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CONTRACT OF EMPLOYMENT - Express terms - Duration - Restrictive covenants

Wednesday, January 30, 2019 @ 8:53 AM  

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Appeal by the plaintiff from wrongful dismissal damages. Cross-appeal by the defendant from the dismissal of its counterclaim for breach of restrictive covenants and breach of fiduciary duties. The appellant had worked for Bakermet since 1980. In 2008, ArcelorMittal purchased Bakermet. A release in favour of Bakermet and its successors was executed. After the sale, the appellant’s employment continued pursuant to Executive Employment Agreements. The 2011 Agreement purported to create a fixed-term contract. The 2014 Agreement established a two-year fixed term subject to early termination. The 2014 Agreement continued to require ArcelorMittal to advise the appellant in writing of its intent not to renew the agreement at the end of the term, but the length of required notice was reduced to three months. Early termination on a without-cause basis continued to be permitted and in such a case the appellant remained entitled to an amount equal to six months of annual base salary inclusive of Employment Standards Act entitlements. The respondent purchased ArcelorMittal in 2015 and terminated the appellant. The judge awarded the appellant six months’ pay in lieu of notice pursuant to the termination clause in his 2014 Executive Employment Agreement. Within two months of his termination, the appellant commenced employment with a competitor of the respondent. The respondent counterclaimed for damages based on the appellant’s alleged breach of the restrictive covenants in the 2014 Agreement and breach of fiduciary duty. The trial judge concluded that the sale agreement and the release released the respondent from all claims relating to the appellant’s employment prior to 2008. He interpreted the employment agreements after 2008 as a series of fixed-term contracts, such that the appellant’s right to termination and severance pay under the Employment Standards Act was to be calculated only from 2008 forward. The judge found that the termination clause provided for notice that exceeded the minimum notice requirements under the Act and was enforceable. The judge concluded that the restrictive covenants contained in the 2014 Agreement were temporally and geographically unreasonable and that the record was insufficient to demonstrate that the appellant had breached any ongoing fiduciary obligations.

HELD: Appeal allowed. Cross-appeal dismissed. The appellant was entitled to 34 weeks’ termination and severance pay. The appellant’s pre-2008 service could not be waived or released for the purposes of calculating his statutory employment entitlements. The respondent, as successor to ArcelorMittal was required to count the appellant’s pre-2008 service in calculating his entitlements upon termination. Given the context in which the release was executed and the wording of the release, it was open to the judge to find that the appellant had waived his claim to common law notice based on his pre-2008 employment. Because the appellant could not waive his pre-August 2008 service for statutory purposes, the termination provision, which limited the appellant to six months’ notice on termination, violated the Act because it provided a lesser benefit than the 34 weeks’ termination under the Act. The judge erred in failing to consider all of the relevant factors in concluding that the appellant was employed for a fixed term rather than on an indefinite basis. There was significant evidence indicating that, despite fixed-term language in the 2011 and 2014 Agreements, the appellant was employed on an indefinite basis. The appellant was employed for an indefinite term from 2008 onwards and, as a result, was entitled to common law notice for the period of August 2008 to September 2015. Given that the appellant was 58 at the time of dismissal, held a senior position with the respondent, and obtained similar employment within a very short time following termination, seven months was a reasonable notice period. The appellant’s entitlements under the Act exceeded his common law damages. The appellant was thus entitled only to termination and severance pay under the Act, in addition to any amounts that may be owing in respect of unpaid benefits. The judge did not err in failing to assess the enforceability of the restrictive covenants in the context of the sale of Bakermet. The restrictive covenants in the 2014 Agreement should be subject to the more exacting reasonableness test from the employment context. The covenants expanded considerably in scope over the course of the successive employment contracts.

Kerzner v. American Iron & Metal Co., [2018] O.J. No. 6432, Ontario Court of Appeal, J.M. Simmons, G. Huscroft and B. Miller JJ.A., December 7, 2018. Digest No. TLD-January282019006