Troubling Decision of the Court of Appeal on Negligent Misrepresentation
Employment Law and Human Rights
Troubling Decision of the Court of Appeal on Negligent Misrepresentation
Written by Michael J WeilerCary Feldstein was a talented software engineer who was given working notice of termination in 2012 by his then-employer MacDonald, Dettwiler (“MDA”). He had lots of opportunities to find alternate work as the judge found it was a “hot market” for software engineers although he only received two interviews despite sending out resumes to 20 prospective employers. Mr. Feldstein suffered from cystic fibrosis (“CF”), a chronic degenerative disease that primarily affects the lungs. Mr. Feldstein applied for and obtained employment with 364 Northern Development Corp (“364”). Mr. Feldstein claimed that he told the Chief Information Officer (“CIO”) in a private conversation during his second interview that he had CF and he was therefore concerned about LTD coverage. The CIO denied that Mr. Feldstein disclosed his CF and stated that Mr. Feldstein did not ask for a summary of the plan. Mr. Feldstein asked for a copy of the summary of the plan which subsequently was provided by the CIO.Mr. Feldstein alleged that the negligent representation was made in a subsequent telephone call on April 13 2012. Mr. Feldstein alleged that he asked the CIO about the restriction of LTD to $1,000 per month related to “Proof of Good Health”. He claimed he was told by the CIO that it related to the 3-month waiting period without illness which, if achieved, would have satisfied the “proof of good health” requirement. Mr. Feldstein said he took that statement to mean if he worked 3 months without illness he would then qualify for full LTD benefits of $4,677 per month and not be restricted to the $1,000. Of critical importance was the evidence of the CIO who denied making the impugned statement, denied he spoke about LTD with Mr. Feldstein and stated he never made any statement about “proof of good health”.Mr. Feldstein signed a written employment agreement that contained a clause stating he could participate in rights and benefits under the various programs including disability. It did NOT contain the caveat found in many precedents that all rights and obligations are governed by the terms of the policies. The employment agreement also contained an “Entire Agreement” clause that stated the contract superseded all prior communications, representations and understandings “with respect to the subject matter hereof”. Mr. Feldstein obtained legal advice before signing the employment agreement. He commenced work with 364 on April 30th, 2012.In May 2013 Mr. Feldstein suffered a severe decline in lung functioning related to his CS. He was given three months' working notice of termination in November 2013. He applied for and received LTD benefits in February 2014. However much to Mr. Feldstein’s surprise he was limited to $1,000 per month because he had not completed a medical questionnaire when he initially enrolled in the benefit plan. The questionnaire was required to establish “proof of good health”. In late November 2014 he underwent a successful double lung transplant and he was told by his doctors that he could seek alternate employment at the end of 2015.TRIAL JUDGEMr. Feldstein commenced an action for negligent misrepresentation. The trial judge accepted the evidence of Mr. Feldstein over that of the CIO, found that the impugned statement had been made, held that the impugned statement meant that Mr. Feldstein would satisfy the “proof of good health” condition and therefore he would be entitled to full LTD coverage if he worked 3 months without illness. She awarded damages based on 40 months of lost LTD benefits of $83,000 (based on the $3,083.43 he would have received under MDA’s benefits plan minus the monthly amount he was receiving in CPP benefits). She also awarded a further $10,000 for aggravated damages based on the mental distress suffered by Mr. Feldstein. She held that the contract did not preclude the tort claim for negligent misrepresentation. It appears that she did not consider the specific terms of the Entire Agreement clause. She also held that damages were reasonably foreseeable notwithstanding the 2-year delay.COURT OF APPEALThe Court of Appeal upheld the trial judge’s decision on the finding of negligent misrepresentation and the award of $83,000 damages. However it overturned the award for $10,000 for aggravated damages. As success was split it held each party must bear its own costs of the appeal.(a) Negligent MisrepresentationOn the key issue of negligent misrepresentation, both the BCCA at paragraph  and the trial judge at paragraph  analyzed and applied the criteria outlined by the Supreme Court of Canada in Queen v Cognos  1 S.C.R. 87. The criteria are:1) Is there a duty of care based on a “special relationship” between the representor and representee?2) Is the representation in question inaccurate, untrue, or misleading?3) Did the representor act negligently in making that representation?4) Did the representee rely, in a reasonable manner, on that representation?5) Did the representee incur damages as a result of that reliance?In her decision the trial judge followed by saying: As the misrepresentation resulted in the parties entering into a contract, I must also consider whether any express terms of that contract operate so as to prevent the plaintiff from pursuing an action in tort: Cognos, at para. 39.It is important for employers to read the trial and court of appeal decisions in their entirety to get a full appreciation of the risks and the impact on your business practices in hiring employees especially those with disabilities. I will only summarize the key findings.The BCCA upheld the trial judge’s finding that there clearly was a duty of care where “an employer [is] making representations to a prospective employee in the course of pre‑employment discussions”.The BCCA upheld the trial judge’s finding that the impugned statement was inaccurate, untrue, or misleading even though it was merely implied. The trial judge held: As held by Iacobucci J. in Cognos, an implied representation may properly give rise to an action for negligent misrepresentation. The plaintiff’s claim will not fail merely because it relies on an inference drawn from a representation made by the defendant. Rather, the question is whether a reasonable person in the circumstances of the plaintiff would have drawn that same inference (Cognos, at paras. 74-77). In much the same way, the court in Spinks found that the failure to divulge material information may in certain circumstances be equally as misleading as the provision of misinformation (para. 14). In my view, it is more likely than not that a reasonable person in the circumstances of Mr. Feldstein would have believed, as a result of the impugned statement, that LTD benefits would be available upon completion of three months continuous work at 364, without the need for the completion of a medical questionnaire or exam. I accept Mr. Feldstein’s evidence that Mr. Nizker made the impugned statement in response to the plaintiff’s inquiry about what “Proof of Good Health” meant in the context of the LTD plan. In that circumstance, the most prominent, likely, and reasonable inference to be drawn from the impugned statement is that LTD coverage is contingent merely upon completion of the three-month probationary period. It was misleading and inaccurate to represent the LTD eligibility requirements as was done in the impugned statement, particularly given the omission of additional, more stringent, criteria inconsistent with the thrust of Mr. Nizker’s representation. I, therefore, conclude that the impugned statement was inaccurate, untrue, and misleading.The BCCA rejected 364’s argument that the statement was not inaccurate: I would not give effect to these arguments. The impugned statement by Mr. Nizker was not true and accurate. He was asked what “proof of good health” meant in relation to LTD coverage. He responded that “proof of good health” was synonymous with the three-month waiting period that new employees had to complete before benefits came into effect. That is clearly inaccurate and misleading. “Proof of good health” had nothing to do with the three-month waiting period. It was a specific requirement for obtaining “approval” for full LTD coverage. The fact that Mr. Feldstein became eligible for some LTD coverage after three months of continuous work does not make the impugned statement true.In respect of the third criteria it held that the CIO’s conduct fell below the requisite standard of care. These findings are particularly important for HR managers to understand in the context of their obligations in the hiring process: Appellate courts must accord great deference to a trial court’s negligence findings, absent an incorrect statement of the applicable legal standard: Housen v. Nikolaisen, 2002 SCC 33 at paras. 29-31. I see no reason to interfere with the judge’s finding on this point. The judge found that Mr. Nizker was aware of Mr. Feldstein’s cystic fibrosis condition. She found that Mr. Feldstein asked Mr. Nizker about employee benefits after the second interview on April 12, 2012, e-mailed Mr. Nizker later that day asking to be provided with a brochure detailing 364’s benefits plan so that he could compare it to his current plan at MDA, and then asked Mr. Nizker about “proof of good health” in relation to LTD coverage during their telephone conversation on April 13. It was open to the trial judge to come to these factual findings on the evidence before her. As I read the judge’s reasons at para. 79, she is referring to the “repeated inquiries” Mr. Feldstein made about employee benefits in general. But even if 364 is correct in its assertion that the trial judge erred in fact by proceeding on the footing that Mr. Feldstein made repeated inquiries in relation to his eligibility for LTD benefits, I would not be inclined to regard the error as “overriding”. Specifically, I am not persuaded that the factual error relied on by 364 could have had a material bearing on the judge’s resolution of this branch of the test. Further, it was not disputed that Mr. Nizker was in charge of 364’s hiring process for software engineers during this time. He was the point of contact for potential employees seeking information about 364’s benefits package. As the trial judge found, Mr. Nizker took no steps to verify the accuracy of the information he provided to Mr. Feldstein regarding the LTD benefits that would be available to him if he accepted 364’s offer of employment, failed to accurately define what “proof of good health” meant in relation to Mr. Feldstein’s inquiry, and failed to mention or provide Mr. Feldstein with the medical questionnaire Sun Life required to approve him for LTD coverage in excess of $1,000 per month. Mr. Nizker’s duty of care with respect to representations made during pre-contractual negotiations included not only a duty to be honest in making those representations, but also to exercise reasonable care in ensuring that the representations made were accurate and not misleading. I think it clear that Mr. Nizker was operating under an honest but mistaken belief as to the circumstances that would trigger Mr. Feldstein’s entitlement to full LTD benefits. The representations Mr. Nizker made to Mr. Feldstein were, as the judge found, inaccurate and misleading. In all the circumstances, it was open to the judge to conclude that Mr. Nizker did not exercise reasonable care when he made the impugned statement. [emphasis added]It is interesting that the courts accepted that the CIO was under an honest but mistaken belief when he made the comments given the fact he denied the specific impugned comments had even been made.The BCCA upheld the trial judge’s decision that Mr. Feldstein reasonably relied on the representations. 364 made what I thought were fairly compelling arguments in this regard including: 364 argues that Mr. Feldstein’s reliance on the impugned statement was not reasonable given that Mr. Nizker made it in response to an imprecise question and in the context of a brief phone call. 364 says that, having regard to the importance of the issue to Mr. Feldstein, it was unreasonable for him to rely on the impugned statement without further clarification or follow-up. 364 also submits that the judge erred in finding that it was reasonable for Mr. Feldstein to believe that Mr. Nizker could provide accurate information about employee benefits given than Mr. Nizker was the Chief Information Officer of a tech company who had no specialized knowledge of insurance benefits. Further, 364 says that Mr. Nizker did not have a financial interest in hiring Mr. Feldstein and did not make the impugned statement in the course of conducting 364’s business because 364 is not an insurance provider, nor does it sell disability insurance.However, the BCCA said that there was no error in the trial judge’s analysis or findings of fact.Finally the BCCA upheld the trial judge’s finding that Mr. Feldstein’s reliance resulted in damages that were foreseeable. For example, it held it was open to the trial judge to find that Mr. Feldstein would have obtained employment as a software engineer with benefits similar or better than he enjoyed at MDA especially given her finding that this was a “hot market” and Mr. Feldstein was an excellent and qualified employee. This is somewhat curious since Mr. Feldstein was only offered two interviews despite sending out resumes to 20 employers. Further the fact that the damages occurred two years after the misrepresentation was made did not mean the damages were not reasonably foreseeable. How long would a delay have to be to preclude a finding of liability? The BCCA leaves that question open noting that negligent misrepresentation claims in the context of pre-contractual discussions may involve “long-term detrimental reliance” and although “[t]ime may well be a factor when assessing reasonable foreseeability […] it is not determinative”. The question was whether 364 should have foreseen a “real risk”, and the BCCA accepted the trial judge’s conclusion that Mr. Nizker should have.The BCCA also upheld the trial judge’s conclusion that the Entire Agreement clause did not preclude the tort action for negligent misrepresentation. It appears from my reading of the trial judge’s decision that she did not consider this clause specifically. The BCCA held that while it is possible for an employer to exclude such liability, the language in 364’s contract did not do so: As this Court noted in Taurus, determining whether parties to a contract have chosen to exclude tort liability through an entire agreement clause “is not easily answered” (at para. 58). The analysis is case-specific and courts have considered a number of factors, including: whether the representation at issue becomes an express term of the contract (Cognos); whether the parties to the contract are commercially sophisticated actors (Taurus); whether the contract is a standard form contract (Zippy Print); whether the defendant drew the plaintiff’s attention to the exclusion clause (Betker v. Williams,  B.C.J. No. 3724 (C.A.)); and whether the misrepresentation was so substantive that it went to the plaintiff’s basic purpose for entering the contract (Betker). The judge, who was clearly alive to the governing principles, found that the entire agreement clause did not exclude tort liability for Mr. Nizker’s misrepresentation because there was no express term in the contract which created a specific duty that was co-extensive with the duty of care created by Mr. Nizker’s misrepresentation. In other words, the subject matter of the impugned statement – how “proof of good health” was related to the eligibility requirements for full LTD coverage – did not become an express term of the contract. Section 4.02 of the contract merely confirmed that Mr. Feldstein would be entitled to participate in any benefits plan that was available to 364’s employees.(b) Aggravated DamagesThe BCCA overturned the award of $10,000 for aggravated damages. It noted the claim here was in tort not contract so the fact that Mr. Feldstein suffered mental distress did not mean he was entitled to aggravated damages: While I have no doubt that Mr. Feldstein suffered mental distress due to the negligent misrepresentation, the judge did not find that any of 364’s representatives acted in a high-handed, dishonest or morally reprehensible way. Assuming, without deciding the issue, that an award of aggravated damages could be made in the context of a negligent misrepresentation case, I am nevertheless of the view that some form of offensive conduct by the defendant is a necessary prerequisite to the granting of such relief. In my respectful view, there is no basis in the factual findings made by the trial judge for an aggravated damages award. Accordingly, I would strike out that part of the award.TAKEAWAYSFor those readers who have made it this far I apologize for the length of this article. But the reasons of both the trial judge and the court of appeal are hard to summarize.This case raises serious issues for employers especially those who do not have expertise in hiring. Of great concern is the fact that the CIO denied the statements were made in the first place. In the absence of a written representation the issue of credibility is key. Here the trial was held over 3 years after the fact. There was nothing in writing that confirmed the statements made. In fact when Mr. Feldstein raised the issue of coverage with the CEO in October 2013 he wrote in an email that “I am worried that I somehow majorly messed up or I misunderstood the details of the plan and I’m ineligible for coverage”. However at trial he testified he meant to write “we somehow majorly messed up..” [emphasis added] His explanation at trial was that he was simply being “polite or diplomatic” as he wished to avoid an accusatory tone in dealing with the CEO. He made no reference to the alleged negligent misrepresentation which was critical to his claim. It is curious to me that Mr. Feldstein’s recollections were accepted over that of the CIO given what I would think is a very heavy onus on him to prove the statements. Further Mr. Feldstein signed a detailed employment contract with the advice of his lawyer yet he did not ask for clarification of what the requirements for LTD were. The CIO operated in the mind of the courts in an honest but mistaken belief so why was his evidence rejected? One can appreciate the dilemma employers face when employees make these claims many years after their hiring, especially in light of the Entire Contract clause.Further I simply do not understand the BCCA’s finding that the Entire Agreement clause did not preclude liability here. Granted the benefits clause may have been drafted more tightly (my standard agreement makes it clear that the terms and conditions of the benefits are governed by the policies in place and that the employer is not a self-insurer) but on the whole, it seems to me the parties did address this very claim in the Entire Agreement clause. It speaks of representations yet does not apply to these representations? It might have been interesting to hear what legal advice was given to Mr. Feldstein on this particular point assuming 364 could have successfully argued that privilege was waived.But the biggest concern I have with this decision is the potential liability an employer could have faced based solely on a vague comment in a one on one conversation many years prior. Mr. Feldstein was 37 years old. What if the negligent representation precluded him from full LTD benefits to age 65 and the damages were not capped at 40 months? Further if LTD benefits are paid for by the employee then they are paid tax-free thus potentially increasing damages (this latter point does not appear to have been considered by the court).What to do?First be very careful in what is said and done at the hiring stage. Do not make any representations on benefits and place the onus on the employee to make their own decisions in that regard. Perhaps make notes of these meetings and have two employees attend all interviews. And if in doubt send a self-serving email.Secondly tighten up the contractual language to specifically exclude any claims for negligent misrepresentations.Feldstein v. 364 Northern Development Corporation 2016 BCSC 108; 2017 BCCA 174
MICHAEL J. WEILER
Mike Weiler has more than 35 years experience in the ever evolving world of employment, labour and human rights law. And experience in this area is critical to protect our clients—this is where law is not just a science but most often an art. Judgment is critical for our clients and that is what we bring to the table based on our years of experience. This means first and foremost knowing the law—keeping updated and current. Experience also means knowing the players in the game and their processes—the LRB, the Employment Standards branch, WorkSafeBC, the courts etc. It means not only seeing the...
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