directly limited by the exclusion clause. (Notably, it is NOT the case that the exclusion case is somehow voided by the breach of contract, and in fact it can still have an impact in respect of accruing benefits that would not have vested during the notice period.)
Damages on a wrongful dismissal are considered with reference to the 'no breach' scenario - i.e. if the employer complied with its obligations, what would the employee's situation be?
Just because the employer repudiated the agreement by failing to honour the not-for-cause termination language doesn't give the employee some higher entitlement to notice, not spoken to in the contract. That can, in appropriate cases, be remedied through other types of damages.
Rather, the question of reasonable notice is whether or not it forms a part of the contract at all, or is displaced by the express language of the contract. If it is displaced by the terms of the contract, then it can't form the basis of the employee's entitlements because the employee simply wasn't entitled to it in the first place.
A termination for cause is analogous to an acceptance of a repudiation by the employee. The impact of failing to prove that the other party actually repudiated (thus entitling you to accept it) is that you're liable for your failure to perform your ongoing obligations under the agreement - such as providing notice of termination in accordance with the contract.
NB: This also is very different from the General Billposting principle, which is about whether or not employers can insist on employees continuing to honour contractual duties after they've repudiated the contract.
The principle is similar to Hamilton v. Open Window Bakery: The innocent party's damages are premised on whatever mode of contractual performance would have been least burdensome to the defendant.
And to be fair to Justice Papageorgiou, while her misreading of Matthews as supporting this proposition is new, she's not the first to reach this conclusion. There's been a trend of it in recent years of courts concluding that an employer's failure to honour a termination clause precludes them from relying upon it: Holmes v. Hatch, Perretta v. Rand,
Or an old Yukon case: Sawyer v. Rab Energy. (Though Sawyer is different in that the employer had actually resiled from the agreement it purported to rely on well prior to the dismissal. The employer had negotiated terms with the employee; the contract was never signed; then new leadership took over and took a position that they weren't bound by the terms of that prior agreement. The termination happened later.)
In a couple of cases, like Oudin, courts found that inadvertent or minor failures to honour a termination clause doesn't have that impact.
In an older Ontario Court of Appeal case, Clarke v. Insight Components, the ONCA rejected the argument on the basis that it wasn't properly before the court, but also remarked in obiter that, if there were a failure to pay out the employee's entitlements, the employee's remedy would be "any amount he was owed".
So there's some support in the case law for Justice Papageorgiou's conclusion here, but, in my view, it's completely devoid of doctrinal merit, missing the fundamental character of a wrongful dismissal action: It's an action for breach of contract. The first inquiry is what the contract said. The second inquiry is whether those obligations were breached. And the third inquiry is what damages flow from the breach. Whether or not the employee gets reasonable notice is part of the first inquiry, not the third.
Character of Employment
The Court appears to have treated character of employment as significant - her high degree of responsibility led to an elevated notice period. The way the court dealt with this isn't wrong in principle; that's still the presumption, but it's not as strong or significant an assumption as it used to be.
That's what makes it particularly troubling that the judge cited Cronk.
There was a block of time in the 1990s in Ontario, between the ONCA decisions in Cronk (1995) and Minott (1999). Cronk dealt with a long-service clerical worker. The trial judge, Justice MacPherson, queried the Bardal principle that suggested that clerical workers should get less notice, and did some independent research leading him to find that it's not necessarily the case that a clerical worker has an easier time finding replacement work. He therefore awarded a 20-month notice period.
The Ontario Court of Appeal, in a bit of a rebuke to MacPherson, reduced the award to 12 months, characterizing it as the maximum in the plaintiff's 'category'.
For the next few years, lawyers and courts took that as imposing a 12-month hard cap on unskilled and clerical workers...and if you couldn't get more than 12 months, then it must be pretty tough to get TO 12 months for such a worker, so there was just a general compression of notice periods for such employees over that period, until the court in Minott clarified that no, a hard cap like that, based on a single factor, isn't an appropriate analysis.
In the mean time, two other interesting things happened: Courts in other Provinces started looking at Justice MacPherson's (overturned) decision in Cronk as persuasive with regards to the significance of character of employment...
...and, in 1999, Justice MacPherson was appointed to the Ontario Court of Appeal.
The real 'end point' on the Cronk saga, in my view, is the 2011 ONCA decision in Di Tomaso, authored by Justice MacPherson: The employer tried to argue based on the ONCA's decision in Cronk (I have to imagine that their counsel must have been a bit sheepish about that when appearing before MacPherson), and the employee answered with Minott. The Court looked to the extra-Provincial precedents that adopted MacPherson's own reasoning from Cronk, and concluded that character of employment is a factor of "declining relative importance".
Looking a 1995 decision, which has been significantly tempered (and veritably overturned) by subsequent cases, is a bit problematic, and I think it led the court in Humphrey to assess the reasonable notice period slightly on the high end, at 12 months. Not outrageous, and not in a way that necessarily calls for appellate intervention, though.
Mitigation
The court further reduced the notice period by one month because of alleged failures to mitigate by Humphrey. However, it looks like only one of the attacks on her mitigation efforts landed, and even that was only to a limited extent.
Declining an Offer
Humphrey was offered an offer in a "VP E-Commerce" role with similar financial circumstances in October 2019. However, while the initial characterization of the role was that it was in the nature of a senior leadership role, the offer as it was ultimately presented to her was in a narrower leadership role without the same level of organizational responsibility she had had at Mene.
In this case, Ms. Humphrey has been prepared to consider other industries and other types of jobs, and even in other cities like London Ontario and California, but she has sought senior leadership roles consistent with the position which she had at Menē. She cannot be faulted for this.
This held true despite the fact that she may have been making as much money in the new role.
Limited Efforts
As of January 2020, she had only applied for 18 positions in total. Mene produced a long list of positions she hadn't applied for, but the list was exaggerated with roles that clearly weren't comparable. Without at least establishing that the roles would have been suitable and comparable to Humphrey's previous work, such a list failed to satisfy Mene's burden of proof.
Too Long Without Searching At All
For the first several months after dismissal, her efforts were limited to networking-type activities, without actually submitting any applications.
The court reflected on the fact that the expectation for mitigation isn't that the employee will immediately start searching in earnest, but rather may reasonably need some time to acclimate to the dismissal. This is particularly true for Humphrey, given the way she was treated in the employment relationship. However, the extent of her delay was still "too long", and this appears to be the basis for the reduction in her notice period.
Commentary
Mitigation is always a tough one. The onus on the employer is heavy to establish failure to mitigate, and it's a two-fold burden, requiring the employer to prove, on balance, not only that the employee failed to act reasonably in seeking new employment, but also that if she had acted reasonably, she would have mitigated her loss. That, of course, requires some speculation.
In this instance, they established that she slightly fell short of the standard of the reasonable person, by waiting "too long". But the commentary on the employer's evidence as to the other jobs available to her should also hold on this, that the employer hasn't met the second part of the burden by raising a reasonable inference that she could have gotten something comparable in that period.
If the employer DID convince that judge that, had she applied for jobs for the first six months after termination then, on a balance of probabilities, she likely would have found a comparable job in that time frame, then the result wouldn't be a one month reduction; it would be a 6+ month reduction. If the judge is not convinced on a balance of probabilities that she would have been successful in her mitigation efforts if she had acted reasonably, no deduction is appropriate.
These arbitrary reductions in reasonable notice periods, as a punishment for some marginal perceived inadequacy in mitigation efforts, are common but analytically problematic.
Overall
This is a good decision, and likely achieved the right outcome, but the misinterpretation of Matthews and the treatment of the breached employment contract are problematic.
When I blogged about Matthews, I called it "clarity achieved," suggesting that it cleaned up a very messy aspect of the law, leaving only narrow questions surrounding (a) what language would meet the standard for an exclusion clause and (b) the ongoing significance of whether a benefit is "integral" to compensation.
It was very clear to me what the court in Matthews was doing. I mean, sure, I wrote a paper they relied upon in reaching their conclusions (cough, humblebrag, cough), so maybe that helps, but it was really just a streamlining of first principles. Going a step further into affirming that compliance with the employment contract is necessary for reliance on the termination clause therein? That's not what they did.
*****
Dennis Buchanan is a lawyer practicing labour and employment law and civil litigation in Edmonton, Alberta.
This post does not contain legal advice, but only general legal information. It does not create a solicitor-client relationship with any readers. If you have a legal issue or potential issue, please consult a lawyer.
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