Author: Michael Weiler, KSW Lawyers ([email protected])

“Work is one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being”: [Reference re Public Service Employee Relations Act [1987] 1 SCR 313 quoted at paragraph 179 of Francis Remedy Decision infra.]

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Introduction

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Levan Francis was employed in a secure union position as a corrections officer since 1999.  He was athletic, healthy, a good father involved in his children’s lives and sport and a loving husband who was living the Canadian dream.  He had a passion for being involved in coaching. He had lots of friends and a loving supportive wife.  But all this changed in 2012.  Francis began 18 months of suffering racial discrimination that included direct explicit racial slurs from supervisors and fellow workers.  The BC Human Rights Tribunal (the “Tribunal”) described the instances of racial discrimination as covering the entire spectrum of racial discrimination and harassment.  He filed a Human Rights complaint on October 25 2012 after management failed to adequately respond to his complaints.  That resulted in retaliation by his fellow workers and supervisors.  The discrimination continued and on July 28 2013 Francis left work following an emotional breakdown resulting from the death of an inmate.  He did not return to work and has not been able to work since.  Six years later on July 4 2019 the Tribunal found that his employer and fellow workers had violated the BC Human Rights Code  (the “Code”) by discriminating against him contrary to section 13 of the Code based on his race and colour, which resulted in a toxic work environment and further had retaliated against him contrary to section 43 of the Code due to his filing his Complaint (referred to herein as “Contraventions”)  see Francis v BC Ministry of Justice No 3 2019 BCHRT 136 (the Liability Decision).  The particulars of the Contraventions and retaliation are found at paragraphs 371-379.

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On January 28 2021 the Tribunal issued its decision on remedies: Francis v BC 2021 BCHRT 16 (Remedy Decision). Seven and a half years after his termination the Tribunal awarded Francis damages exceeding $1 million-- a record award.

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For those who want to review a leading decision on the nature of race discrimination and toxic work environment we recommend you read the Liability Decision.  This blog posting will review the Remedy Decision and the implications for employers.

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The Remedy Award

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A summary of the Award is as follows:

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1. $264,060 as compensation for past loss of earnings;
2. $431,601 as compensation for future loss of earnings
3. $65,881 as compensation for pension loss
4. $25,515.24 plus $1140 as compensation for disbursements and expenses
5. $176,000 as compensation for injury to his dignity, feelings and self-respect (injury to dignity)
6. Interest

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It should be noted that above awards included a 20% contingency reduction.  Further no award was made with respect to legal fees which Mr. Francis claimed were in excess of $250,000.

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The Remedy Award is focused primarily on causation.  The losses and damages suffered by Francis and his wife and children were catastrophic.  At one point the Tribunal stated the impact “destroyed him as a human” (para 216).  The precedent setting awards of damages for future loss of earnings and injury to dignity reflect the extreme impact of the discrimination on Francis.

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(a) Contingency Reduction

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A complainant is only compensated for losses that result solely from the discrimination. This is different than proving the discrimination in the first instance where a complainant simply has to prove that discrimination played a role in the termination or adverse impact (the taint theory). The Tribunal has the authority to reduce any award for contingencies to account for the fact that the harm suffered as a result of the acts of discrimination including creating a toxic work environment may have been suffered in any event due to other non-discriminatory causes or unrelated events—“A respondent is not required to compensate a complainant for any harms that a complainant would have experienced anyway” (para 92).

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In this case the Tribunal concluded that there would be no reduction of damages for mitigation.  However Francis suffered from the disputes over his disability payments and the litigation process itself both of which “intervening events [were] not sufficiently related to the Contraventions to justify compensation.” (para 95).  Although a very arbitrary calculation, the Tribunal applied a 20% reduction across the board to the monetary awards.

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At the same time the Tribunal made it clear that damages for future losses were not too remote.  It applied the “thin skull” or “eggshell skull” analysis to assess damages:

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In Francis’ circumstances, there can be no question that, given the duration and severity of the Contraventions and the resulting poisoned work environment that flowed from those Contraventions, it is reasonably foreseeable that a person of ordinary fortitude would have suffered a significant mental injury from the Respondent’s discriminatory acts. That Francis may have suffered greater mental injury than others in his circumstances is immaterial. The Respondent must take their victim as they find him and compensate him for the actual harm caused by their discriminatory conduct (para 98).

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(b) Past Wage Loss

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The Tribunal had two expert evidence reports before it that spoke to the issue of past and future wage loss.  It chose a Report that assessed past wage loss calculated as the difference between Francis’ actual income from July 2013 to November 20 2020 and what Francis would have earned had he remained actively employed.  It is not clear from the Award what the specifics of the calculations were (for example not clear if LTD payments were taken into account—LTD benefits appear to have been cut off in February 2018) but the end result was the Report’s conclusion that the past income loss was $236,939 net of taxes and including interest (para 119).

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From that amount the Tribunal deducted $22,000 as STIPP benefits from March to September 2014.  It also grossed up the Award to calculate Gross Income of $293,947 plus it added $58,128 as income taxes payable as a result of receiving the wage loss as a lump sum.  Therefore the past wage loss was calculated at $352,075 with a net loss after deduction of STIPP benefits of $330,075.  Applying the 20% contingency the compensation for past wage losses was $264,060.  

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(c) Future Loss of Earnings

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The Tribunal recognized that assessing future loss of earnings that are related solely to the Contraventions is speculative.   Because the award is made “once and for all” at the time of the decision, the Tribunal must “peer into the future” and “fix the damages as best they can”. Therefore such awards are only made in the extreme and extraordinary circumstances.  Here after 6 years Francis was still “deemed to be unable to work in any capacity and his prognosis for recovery [was] guarded” (para 125).  Accordingly the “extraordinary circumstances of this case warrant a future loss of earnings award” (para 140).

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The Tribunal then had to consider the likely retirement age for Francis.  It ultimately concluded he would have worked until age 63 which happened to be the conclusion of the expert in the Report.  The future loss of earnings was calculated in the Report as $539,501 based on retirement at age 63 and given the contingency  reduction of 20% the future loss of earnings was calculated at $431,601.

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(d) Pension

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There is no real analysis of the pension loss in the Award.  Relying on the Report pension loss to age 63 was calculated at $82,351 and after applying the 20% contingency reduction the award was $65,881.

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(e) Expenses and Disbursements

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Francis sought $250,000 for legal fees.  The Tribunal ruled it did not have the authority to award legal fees.  It awarded a small amount for therapy.

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Frances was awarded compensation for expert reports, witness fees and related disbursements in the amount of $31,894.05 and after accounting for the 20% reduction the net award was $25,515.24.

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(f) Injury to Dignity, Feelings and Self-Respect

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This award is what makes this case a landmark decision that will affect future cases in a very significant way.  The Tribunal has authority under section 37(2)(d)(iii) of the Code to award damages to compensate a complainant who has been discriminated against  for injury to their dignity, feelings and self-respect “or to any of them” (para 153).  There is no cap on these damage awards and the decision lies solely in the discretion of the Tribunal.  The Tribunal summarized the law in this area at paragraphs 154 and 155 as follows:

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[154] This discretion, however, must be exercised on a principled basis. The purpose of an injury to dignity award is to compensate the complainant for the actual harm they have suffered as a result of the discrimination: Kelly Appeal, at paras. 60-62. This assessment is based on the evidence before the Tribunal and all of the relevant circumstances of the case:

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The Tribunal has frequently stated that injury to dignity awards are compensatory, not punitive, and should place the complainant in the position they would have been in absent the discrimination. But what does that mean in the context of a non-pecuniary award? The fixing of a monetary amount to compensate for the impact of discrimination on a complainant’s dignity, feelings and self-respect is highly contextual and fact-specific (Gichuru, para. 256)

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[155] A number of factors may be relevant to the quantification of such an award. The Tribunal generally considers three broad factors: the nature of the discrimination, the person’s vulnerability, and the effect of the discrimination on that person: Basic v. Esquimalt Denture Clinic and another, 2020 BCHRT 138, para. 193. A more nuanced approach is necessary in the circumstances of this case. I will consider five factors set out by the Tribunal in Gichuru that can and have been applied to assist in the quantification of an injury to dignity award in these kinds of cases:

• the nature of the discrimination found;
• the time period and frequency of the discrimination;
• the vulnerability of the complainant;
• the impact of the discrimination upon the complainant; and
• the totality of the relationship between the parties (at para. 260; cited with approval in Gichuru Appeal, at paras. 53-56.).

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The highest ever award up to this point in B.C. was $75,000 for a “complex and multi-year discrimination involving a medical resident with a mental disability: Kelly v UBC 2013 BCHRT 30.

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The Tribunal rejected the argument that the damages under this heading are limited to those that are reasonably foreseeable.  Rather the damages are to compensate for the actual harm to the victim.

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The Tribunal assessed the 5 Gichuru factors above at paragraphs 158 through 218 (which reasons are well worth reading in their entirety and found:

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In all of the circumstances, I find that an award of $220,000 is reasonably proportionate to the extreme injury to dignity, feelings and self-respect suffered by Francis. Accounting for a 20% contingency, I order $176,000 as damages for injury to dignity under s. 37(2)(d)(iii) of the Code.

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Takeaways for Employers

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As early as 1837 jurists and lawyers have opined that “hard cases make bad law” and it has been noted that “cases in which the moral indignation of the judge is aroused frequently make bad law.”  Whether Francis will be considered bad law, employers and businesses must be very concerned with the trend in recent Human Rights cases to award damages and the potential impact on employers.

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It was not that long ago that awards for compensation for injury to dignity were capped and after the cap was removed the awards were initially in the $3,000 to $5,000 range and escalated from that point on:  B.C. HUMAN RIGHTS TRIBUNAL DOUBLES CAP FOR DAMAGES FOR HURT FEELINGS TO $75,000 (weilerlaw.ca).

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The Tribunal’s decisions in this case on both future wage loss and compensation for injury to dignity are extraordinary decisions.  But the same was said of the Kelly decision when the Tribunal awarded a record setting $75,000 for damages for injury to dignity noting that was an extraordinary situation.  The Francis case triples the amount of that award.  The question is will that mean an ever increasing amount of compensation for such claims?  Will a rising tide raise all ships?  I think that is more than likely.  Since damages for injury to dignity and future loss of income are very specific to the employee complainant and rely on the discretion of the adjudicator there is no limiting framework to keep these awards from becoming the norm and not the exception.  And consider specifically the impact of COVID on the mental health of all employees and the consequent increase in damages to an employee who is discriminated against.

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For businesses that is a scary proposition especially when you consider the additional costs to the employer to defend one of these cases.  In this case Mr. Francis was looking for $250,000 reimbursement for legal fees on a case where he retained counsel well after the complaint had been filed.  Many of these cases work their way through the courts resulting in even greater legal fees (e.g. see B.C. COURT OF APPEAL RESTORES $75,000 AWARD FOR INJURY TO DIGNITY – UBC v Kelly 2016 BCCA 271 (weilerlaw.ca)

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It is most noteworthy in my view that many of these leading human rights cases involve public employers and these damage awards are paid by you and me as taxpayers.  The leading case that expanded exponentially the Duty to Accommodate involved the NDP government as the employer whose accommodation of a fire fighter was found to have violated the Code:  BCGEU v BC [1999] 3 SCR 3 (“Meiorin”); Gichuru was a claim against the Law Society; Kelly was a claim against UBC.  But if the principles established in these cases are applied to small and medium sized private businesses the impact can be devastating especially in this COVID world.  The bar doesn’t just rise for public employers it applies to all employers.

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The difficulty for all employers is that a violation of the Code does NOT require an intention to violate the Code.  In many of these cases the employer is bound by the unauthorized acts of its employees and cannot shield itself from liability based on a due diligence basis.   Obviously the Government in Francis qua employer could well have taken steps to resolve the complaints of Francis but it failed to do so.  But the precedent created by the Remedy decision in this case will apply to all employers where there has been a finding of a contravention of the Code.

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Further the damage award here was exasperated in part by the extraordinary delay in the proceedings.  Here there was a 7 year delay; in Kelly there was a 6 year gap from the time he was terminated from the program to the Tribunal’s Award which as noted was appealed to the B C Court of Appeal.  The experts opined in the Francis decision that the longer you suffer from depression the worse the prognosis (para 130).

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Finally awards for damages for injury to dignity are likely tax free so are often worth double what an award for lost wages would be.  While this allows employers to strike lower cost settlements it also encourages complainants to pursue complaints even where there is little or no wage loss.

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There is in my view no likelihood that the NDP government will put a cap on damages for compensation for injury to dignity awards.  The Francis case will likely remain the rare exception to damage awards.  But there is little doubt the bar has been raised.  Employers must therefore do all they can to eliminate discrimination in the workplace and the early resolution of such claims.  This starts in my view with the education of the management team including the Human Resource professionals and the implementation or proper policies in this regard.  I encourage all our employer clients to speak to someone in our Employment and Labour Group if you have any questions about your policies.

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Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter or drafting of workplace vaccination policy, please contact Mike Weiler at [email protected].

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Mike Weiler is senior counsel with the Employment & Labour Group at KSW Lawyers (Kane Shannon Weiler LLP). Mike specializes in labour law and helping unionized employers, and has more than 35 years of experience practicing employment, labour and human rights law, and related areas, including governance and shareholders rights (and corporate defences to same). He represents employers, management, executives and other senior employees.

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Author: Chris Drinovz, KSW Lawyers ([email protected])
Contact us for more information, 604-591-7321

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This has been a hot topic since the news of the first approved vaccine. Can an Employer Require Employees to Get the COVID-19 Vaccine? Please also read our latest article update from August 13, 2021 on this topic here.

Currently, in British Columbia, there is no specific legislation requiring private businesses employees to get vaccinated. However, please note that this could evolve as some federal and provincially regulated employers have started introducing mandatory vaccinations in certain settings.

The short answer to this question is yes, generally non-unionized employers (and in some cases unionized employers) can require employees to get the vaccine (with certain exceptions discussed below). BC Employers have an obligation to ensure the health and safety of all workers in the office or on the jobsite under section 21 of the Workers Compensation Act. WorkSafeBC Policy Item P2-21-1 provides further context on the scope of this duty:

Section 21(1)(a)(ii) reflects that purpose and ultimately requires an employer to ask "Have I done all that I can reasonably do to ensure the health and safety of those other workers?"

Nature of Workplace

Each employer will have to assess its specific workplace and make a fundamental decision as to whether it needs all employees to receive the vaccine or provide a vaccination certificate to make the workplace safer. There may be workplaces where social distancing, wearing masks and washing hands may be determined to be sufficient protection for all or certain departments or areas of the workplace. In some cases outside factors may require vaccination, such as an individual who is required to travel frequently for his/her job, where the individual works in the health care sector or with vulnerable individuals, and where it would be a reasonable expectation the individual maintains the proper vaccinations (including COVID-19). These are considerations for the employer - requiring all employees to receive the vaccine is a fundamental issue that can be controversial and lead to legal action against the employer.

Employers can also consider requiring different work conditions for employees depending on whether or not they have been vaccinated. For example, employees who have not been vaccinated may be required to continue to work remotely, or to continue to complete COVID-19 daily assessments before entering the workplace, maintain distance and wear a mask at the workplace.

Covid-19 Vaccination Refusals and Terminations

Employers can’t physically force employees to get the vaccine, but they can make the COVID-19 vaccination a condition of continued employment. Depending on the nature of the employment and the risk associated with it, certain employers have a stronger case for making the COVID-19 vaccination a condition of employment (e.g hospitals, medical clinics, long-term care, group homes, retail, service industry).

The more interesting question becomes whether an employer can terminate an employee who refuses to get vaccinated against COVID-19. The answer to this is: it depends on the reason for the refusal. If the reason involves a protected ground under the BC Human Rights Code, such as a physical (medical) disability or religious grounds, then the employee may have a human rights claim against an employer who terminates on the basis of the protected ground. However, if the reason is mere personal preference that is unrelated to a protected characteristic, then the employer can terminate an employee, provided they offer the appropriate notice or severance pay mandated by the employee’s written employment contract or in the absence of a written contract, the common law. In the case of unionized workplaces, the employer should pay special attention to the collective agreement in place and seek advice from an experienced labour lawyer prior to terminating or disciplining an employee. Mike Weiler is our labour expert at KSW Lawyers, with over 37 years of experience in labour law ([email protected]).

Examples of protected grounds for refusing to take the vaccine may include:

• A person who has a severe allergy to a vaccine or an ingredient in it;
• A person who has a medical condition, disease or takes medicine that reacts with the vaccine or ingredients in it;
• Based on religious beliefs – belonging to a recognized religious group that objects to vaccines.

Mandatory vaccination is not without precedent in Canada. Some examples of mandatory vaccinations (or mask) policies include public school settings for some provinces and healthcare settings involving mandatory vaccination policies or “vaccine or mask” policies in relation to seasonal influenza. BC has had an influenza prevention policy in place since 2012. The policy requires all healthcare workers to be vaccinated against influenza or wear a mask in patient care areas throughout the influenza season. The policy also applies to visitors, volunteers and students who attend a patient care area.

In an Ontario case Barkley v Mohawk Council, 2000 CarswellNat 3877, a nurse working as a non-unionized employee on a fixed term contract at a federally regulated adult care facility refused to comply with the facility’s mandatory influenza immunization policy on the basis she had never been sick with the flu and had faith in her immune system (reasons not protected by human rights legislation). The employer described the immunizations as a condition of continued employment, and anyone who refused to get the vaccination would be dismissed. At the hearing, the employer led evidence about the risks the flu posed to residents with whom the employee had frequent contact. The Arbitrator ruled that there was a legitimate interest on the part of the employer in the residents’ wellbeing and health. The decision to impose vaccination was therefore not unreasonable and the termination of the employee’s employment was upheld. While this case dealt with the unjust dismissal provisions of the Canada Labour Code, its principle may be applied in provincial cases.

Privacy, COVID-19 Vaccine Policy and Recommendations

Employers should keep in mind that even asking an employee whether they have had the vaccination and requesting proof of vaccination or a vaccination certificate is a collection of personal information/personal health information triggering privacy considerations. Any employer should be mindful of the privacy legislation that applies to them. We also recommend keeping a close eye on the vaccination system that Canada and British Columbia will engage and on balancing the privacy rights of Canadians and public safety during a pandemic.

The employer’s obligation to ensure the health, safety and welfare of its workers must be balanced with the employee's right to privacy. As previously mentioned, employers should evaluate whether implementing a vaccine verification program is integral to providing a safe workplace and ensure that such a program does not unreasonably infringe on an employee's privacy expectations.

Once an employer has made a decision, the employer should consider developing a policy on COVID-19 vaccinations. The policy should contain the following: authority for collection, statement of purpose, statement whether vaccination certificate will be required, statement on possible actions taken based on whether employee is vaccinated or not, statement on storage, sharing and destruction of the information. Our team can assist employers with developing policies.

Some best practices to keep in mind when developing and implementing a vaccine verification program include:

• Determine what information will be requested and minimize the amount of information collected (verbal statement of vaccination sufficient; or ask to show vaccination certificate without making a copy, etc.);
• Determine the purpose for requiring vaccinations and the purpose for requiring a copy of the vaccination certificate (is it to prevent transmission of COVID-19 from employee to employee, or customer, patient);
• Notify employees and maintain open and transparent communication regarding implementation;
• Do not share information regarding names or identity of employees not vaccinated (only share statistical information such as percentage of employees vaccinated);
• Share collected personal information with only those who need to know for the purposes of implementing the vaccine program;
• Keep the information secure and destroy it when no longer needed;
• Seek legal advice as needed.

Takeaways for Employers

• Evaluate your workplace and your workforce to determine whether a (mandatory or optional) vaccination policy is advisable or necessary to meet the company’s obligation to maintain a safe and healthy workplace for all workers and to protect your clients/customers and the public at large;
• When facing an employee who refuses to get the vaccine, be sure to ascertain the reasons for the refusal and evaluate whether any human rights obligations are triggered before taking action against the employee. Consult with an employment and human rights lawyer where not sure;
• Prior to implementing a vaccine program, seek legal advice and review applicable privacy legislation. Consider the above best practices when collecting employee's personal information/personal health information in any vaccine verification program.

Note to Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter or drafting of workplace vaccination policy, please contact Chris Drinovz at [email protected].

Chris Drinovz is an experienced employment and labour lawyer in Abbotsford, Langley, Surrey & South Surrey and Head of the Employment & Labour Group at KSW Lawyers (Kane Shannon Weiler LLP). Chris has been assisting local businesses with workplace issues since 2010. His expertise covers all facets of the workplace including wrongful dismissal, employment contracts, workplace policies, and WorkSafeBC matters, including occupational health & safety. Chris is on the Executive of the Employment Law Section of the Canadian Bar Association BC, and a Director for Surrey Cares and Greater Langley Chamber of Commerce.

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Principal Residence Exemption and House Flipping: Court Allows Appeal as Taxpayer Relied on Accountant’s Advice

Our Tax lawyer Ruby Grewal summarizes recent Tax Court appeal case regarding Principal Residence Exemption and House Flipping below.

The Tax Court of Canada recently released a decision in Hansen v. The Queen, 2020 TCC 102. This was a case where the taxpayer was reassessed for property that he owned and respectively sold between 2007 and 2012. Mr. Hansen (the “Taxpayer”) sold 5 homes during the respective tax years, and claimed the principal resident exemption. However, the Canada Revenue Agency (the “CRA”) treated the sale of each of these properties as income from a business or from an adventure in trade and reassessed the Taxpayer at 100% of the gain. A typical argument relied on by the CRA is the intention of the taxpayer to purchase the home with an intention to sell them at a profit.

The Taxpayer lived in each of the 5 properties for under a year, and made improvements to each of the homes to suit his family. While filing his taxes, he testified that he informed his accountant of all the property transactions, including his intension for each property and reason for sale, at which time the accountant advised the principal residence exemption applied. The accountant testified at trial and corroborated the Taxpayer’s evidence at trial.

Statue Barred Years

The 2007-2009 reassessments were issued to the Taxpayer outside of the “normal reassessment period” of 3 years as defined by subsection 152(3.1) of the Income Tax Act (the “Act”). This is something that we often refer to as the statute barred years. In order to open up an assessment beyond the normal period of 3 years, the CRA must justify why a reassessment should be reopened or reconsidered. One such reason that the CRA can reopen reassessments beyond the normal period is if the CRA can prove that (1) the Taxpayer had made misrepresentations in his or her tax returns; and (2) this misrepresentation was attributable to neglect, carelessness, willful default or fraud.

In this case, the CRA relied on the argument that the Taxpayer reported the sale of the properties as his principal residence, when they should have been declared as business income.

The Tax Court cited longstanding case law which states that there is no negligent misrepresentation where, at the time of filing the return, the taxpayer carefully considered his or her position and filed on a basis that he or she believed, in good faith, to be correct. This is the case even if the CRA does not agree with the manner in which the taxpayer reported his or her income even if the taxpayer’s position is ultimately found to be incorrect by the Tax Court.

In this decision the Tax Court found that the Taxpayer carefully assessed his situation and filed his returns on a reasonable and honest belief that he was entitled to claim the principal residence exemption. The Taxpayer was honest with his accountant when the sale of the properties occurred, and the court relied heavily on the accountant’s evidence regarding the Taxpayer’s intention at the time of filing.

The Tax Court held that the CRA was not entitled to reassess the Taxpayer for the statute-barred years (2007-2009), and overturned those reassessments.

Is the Transaction an Adventure in the Nature of Trade

The Taxpayer was still assessed for the 2011 and 2012 taxation years. The Tax Court relied on whether the Taxpayer had an intention to make a profit from the transaction by looking at the primary and secondary intention of the Taxpayer at the time of acquiring the properties. Was the intention to live there long term, or was it a temporary move with the intent to resell the properties for profit?

The Tax Court in this case found that the Taxpayer had the primary intention to resell the two properties in 2011 and 2012 as the Taxpayer had already purchased another bare lot and was starting to build on that lot before buying the two properties that were reassessed in 2011 and 2012. While purchasing the two properties, the Taxpayer chose houses that would be easier to resell once his constructed home was complete. As such the principal residence exemption did not apply to these two properties.

Gross Negligence Penalties

The CRA has the ability to impose penalties for the taxation years that have been reassessed under subsection 163(2) of the Act. The Taxpayer in this case was assessed with penalties for making a false statement or omission in filing his income tax returns. Typically penalties range from 5% to 50% of the amount that is being reassessed.  

In regards to the gross negligence penalties the Tax Court emphasized that “gross negligence” is a high level of misconduct.

The Tax Court ultimately decided that the 2007-2009 years were statute barred, and as such gross negligence penalties did not apply.

With respect to the 2011-2012 taxation years, the Tax Court considered factors that the CRA must establish to justify the penalties. The CRA must prove that the conduct of the taxpayer was a marked and substantial departure from the conduct of a reasonable person in the same circumstances. The question to be answered is whether the Taxpayer was knowingly or willfully blind in his reporting obligations.

The Tax Court found that the Taxpayer’s conduct was that of a reasonable person, and again found that the Taxpayer’s reliance on his accountant was an important factor. The Tax Court considered the fact that the Taxpayer provided his accountant with all the necessary information prior to the accountant advising him that the principal residence exemption applied.

The Tax Court overturned the gross negligence penalties.

Takeaways

1. House flipping has complex tax considerations - you should be aware of the tax consequences as capital and business income are treated very differently.
2. When the CRA reassesses statue-barred years and gross negligence penalties, it is prudent to seek legal advice because there are many factors that are considered in upholding the two, absence of which could ultimately result in success for a taxpayer. These issues should be considered in any case.
3. Reliance on a professional in filing tax returns can carry significant weight in a case where an individual is selling properties within a relatively short timeframe. A taxpayer should always provide their accountant or other tax advisor with all relevant information regarding a real estate transaction prior to completing tax returns. Also, keep notes when these discussions occur with the advisors, as they may prove to be critical if the situation goes to trial.
   

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Tax Group.

In this article, we answered the top questions recently received by our Employment & Labour Group from our Employer clients. We hope you find these answers timely and wish you a Safe & Happy Holidays!

Can an employer force employees to respect the public health orders this Holiday Season, or fire them if they don’t?

This issue would encompass situations where employees travel against public health recommendations, or gather with others during the Holidays violating the current Order. Employers can't force employees to follow the PHO, but they can instead consider ways to protect their workplace.

Can you fire employees who violate the Order? Where there are no human rights concerns, there is nothing preventing an employer from terminating a non-unionized employee without cause. The reason for termination doesn’t need to be disclosed to an employee, but the employer must ensure appropriate notice or pay in lieu is provided depending on the employee’s Employment Contract, years of service, position, age, etc. There are only a few instances where the behaviour would support a termination for just cause (and no notice or severance pay) in our opinion.

However, the more practical approach we recommend is to simply have a discussion with your employees before the Holidays; make them aware of the current Public Health Orders and strongly encourage them to follow the orders for their own safety as well as their families and other employees. Highlight the consequences a workplace COVID outbreak would have on everyone.

If you’re aware of certain employees planning to get together with their families or travel outside of British Columbia, you can work with the employees and impose stricter screening measures during and following the Holiday Season, such as:

• Completing the COVID-19 self assessment form with them daily – see our example here;
• Asking to confirm if they came into contact with anyone exhibiting any cold/flu like symptoms at that time or after gathering took place;
• Taking their temperature prior to entering the workplace;
• Requiring them to work from home for 2 weeks upon their return.

We caution against requiring employees to take unpaid leaves or placing them on lay-offs in response to possible violations of Public Health Orders, as there is a risk of constructive dismissal claims.

Can a business require its customers to wear a mask?

Short answer: Yes, businesses can and should require customers (visitors) without exemptions and employees to wear a mask when inside “public indoor spaces.”

On November 24, 2020, British Columbia issued a Public Health Order requiring the use of face coverings (or masks) in all public indoor spaces in the province (the “Order”).

We highly recommend that all business owners and operators read the Order and assess its impact on their business, but a summary is provided below:

• Visitors must wear face coverings while inside an indoor public space;
• Face covering include non medical or medical mask, or tightly woven fabric, covering both the nose and mouth (face shields are not sufficient);
• Section 2 of the Order outlines examples of indoor public spaces;
• Some examples of a person who is exempt from section 4 include:
• A person who is less than 12 years of age;
• A person unable to wear face coverings because of a physiological, behavioral or health condition, or physical, mental or cognitive impairment;
• A person who is unable to put on or remove a face covering without the assistance of another person;
• There are also temporary exemptions including for eating and drinking in a designated location, for receiving a personal service if removing the mask is necessary to receive the service, and for verifying a person’s identity;
• The Order only applies to visitors, and not to the business or its employees, except in public indoor spaces within the workplace where it applies to all (such as common areas, lunch room etc);
• This Order does not prevent a business from having additional requirements in relation to face coverings.

Although the Order is directed towards the public (visitors), businesses must follow enhanced health and safety protocols in the form of mandatory COVID-19 Safety Plans to protect workers and customers under the Workers Compensation Act and ensure that the risk of transmission of COVID-19 at workplaces is minimized.

WorkSafeBC expects businesses to incorporate the face coverings Order into their COVID-19 Safety Plans, and post signage at their place of business regarding mandatory face coverings and inform their visitors of the requirement. Read more and access sample poster from WorkSafeBC here.

What if a visitor refuses to wear a mask?

A business should be mindful of the exemptions to the mandatory mask policy noted above, especially the characteristics protected by the BC Human Rights Code. If a person claims exemption due to any of the following, a business must accommodate and not require the face covering to avoid violating their human rights:

• A person unable to wear face coverings because of a physiological, behavioral or health condition, or physical, mental or cognitive impairment;
• A person who is unable to put on or remove a face covering without the assistance of another person;

In these cases, businesses are not required to ask members of the public for proof that an exemption applies to them.

Businesses should treat those seeking accommodation with dignity, kindness and compassion. Additionally, businesses should inform and educate their employees of their obligations under the Human Rights Code. As the employees will likely be enforcing the mask-wearing, they need to be informed of the potential liability for discrimination.

While the businesses are to accommodate characteristics protected under the BC Human Rights Code, personal preferences are not protected by the same. If someone simply prefers not to wear a mask, an owner/operator can ask them to leave their private business/premises.

We suggest that you have free masks available to provide to customers who would like to visit your business but don’t have access to face coverings.

Can an employer force employees to get the COVID-19 vaccine?

This has been a hot topic in the last couple of weeks since the news of the first-approved vaccine. Under the current public health orders, employers cannot require employees to get vaccinated. However, please note that this could evolve once the vaccine is underway and available to the public at large.

Although employers can’t force employees to get the vaccine, they can require different work conditions for employees depending on whether or not they have been vaccinated. For example, employees who have not been vaccinated may be required to continue to work remotely, or to continue to complete COVID-19 daily assessments before entering the workplace, maintain distance and wear a mask at the workplace.

The more interesting question however is whether an employer can terminate an employee who refuses to get vaccinated against COVID-19. The answer to this is: it depends on the reason for the refusal. If the reason involves a protected ground under the BC Human Rights Code, such as medical or religious reasons, then the employee would have a human rights claim against an employer who fires them. However, if the reason is personal preference, then the employer can terminate an employee, provided they’re offered the appropriate notice or severance pay.

Some examples of protected grounds for refusing to take the vaccine would include:

• A person who has a severe allergy to a vaccine or an ingredient in it;
• A person who has a medical condition, disease or takes medicine that reacts with the vaccine or ingredients in it;
• Based on religious beliefs - belonging to a religious group that objects to vaccines

Another important question that comes to mind is whether an employer would even be entitled to ask an employee if they were vaccinated, or whether they would be able to ask for proof of vaccination. This answer would depend on the vaccination system that Canada and British Columbia will engage, and on balancing the privacy rights of Canadians and public safety during a pandemic.

What are an employer’s obligations for employees who continue to work from home?

Employers are responsible for ensuring the safety of their employees both at work and when working from home. WorkSafeBC recommends that every employer have a health and safety policy for working from home to help ensure their workspace is healthy and safe. The policy should address the following:

• At a minimum, this policy should require employees to conduct an assessment of their workplace and report any hazards to their manager.
• Other items to cover are protocols for emergency evacuation of the home, discussion of safe workplace practices, how to report any work-related incidents, and discussion of ergonomic considerations.
• Some health and safety requirements will need to be administered in different ways for at-home staff, including: outlining the role of the worker’s supervisor, determining how the employer will follow-up on reported incidents.

Employers should communicate regularly and educate employees on health and safety matters, as well as check in on their mental health especially for employees working alone or in isolation.

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

BY: Mike Weiler

“This high-conflict case arises out of the breakdown of a 20-year friendship and business relationship between Michael Price (“Mr. Price”) and Farrukh David Robson (“Mr. Robson”).

[2]             In addition to their business and personal relationships, both Mr. Price and Mr. Robson suffer from significant life‑altering illnesses. The emotion engendered as a result of these factors led to a difficult and “hotly disputed” trial; particularly the factual matrix. Both sides accused the other of lies and fabrications. Within this context, the factual reality must be distilled.”

Two court cases illustrate what can go wrong.  In both cases the employer had a binding contract that limited the employee’s rights, but were found liable for damages for negligent misrepresentations that occurred at the hiring stage.

Price v 481530 B.C Ltd 2016 BCSC 1940

In 2010 I wrote a blog on an interesting case involving a fight between two brothers who jointly owned a very successful company along with other companies they owned individually.  One brother had laid off an employee from his own company and had him hired by the jointly owned company.  The other brother strongly objected to the hiring and refused to pay him.  The employee brought a complaint before the E S branch and was awarded a significant amount of wages.  The court in a separate application broke the tie between the two brothers in the management of the company by referencing the articles but not after a huge amount of money had been wasted on legal fees.

Since then I have done two more blogs on similar cases while I sit in amazement on how much acrimony can develop with family or friends owned businesses:

Family Feud (weilerlaw.ca)

Family Feud #2 – Family Businesses, Take Note (weilerlaw.ca)

Family Feud Gets Downright Nasty (And Expensive)

Many of these problems could have been solved by careful planning at the outset.  When I read the recent case of Dubois v Milne 2020 BCCA 216 I couldn’t help think it was “déjà vu all over again”.

Dubois v Milne

The Plaintiff and his spouse bought a 5% share interest in L Inc. a small, closely held company founded and owned by C. The Plaintiff and C were longtime friends.  M convinced the Plaintiff to join the company as general manager and subsequently the Plaintiff became a 45% shareholder.  The Plaintiff’s role increased and M’s role decreased over time.  The Plaintiff was paid $100,000 and M’s salary remained at $60,000. M went into the hospital in 2009 and when her returned a year later he expressed a wish to reassert control over the business to which the Plaintiff acquiesced. However M had a deep negative attitude towards the Plaintiff for no apparent reason. In January 2011 M caused the company to terminate the Plaintiff.  The wrongful dismissal action that ensued was settled.  But that was not the end of the matter.

M as sole director appointed himself CFO at an annual salary of $100,000.  He also approved for himself an annual salary of $50,000 as President and appointed himself Director of Purchasing at an annual salary of $75,000.  

Most importantly he caused the company to stop paying dividends in 2010 and 2011 notwithstanding the dividend history of the company.  

On August 1st 2021 the Plaintiff commenced an action in the form of a Petition claiming relief from oppression under section 227 of the Business Corporation Act.  He sought an order that M purchase or redeem his shares for an amount determined by a valuator.  The matter was placed on the trial list.  The trial judge held in the Plaintiff’s favour finding that M had oppressed the Plaintiff and that M, not the company, should be ordered to purchase the Plaintiff’s shares.  Given the excessive amounts M took in salary and the company’s current economic condition he ordered that the appropriate date to value the shares was the date of the Petition August 1st 2012.  It is noteworthy that the company did start to pay dividends again in 2014.  The appeal of the trial judge’s decision was dismissed with concurring reasons:  Dubois v Milne 2020 BCCA 216.

Section 227(2) of the BCA is a powerful tool that is frequently used by disgruntled shareholders especially in small closely held companies.  And there are many cases where the plaintiff/petitioner is also a key employee:

[30]         Section 227(2) of the BCA establishes the oppression remedy:

(2)        A shareholder may apply to the court for an order under this section on the ground

(a)        that the affairs of the company are being or have been conducted, or that the powers of the directors are being or have been exercised, in a manner oppressive to one or more of the shareholders, including the applicant, or

(b)        that some act of the company has been done or is threatened, or that some resolution of the shareholders or of the shareholders holding shares of a class or series of shares has been passed or is proposed, that is unfairly prejudicial to one or more of the shareholders, including the applicant.

The Supreme Court of Canada in the seminal decision on oppression cases in BCE Inc v 1976 Debentureholders 2008 SCC 69, at paragraphs 56-62 gave a broad and liberal interpretation to these provisions

[56] In our view, the best approach to the interpretation of s. 241 (2) is one that combines the two approaches developed in the cases. One should look first to the principles underlying the oppression remedy, and in particular the concept of reasonable expectations. If a breach of a reasonable expectation is established, one must go on to consider whether the conduct complained of amounts to “oppression”, “unfair prejudice” or “unfair disregard” as set out in s. 241 (2) of the CBCA.

[57] We preface our discussion of the twin prongs of the oppression inquiry by two preliminary observations that run throughout all the jurisprudence.

[58] First, oppression is an equitable remedy. It seeks to ensure fairness-what is “just and equitable”. It gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair: Wright v. Donald S. Montgomery Holdings Ltd. (1998), 39 B.C.L. (2d) 266 (Ont. Ct. (Gen. Div.)), at p. 273; Re Keho Holdings Ltd. and Noble (1987), 38 D.L.R. (4th) 368 (Alta. C.A.), at p. 374; see, more generally, Koehnen, at pp. 78-79. It follows that courts considering claims for oppression should look at business realities, not merely narrow legalities: Scottish Co-operative Wholesale Society, at p. 343.

[59] Second, like many equitable remedies, oppression is fact specific. What is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in the relationships at play. Conduct that may be oppressive in one situation may not be in another.

[60] Against this background, we turn to the first prong of the inquiry, the principles underlying the remedy of oppression. In Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360 (H.L.) at p. 379, Lord Wilberforce, interpreting s. 222 of the U.K. Companies Act, 1948, described the remedy of oppression in the following seminal terms:

The words [”just and equitable”] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure.

[61] Lord Wilberforce spoke of the equitable remedy in terms of the “rights, expectations and obligations” of individuals. “Rights” and “”obligations” connote interests enforceable at law without recourse to special remedies, for example, through a contractual suit or a derivative action under s. 238 of the CBCA. It is left for the oppression remedy to deal with the “expectations” of affected shareholders. The reasonable expectations of the shareholders is the cornerstone of the oppression remedy.

[62] As denoted by “reasonable”, the concept of reasonable expectations is objective and contextual. The actual expectation of a particular shareholder is not conclusive. In the context of whether it would be “just and equitable” to grant a remedy, the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.

The trial judge had a very unfavourable view of the credibility of M in contrast to the Plainfiff who the judge found was “a forthright and credible witness”.  In the result the trial judge held that where the evidence of M is in conflict with evidence of the Plaintiff he accepted the evidence of the Plaintiff.  In my view that finding in a case of equity and fairness indicated the eventual outcome.

Applying these broad principles the trial judge held that the Plaintiff had reasonable expectations that

[269]    Dubois’ reasonable expectations that he would participate in the management of Lucid and that he would have employment with Lucid as long as he was a shareholder were contravened by the actions of Milne in wrongfully terminating Dubois’ employment.

[270]    Wrongful dismissal by itself will not justify a finding of oppression. It is only where the interests of the employee are closely intertwined with his interest as a shareholder, and where the dismissal is part of a pattern of conduct to exclude the complainant from participation in the corporation, that the dismissal can be found to be an act of oppression: Krynen v. Bugg (2003), 64 O.R. (3d) 393 (S.C.J.) at para. 74.

[271]    Milne wanted not only Dubois’ money in purchasing the shares in Lucid, but also his ability and skills. Dubois considered himself on an equal footing to Milne and I infer, based on the evidence, that up until 2010, Milne shared the same view.

[272]    Dubois’ interests as an employee were closely intertwined with his interest as a shareholder. Dubois worked long hours and conducted himself as an owner would.

[273]    In my view the wrongful dismissal of Dubois establishes a finding of oppression on its own.

[274]    Further, Milne tripled his salary after Dubois was terminated. This was contrary to the Agreement and there was no precedent in the operation of Lucid to justify this. Based on the evidence, I find that Milne increased his salary for the specific purpose of depriving Dubois of the dividends he was entitled to.

[275]    Milne wrongfully withheld dividends from Dubois, again for the purpose of forcing Dubois out of Lucid.

[276]    In my view, these two further grounds would establish a finding of oppression on their own. However, I am confident that the cumulative effect of these actions by Milne clearly establishes oppression on his part against Dubois.

The decision of the trial judge was upheld on appeal.  

The Honourable Chief Justice Bauman dismissed the appeal.  However he disagreed with the trial judge’s last comment that a wrongful dismissal alone could constitute an act of oppression.  As the Chief Justice noted:

I do note the error in the judge’s statement that, in his opinion, “the wrongful dismissal of Dubois establishes a finding of oppression on its own” (at para. 273). I emphasize again that the oppression remedy is distinct from contractual remedies: just as oppression relief does not require the breach of a contractual right to be available, so does a breach of contract not mandate oppression. To reiterate Justice Newbury’s statement from 1043325 Ontario Ltd. v. CSA Building Sciences Western Ltd., 2016 BCCA 258 at para. 54, quoted above:

[W]here the complainant is able to show an entire course of oppressive conduct which includes another cause of action (in Naneff, wrongful dismissal), that cause may also be remedied under the oppression provision.

[Emphasis in original.]

[79]         Or, as Justice Blair stated in the trial decision in Naneff v. Con-Crete Holdings Ltd., [1993] B.C.J. No. 1756 at para. 25 (Ont. Gen. Div.), var’d with respect to remedy [1994] O.J. No. 1811 (Ont. Div. Ct.), rev’d [1995] O.J. No. 1377 (Ont C.A.):

[A] claim for wrongful dismissal is not, in itself, a proper claim to be asserted by way of oppression remedy. Where the dismissal is part of an overall pattern of oppression, and where the complainant's position of employment is closely connected with his or her rights as a shareholder, officer and director of the company, or companies, in question, the dismissal may properly be considered as part of that pattern of conduct . . .

[80]         Oppressive conduct can encompass other legal wrongs, but cannot be contingent on a finding of a separate legal wrong: see also BCE at para. 71, making this point. To the extent it suggested otherwise, the judge’s statement at para. 273 was incorrect. Yet given that the judge’s finding of oppression did not indeed rest on wrongful dismissal alone, and was based on the existence of close connection between Dubois’s employment and his rights as a shareholder, there is no error in the result stemming from this misstatement. I note further that there is no suggestion that the settlement Dubois entered into for his wrongful dismissal resolved any claims he might have as a shareholder, or that the remedy in this case duplicates a remedy for wrongful dismissal. The relief in this case was specific to his shares, and there is no argument he has been overcompensated for the harm suffered.

[81]         The judge’s conclusion that Dubois’s employment expectations were reasonable in the circumstances betrays no error.

Mr. Justice Groberman would likewise have dismissed the appeal but he gave separate reasons concurred in by Madame Justice Fisher.   The main point of disagreement with the Chief Justice appears to be the argument that the expectation of employment was tied to the Plaintiff’s interest as a shareholder:

Where shares have been issued on the clear understanding that investors will, as a consequence of holding shares, be entitled to employment, termination of that employment can constitute oppressive conduct against those investors qua shareholders.

[118]     The mere fact that an employee is a shareholder does not mean that an oppression action will lie when the employee is wrongfully dismissed: Mohan v. Philmar Lumber (Markham) Ltd. (1991), 50 C.P.C. (2d) 164 (Ont. General Division). An action for oppression is concerned with the reasonable expectations of a shareholder qua shareholder. The onus was, therefore, on Mr. Dubois to show that he reasonably expected to continue to be employed by the company as a function of him being a shareholder.

[119]     The judge accepted Mr. Dubois’s testimony, that he anticipated that he would continue to be employed by Lucid so long as he had shares in the company. He found that Mr. Dubois’s expectations were reasonable, but does not appear to have considered whether the expectations were expectations qua shareholder, or merely expectations qua employee.

[120]     It is clear that the court must determine, in an oppression action, whether a shareholder’s expectations qua shareholder, are objectively reasonable. In my view, the evidence in this case was not capable of sustaining such a finding.

Notwithstanding these findings the justices would have likewise dismissed the appeal. 

Feldstein v 364 Northern Development Corp (BCCA)

In this remarkable and troubling case the BC Court of Appeal upheld a damage award of $83,337 for a former employee for lost benefits due to a negligent misrepresentation made in the context of pre-employment discussions.

Mr. Feldstein had cystic fibrosis and at the hiring interview he claimed he disclosed his CF which was denied by the company.  He asked about the company’s LTD plan.  He asked about a monthly benefit limit of $1,000 apparent in the plan and he claimed he was told he would qualify for the full benefits of $4,677 if he worked 3 months without illness as that would satisfy the “Proof of Good Health” requirement in the plan.  Again the employer denied it made these statements.  After some months his health declined.  When he applied for LTD he was told while he was entitled to LTD he was only eligible for $1,000 a month not the full benefit of $4,667 per month.  His benefits were reduced because he had not filled out a medical questionnaire that was required to establish “Proof of Good Health”.

The court held the company liable for negligent misrepresentation. Its assurances at hiring were misleading and inaccurate because the insurer’s more stringent requirements were inconsistent with what had been represented at hiring.  The court found that an implied representation may give rise to a claim for negligent misrepresentation.  It stated:

“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.”

An honest but mistaken belief did not relieve the employer of liability.

The court held that if he had been properly informed he would not have accepted employment with 364.

Finally the court ignored the fact that Mr. Feldstein, with legal advice, signed a written employment agreement that contained an “entire agreement” clause that was intended to avoid claims for representations made prior to the contract being signed.

This is an important case for HR specialists. For a more detailed discussion of this case I invite you to see my blog article at: Troubling Decision Of The Court Of Appeal On Negligent Misrepresentation

Michael J. 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.

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

BY: Mike Weiler

Whether you are the GM of the Vancouver Canucks looking at who to draft or the owner of a 10 employee manufacturing plant looking to fill a vacancy, the most important decisions you make are at the hiring stage.  Not surprisingly in this day and age there are legal pitfalls employers can fall into at this preliminary hiring stage.  Being careful about what you say and even what you don’t say is important.  While HR managers want to promote the company, care must be taken to not make any misrepresentations, express or implied, that may not be accurate.

Two court cases illustrate what can go wrong.  In both cases the employer had a binding contract that limited the employee’s rights, but were found liable for damages for negligent misrepresentations that occurred at the hiring stage.

Queen v Cognos (SCC)

The leading case in this area is Queen v Cognos where the Supreme Court of Canada found an employer liable for damages beyond the contractual termination provision of 30 days.  The employee was enticed to move from Calgary to join Cognos in Ontario.  He was to be part of a large project over a two year period.  What he was not told was that there was in fact no guaranteed funding for the project or that the position applied for was subject to budgetary approval.  He signed an employment agreement that limited his compensation on termination to one month’s pay.  Shortly after he commenced employment the corporate management team declined funding for the project and ultimately Mr. Queen was terminated and paid out in accordance with his written contract. Notwithstanding the written contract the SCC upheld the trial judge’s award of damages of $67,224 for loss of income, costs for obtaining new employment, loss on the purchase and sale of his home and general damages for emotional stress.

The SCC applied the following five part test in finding liability:

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?

Feldstein v 364 Northern Development Corp (BCCA)

In this remarkable and troubling case the BC Court of Appeal upheld a damage award of $83,337 for a former employee for lost benefits due to a negligent misrepresentation made in the context of pre-employment discussions.

Mr. Feldstein had cystic fibrosis and at the hiring interview he claimed he disclosed his CF which was denied by the company.  He asked about the company’s LTD plan.  He asked about a monthly benefit limit of $1,000 apparent in the plan and he claimed he was told he would qualify for the full benefits of $4,677 if he worked 3 months without illness as that would satisfy the “Proof of Good Health” requirement in the plan.  Again the employer denied it made these statements.  After some months his health declined.  When he applied for LTD he was told while he was entitled to LTD he was only eligible for $1,000 a month not the full benefit of $4,667 per month.  His benefits were reduced because he had not filled out a medical questionnaire that was required to establish “Proof of Good Health”.

The court held the company liable for negligent misrepresentation. Its assurances at hiring were misleading and inaccurate because the insurer’s more stringent requirements were inconsistent with what had been represented at hiring.  The court found that an implied representation may give rise to a claim for negligent misrepresentation.  It stated:

“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.”

An honest but mistaken belief did not relieve the employer of liability.

The court held that if he had been properly informed he would not have accepted employment with 364.

Finally the court ignored the fact that Mr. Feldstein, with legal advice, signed a written employment agreement that contained an “entire agreement” clause that was intended to avoid claims for representations made prior to the contract being signed.

This is an important case for HR specialists. For a more detailed discussion of this case I invite you to see my blog article at: Troubling Decision Of The Court Of Appeal On Negligent Misrepresentation

Michael J. 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.

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

BY: Mike Weiler

The 2020 NDP victory in the provincial election meant that the shackles of the deal with the Green Party that allowed them to govern in a minority situation were removed and the government could now legislate as a majority without concerns for the Green Party’s interests.  One of the key constraints on the NDP as a result of the Green Agreement was that it could not get rid of the secret ballot vote requirement in a union certification drive.  Once over the immediate COVID concerns, the NDP will most likely continue in 2021 with its aggressive agenda as outlined in its Policies Proposals issued in the election and in the individual Mandate letters provided to each minister.  Minister Bains remains Minister of Labour and his mandate letter suggests more significant changes are coming soon in his portfolio.  Here are some legislative and policy initiatives I expect we will see in 2021 and years following.  

LABOUR RELATIONS CODE—REMOVAL OF THE SECRET BALLOT VOTE

In May 2019 I reviewed the changes to the Labour Relations Code introduced by the NDP: see my blog articles from May 10th and May 13th 2019.

The changes were significant but the one redeeming grace in all of this was that the NDP kept the secret ballot vote in union certifications and did not go to the card check system they introduced back in 1992.  The introduction of the secret ballot vote by the Liberals in 2002 was a significant change that ensured that it was employees exercising their rights that gave the union the right to be their exclusive bargaining agent.  But the reality was that union certifications were reduced in subsequent years because employees made that choice.

The reason the NDP did not go to a card check system was simply because the Green Party made it clear they would vote against such a proposal.  However it should be noted that the cost to employers and employees of saving this fundamental right was the loss of other rights such as employer free speech (the Code now has the language the NPD had in 1992) and other changes such as remedial certification if there were unfair labour practices (in a recent case this amendment allowed the LRB to certify without a vote a bargaining unit of 90 employees because two employee organizers were terminated).

Without the Green Party to restrain the NDP it is my view that the NDP will eliminate the secret ballot vote sometime in 2021 perhaps as early as the Spring Session.  The Mandate letter strongly suggests this change.  Furthermore the history of the provision makes it most likely that this change is coming.  Vaughn Palmer in a recent article in the Vancouver Sun provided a careful analysis of why this might well happen, read here.

The NDP recently extended the length of time union cards are valid perhaps anticipating the return to the card check system.

Undoubtedly this removal of the secret ballot vote coupled with the other changes to the Code in 2019 will make it much easier for unions to certify many more businesses in B C over the next few years.  Employers, both nonunion and partially union, are wise to consider the potential of these changes now and prepare themselves for such a certification application.

RESTORE COMPULSORY TRADES

The Mandate letter states:

“Support the work of the Minister of Advanced Education to restore the compulsory trades system to improved safety and give more workers a path to apprenticeship completion.”

A compulsory trades system restricts the practice of a trade, or certain aspects within the trade, to certified journeypersons or an indentured apprentice. The designation and the criteria used to designate compulsory trades vary from province to province, with the number of trades included varying from 3 in PEI to 23 in Ontario. The most common compulsory trades include electrician, crane operators, refrigeration and air-conditioning mechanics, and automotive service technicians.

B C is one of the few provinces without a compulsory trades system.  It is not clear how this will be accomplished or for example how many trades there will be under the new system.  But the changes will likely not be greeted favourably by employers.

WORKERS COMPENSATION

Since coming to power Minister Bains has been very active in commissioning reports on changes to WorkSafe and also introducing a number of changes in this last term.

My colleague Chris Drinovz recently presented a summary of the types of changes to WorkSafe that have been made or likely will be made in this article. We also have a video available with this information here.

One specific item noted in the Mandate letter is to work to develop better options for chronic work-related pain.

Employers can expect more regulation and higher costs as WorkSafe moves towards a “worker centric” focus.

EMPLOYMENT STANDARDS ACT

In 2019 the NDP made substantial changes to the Employment Standards Act that I reviewed in my May 2019 blog here.

The Mandate letter sets out a number of areas where we can expect changes to the E S Act.  For example the minimum wage will go to $15.20 per hour in June 2021.  In subsequent years the minimum wage will be tied to inflation.  This is a welcome change for employers as it provides predictability.

The Mandate letter references changes that will be made to address the gig economy:

“As part of the precarious work strategy, propose employment standards targeted to precarious and gig economy workers, and investigate the feasibility of a government-backed collective benefit fund and access to a voluntary pooed-capital pension plan for workers who do not otherwise have coverage”.

Depending on what the federal government does with a national sick leave program the NDP may well institute a sick leave program that goes beyond the COVID crisis.

The Minister is also told to work with and support “the Parliamentary Secretary for Gender Equity’s work to close the gender pay gap by addressing systemic discrimination in the workplace and through new pay transparency legislation. “It is not clear where legislative changes would be made in this regard.

As well there are many other recommendations contained in the BC Law Institute Report that may also be considered over the next few years likely focused to strengthen workers’ rights.

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

BY: Chris Drinovz, Mike Weiler, Ale Henao, Junki Hong

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In November 2020, Chris Drinovz and Mike Weiler presented a Professional Development webinar for CPHR BC on "The Art of Hiring and Beyond." A full recording can be accessed from CPHR BC website here. In this article, we answered the top 27 questions received during and after the webinar from HR specialists who attended.

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Employment Contracts

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1. What might be fair consideration if you want to re-write a contract with a 20-year employee to now limit their notice to 8 weeks?

Unfortunately, there are no legal principles outlining the exact amount of value or quantum an employee must receive for consideration for a valid agreement.  However, we will review some relevant case law that we consider when advising our employer clients.

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In Lancia v Park Dentistry, 2018 ONSC 751 (“Lancia”) the Court noted that there is no requirement for an employer to give an employee consideration equivalent to the amount of value the employee loses as the result of a new agreement, for example.  Absent fraud or unconscionability, an agreement will be enforceable as long as some type of consideration is exchanged.  

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Gerald Henry Lewis Fridman’s book, The Law of Contract in Canada (Toronto: Thompson Reuters Canada Limited, 2011), is regularly cited on this issue.  Fridman summarizes that the value or quantum of the value exchanged is typically irrelevant (page 90). That being said, the courts will scrutinize consideration that appears to be artificial and look to the intention of the parties when the agreement was made to make this determination.

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Courts have provided some indication as to what is sufficient and insufficient consideration.  A one-time bonus is deemed sufficient consideration for the variation of an employment contract (Lancia).  Consideration does not need to be financial, there are some interesting cases that found sufficient consideration in added value to a worker.  In one, a favourable working environment was found to be sufficient consideration for the variation of an employment agreement (United Rentals of Canada Inc v Brooks 2016, ONSC 6854).  In another, permitting an employee to telework was also found as sufficient consideration (Riskie v Sony of Canada Ltd, 2015 ONSC 5859).

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There is also some legislative indication for particular fields.  The Bankruptcy and Insolvency Act defines adequate value of consideration as fair and reasonable money value with relation to the known or reasonably to be anticipated benefits of the contract, dealing or transaction.

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Given the recent case law developments  including the Uber Supreme Court of Canada decision the concern here is that unconscionability will become more important so minimal consideration we think would be risky whereas more reasonable consideration will help employer (in the form of a one time bonus, raise, more favourable work conditions or a combination).

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2. Should the employer have an employment contract specifically for the probation period and then once hired permanently an employment contract at that point?

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There should be a probation period and then a provision for termination after the probation.  The provisions would normally be in the same contract. Employers are advised to use the probation period to actually test the suitability of the employee.  It is both the employer’s and employee’s interests to make sure the employee is a good fit.

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The contract in BC can provide that during a 3-month probation the employer can dismiss for lack of suitability without notice or pay in lieu.  After 3 months, the Employment Standards Act (“ESA”) be complied with and a minimum one weeks’ severance must be provided.  Generally, the probation period is the three months but if an employer wants a longer probation period they can choose for example a 6 months’ probation. But keep in mind, regardless of the length of the probation period once the 3 months passed the employee is entitled to the minimum notice or pay in lieu under the ESA.

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3. Can we renew contracts with employees to accommodate changes in the Employment Standards Act?

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This depends on the changes you would like to make and the effect that would have on the employee’s rights - are you now limiting termination pay through your changes? If so, see answer from Question 1.

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4. Is it legal to cut % of the salary if an employee works from home? What % is reasonable?

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If employee is agreeable: When reducing a salary (or making any changes to an employment contract – whether written or verbal), employers should try to get the employees to accept the change (in this case a reduction). Such an agreement should be in writing and may well constitute a defence to a potential future constructive dismissal claim. Further even in the absence of a written agreement if the employee continues on in the employ under the altered terms without complaint then likely she will have been found to have condoned the change.

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However, if employers simply want to unilaterally impose a change (i.e. wage cut) then they run the risk of creating a constructive dismissal. A constructive dismissal will occur when an employer unilaterally imposes a fundamental change to employment terms or otherwise changes fundamental terms. The courts ask whether the conduct evinces an intention on the part of the employer to no longer be bound by the employment contract.

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While pay and benefits are clearly central to the employment relationship it is clear that some reductions in remuneration will not constitute a constructive dismissal. In Pavlis v HSBC Bank Canada 2009 BCSC 498 the court considered how big a decrease in pay would have to be to constitute a constructive dismissal. Generally the court stated that a reduction in salary of up to 10% would not be a fundamental breach; a reduction 14—17 % may amount to a fundamental breach if another significant or substantial unilateral change occurs and any reduction beyond 20% will on its own will be a fundamental breach.

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Again these cases will have to be decided in Post COVID world. If the change does not constitute a constructive dismissal an employee may have a right to claim wages under the ESA which now provides that claims can go back 12 months.

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5. We are rolling out new employment agreements b/c ours does not have a terminations clause. What is a reasonable amount of fresh consideration? Can we tie this in with salary increases or year end bonus?

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Yes, you can. See answer to Question #1 re: consideration and ensure you have a properly drafted termination clause that will hold up in court (language is very important and ensure the correct specific provincial legislation is referenced).

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6. If you have senior employees that were not hired with a written only verbal contract is there a way to now draft a contract and have the employee sign going forward? i.e. if the employee has many more specific responsibilities than when they were first employed

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To hold a written agreement executed by an existing employee valid, fresh consideration (i.e. value to the new commitment) to the employee is required. This is because as we modify existing terms and clarify the employer's expectations about matters such as termination, confidentiality, competition, solicitation and etc., the employee and the law would consider this as a new employment agreement. For more details please read answer to Question 1 above.

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7. What happens if an employee refuses to sign an updated employment agreement (adding termination clause) with fresh consideration?

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An employer has two options in dealing with an employee who refuses to accept a change to his or her terms of employment:

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1. The employer can acquiesce to the employee’s refusal, meaning that the original terms and conditions of employment will continue to apply; or
2. The employer can terminate the employee with proper notice and then offer re-employment on the employment contract it seeks to implement.

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Terminated employees have a duty to mitigate their losses, so if they refuse the new terms once terminated and then bring a wrongful dismissal claim against the employer, the refused job can be used to reduce their wage loss damages (as they could’ve had a similar employment but didn’t accept it).

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These cases can be tricky so we highly recommend you consult with an experienced employment lawyer.

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8. Looking to set up a company with the aim of supplying janitors to go work for my clients on an hourly basis. The janitors will essentially be doing the job of home cleaning and I intend to hire them as contractors who will be paid for the hours they work. What will be the labour law requirements.

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Please read our recent article which summarizes the law around this very issue here. Our advice re: independent contractors is usually that such arrangements are fraught with danger as courts and tribunals will find in many cases that the person is both in fact and in law an employee and not an independent contractor notwithstanding what the written agreement says. This is because independent contractors have their rights significantly limited when compared to employees.

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We highly recommend that you contact an experienced employment lawyer to ensure your contract reflects (as much as it can) a true independent contractor relationship.

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9. When you have employees on fixed term contracts, are you able to lay them off without having to pay out the remainder of their contract (ie: during Covid19), if there is no language around that in the original agreement?

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In any employment relationship, absent seasonal work and the right to lay-off being included in a written contract, any temporary layoff is generally treated as a constructive dismissal under the common law, triggering the employer’s severance pay obligations.

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A further danger with fixed-term contracts is that the employer agrees to retain the employee for a fixed period. Even if the employer needs to terminate the employee, it must pay them the remainder of the contract unless the contract has a termination clause.

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Policies

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10. Can you please expand on best practices of the "use it or lose it" vacation policy?

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I believe this was in the context of what terms might be in the contract signed at hiring.  Most employers want their employees to take their allotted vacation.  It avoids accumulating debt and most importantly employees should in my view use their vacation to hit the refresh button.  So generally we recommend that employees be required to take their vacation each year with a usual exception being to allow them to carry over a maximum of one or two weeks each year.  If they do not use their vacation beyond the Employment Standards Act (“ESA”) minimums then they run the risk of losing them.

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Many employers provide for vacation and vacation pay well beyond the minimum standards in the ESA.  This is especially true of senior managers.  The problem can be that those managers do not take their allotted vacation and often no one is checking them.  So they keep track and then for example at the time of termination they claim a huge amount of vacation pay.  I had a case where the CEO of a large financial institution was being let go and after the parties had negotiated the usual severance terms the CEO claimed he had over $150,000 in vacation pay owing.  For some reason such continuing liability was not recorded and there were no accurate company records.  The case got settled but it is a reminder to be on top of vacation time and pay.

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11. What are the best methods for employee input when creating or changing an employee handbook?

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This really depends on your organization, the size of your workforce, and the nature of the changes you are considering. One option is to send out a survey to all employees regarding the topics proposed to be changed to canvas interest and general attitude; you can then follow up with individual employees as necessary to discuss and request further input for consideration. Other options may include holding a townhall meeting with employees or creating a committee responsible for amending the handbook, which can include an employee representative.  

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Terminations

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12. Could you let us know what case the 1 million dollar wrongful dismissal claim referenced in the intro was?

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The case we were referring to where an employee was awarded 1.1 million after being terminated is:  Matthews versus Ocean Nutrition Canada Ltd. 2020 SCC 26. We summarized the case in a blog article available here.

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Interviews & Human Rights

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13. For the interview question regarding being able to lift x lbs on a regular basis - does the employer have a duty to accommodate if there is a job requirement to lift weight but there may be accommodations possible?

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The question is whether someone is excluded because they cannot meet the job requirement.  Generally, if a requirement is a bona fide occupation requirement (meaning a requirement that is necessary for the performance of a job), an employer can choose not to hire an applicant who can’t satisfy the requirement. If an applicant makes a human rights complaint, then you would have to satisfy a human rights tribunal that the requirement was necessary for the proper performance of the job.

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Where an existing employee is injured and can no longer meet the lifting requirement due to a physical disability, the employer has a duty to accommodate that employee, up to the point of undue hardship. The concept of accommodation up to undue hardship is too complicated to explain in this answer but it may involve creating a modified work schedule, modified duties, or providing other accommodations for the employee. Usually, the duty to accommodate does not require the employer to create a new position for the employee, but may require transferring duties between employees.  

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14. By using virtual interviews, Zoom, there is a record option. Should or is it recommended to record or not record? as well as with virtual the candidate may be recording. Thoughts around that.

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In an interview setting, both the interviewer and the interviewee can record the interview as long as the parties to the conversation consent. On whether to record, we first suggest that you think about why one would want to record. Our initial thoughts go to the possibility of a complaint and admission of the recording as evidence in support of or defence against the complaint. On the other hand, the interviewee or interviewer may want the recording just for training purposes.

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In practice, we would suggest that you bring up your expectation about recording as part of the interview process and confirm consent at the beginning of the interview.

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As for being recorded, depending on the program you use to set up the interview you might have settings available to only allow the host (you) to record. However, you wouldn’t be able to know if the interviewee recorded you unless this is an issue later on. In any event, we suggest that you act and conduct the interview in good faith and be sure to take good notes.

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15. What would be the best way to ask during the interview about the applicant's work visa or immigration status?

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We don’t recommend any specific references to citizenship/immigration status or country of origin, but rather a more general question such as “Are you eligible to work in Canada?”

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You’re not strictly prohibited from asking questions regarding citizenship. That said, employers who do ask questions based on Code-protected grounds risk exposing themselves to significant liability, particularly in cases where the job applicant is not successful (as in the Imperial Oil case we reviewed).  

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In our view, it is permissible to ask and require that new hires be eligible to work in Canada at the time of hiring, but to require permanence may be discriminatory under human rights legislation as was found in the Imperial Oil case.

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16. Is there any concern with asking candidates for their current compensation and compensation expectations and presenting this in writing to the hiring manager (list of all candidates with their current and expected compensation)?

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You can ask candidates for their current compensation, however keep in mind that some might be obligated under their current contracts to keep their salary confidential. In that case, you shouldn’t insist they answer that question.

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There is no issue with providing current and/or expected compensation for candidates to the hiring manager, but keep in mind this information should be kept private otherwise.

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Reference Checks

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17. I find candidates are now more hesitant to provide the current employer reference. What do you advise?

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A candidate might refuse to provide current employer references especially if they have not yet given notice. In these cases, you can discuss and canvass whether there is someone at their current work in a more supervisory or senior role who might be comfortable providing the reference (non management).

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18. Many companies only provide proof of employment (i.e. start date/end date) or basic facts like job duties.  How do you go about getting a reference in that case? Is this a trend, is it getting harder for employers to get references?

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Yes, based on the many questions received on this topic, it appears a lot of employers are having trouble getting more than just basic facts from past employers.

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Here are some suggestions:

• Prepare specific questions to ask during the reference call – it would be harder for the past employer to not give you any information if you are asking direct questions versus if you just ask them to tell you about their past employee, or if you ask about any concerns;
• Consider whether the lack of information is a red flag – generally (but not always) if a good employee leaves an employer on good terms, they would likely get a proper reference;
• Address the lack of information with the potential candidate (either before calling the references or after), and see if they would be willing to go back to the reference and ask them to provide more details – this might not always be an option;
• Ask the potential candidate for additional references willing to share more details.

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Some employers might simply not be aware of the principle of qualified privilege and want to be cautious: but as long as you’re acting in good faith when providing an honest reference, you are likely protected from liability for any statements you make.

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19. Should we be conducting reference checks for entry-level positions as well? Even for retail Sales Associates?

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Yes, we highly recommend conducting reference checks prior to hiring any employee, regardless of their position. Even entry-level employees have the potential to cause significant damage to the business or its reputation, so you want to do your best to know who you’re hiring. If there are no references that can be contacted, at minimum a Google Search should be done.

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20. When you say check all references, are you saying call all employment on their resume?

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Yes, we recommend at least calling all the references listed, but also calling all past employers listed on the resume.

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21. Does qualified privilege also apply to past co-workers or just supervisors/managers? Do you know if the same protection applies in all provinces when giving references and being candid and acting in good faith?"

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Yes, it applies to anyone giving a reference on behalf of the former employer.

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We relied on British Columbia and Ontario case law regarding the qualified privilege principle. However, these principles come from the common law defences to the tort of defamation which may apply across Canada. That being said, each province interprets the law differently and we recommend following up with a lawyer in your particular jurisdiction.

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22. How can you vouch if the references provided by the candidate are reputable?

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You can’t know for sure, but you can do your due diligence to check out the references provided by a candidate. Take a look at the company’s website and their team, and include some questions inquiring what their work relationship was, if the candidate worked directly with them, how long did they work together etc.

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23. In regards to reference check: are you allowed to ask questions such as “were there any concerns during the employment period for the candidate?” or “why did the candidate leave their previous employment?” What are you allowed to ask and NOT to ask?

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Subject to human rights and privacy legislation, you are allowed to ask any question that pertains to the suitability of the potential candidate for the job. To tie this back to one of the questions above, keep in mind that open questions like that require the other person to work to put together an answer. Asking more direct questions instead would be a better practice and usually yields more material information – don’t try to make them do your job for you; some examples include:

• Instead of “were there any concerns during the employment period for the candidate?”
• Consider asking: “was the employee punctual?”, “was the employee reliable” , “did the employee get along with other team members?”
• Then at the end you can ask as final scoop: “is there any reason I shouldn’t hire this person?”

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24. We always get permission to check references first. With respect to checking past employers not listed, you had mentioned we could do this but had to notify the candidate. Do we need the candidate's permission?

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You don’t need to notify the candidate that you will be contacting past employers not listed as references, however it is recommended you do so. You don’t need their permission, however the unlisted employer may not have the employee’s permission to disclose any personal information.

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Similarly, if you receive a reference call for a past employee and you don’t have prior notice or permission to disclose information regarding that employee, you should not be discussing any personal information to another employer until you get permission.

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25. Do candidates have a right to see written reference reports and the name of person who gave the reference?

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An individual can make an access to information or personal information request for any records containing their personal information. This may include notes or documents from or regarding references. However, the requesting individual would not be entitled to information which identifies parties other than themselves, including the third party who provided the reference. So, if you receive such a request, it is necessary to redact the personal information (including name) of anyone else mentioned in the notes. If you’re unsure how to proceed, you can contact our Employment Group for legal advice.

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Similarly, if you receive a reference call for a past employee and you don’t have prior notice or permission to disclose information regarding that employee, you should not be discussing any personal information to another employer until you get permission.

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26. What information from Google or Social Media would be grounds to not hire someone?

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In this day in age you can find a multitude of information about an individual on social media or Google in general. Some information you might find could include a characteristic or behaviour that would not align with your organization’s culture and values. Maybe you come across an article they wrote in the past that goes against the type of person and image needed for the specific position, or maybe they leave public posts/comments that are unprofessional or discriminatory on social media posts or news channel posts.

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One big caveat is to keep in mind that you can’t refuse to hire someone based (even partially) on a human rights ground or you will open the employer up to the danger of a human rights complaint.

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Another caveat is privacy – you can search and access public information, but if the candidate has private social media account(s) you should not try to obtain access through someone else’s account or create a fake account to friend them. This could result in serious privacy violations and liability for you and/or the company.

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HR & Covid-19

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27. Any comment on a most commonly missed by HR practice or policy you can share or comment in relevance to covid-19 infection control?

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We’ll give a non-legal answer to this one, as most businesses have been following recommendations from WorkSafeBC or other workers compensation authorities quite well – one of the main practices that can prevent infection in the workplace is open and consistent communication with your employees combined with proper daily assessments of employees prior to entering the workplace. We prepared a Screening Form that you can access here. Note that this Form is based on the applicable health orders in British Columbia and may not be compliant in other jurisdictions.

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This is a very stressful and trying time for everyone, and the extended length of the pandemic has been especially tough on some. There are people (employees) who might be watching the news daily and reading all the updates from the government, but there are also others who can’t always follow the news or updates. This is why it is really important that the employer keep everyone informed, encourage working remotely where possible, highlight the importance of both at work and outside of work behaviour and communicate the possible consequences for all if employees are not diligent in following government health orders.

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Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact our Employment & Labour Group.

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BY: ARJUN HAIR 

In 1994, Walt Disney Pictures released the instant-classic Christmas movie, The Santa Clause, inadvertently introducing the world to the often confusing but ever-so-important area of contract law.

If you haven’t seen the film or either of its two sequels in the 26 years they have been available, consider this your spoiler alert.

In the first act of the film, Scott Calvin (Tim Allen) runs outside after hearing a clatter on his roof. He sees Santa Claus on top of his house and yells at him, startling poor Santa into falling off of the roof and disappearing. All that remained was the famous red suit and Santa’s business card, on the back of which read the words “If something should happen to me, put on my suit. The reindeer will know what to do.”

Scott then puts the suit on to appease his son, unknowingly agreeing to be Santa Clause forever, or until something happens to him (like falling off a roof).

At the North Pole, the head elf, Bernard (David Krumholtz), explains to Scott that by putting on the suit he agreed to the Santa Clause, as in the contract written as fine print along the border of the card. The contract reads (in print so fine it requires a magnifying glass):

“ln putting on this suit and entering the sleigh the wearer waives any and all rights to any previous identity, real or implied, and fully accepts the duties and responsibilities of Santa Claus in perpetuity until such time that wearer becomes unable to do so by either accident or design.”

For those worried parents concerned about ending up in the same position as Scott Calvin, fret not because this contract is not enforceable in the slightest.

A contract requires the following elements:

• Offer and acceptance;
• Intention to create a legal relationship;
• Consideration;
• Certainty; and
• Privity

Even when all of those elements are there, there are a number of other issues that could cause part or all of a contract to be unenforceable.

Offer and Acceptance

In the movie, the offer is sort of made in the presentation of Santa’s card, but since the contract is in such tiny print its debatable that Scott Calvin really received the offer at all.

Acceptance was the point that Scott and Bernard debated during Scott’s first trip to the North Pole. Scott insists that he did not agree to the contract, and Bernard insists that he accepted by putting on the red suit and getting in the sleigh.

Perhaps surprisingly, Bernard is right. The contract is “unilateral”, which means its possible to accept the terms simply by doing an action that triggers acceptance. A common unilateral contract you might see is a “missing dog” poster that offers a monetary reward. If you find and return the dog, you have entered a contract with the dog’s owner and are entitled to the reward.

Scott did the actions that trigger acceptance for this unilateral contract, but that does not mean it is enforceable. Scott did not know about the contract, so he did not intend to agree to it.

Intention to Create a Legal Relationship

The intention requirement is pretty straightforward. All parties to a contract must intend on entering a legal relationship that holds them all accountable if the contract is breached. Scott did not know about the contract so he could not have intended to enter a legal relationship.

Consideration

When it comes to contracts, there needs to be consideration flowing both ways. Put in normal words, all parties need to be receiving some sort of benefit.

One party gets the benefit of having a successor to the previous Santa, but what does Scott get? You could say that Scott’s benefit is getting to be Santa, which is admittedly pretty awesome. Would you accept a contract that says you have to be Santa forever, and in exchange you get to be Santa forever?

Certainty

The certainty requirement means that the parties need to have a reasonable idea of what they are agreeing to. Let’s assume Scott saw the contract and agreed to it on purpose. The contract is so vague that it would be pretty much impossible to enforce.

The contract requires Scott take on the “duties and responsibilities of Santa Claus” but doesn’t explain what those might be. Everyone knows the main things, like checking the list twice, delivering presents, eating cookies, etc. but what else is there? Cleaning the reindeer? Paying the elves? Mall meet-and-greets?

The contract also binds Scott to performing these duties “in perpetuity” until he is “unable to do so”. This is also very vague – would catching the flu count? What about a scheduling conflict?

Even if Scott Calvin wanted to accept the contract, it would be unenforceable because it is too uncertain.

Privity

The idea of privity is that only the parties of a contract can try to enforce it. That brings up the question of who the parties are in this situation. We have Scott Calvin on one side, but who is the other party? Maybe its more than one party?

The previous Santa disappeared after falling off Scott’s roof, so it could be his estate. Some due diligence would need to be done to figure out exactly what his estate looks like and who is in charge (probably Bernard).

The other party could also be with Santa’s workshop, assuming its some sort of organization that is legally able to enter contracts.

Since we know Santa’s workshop is in Canada, with an address of North Pole, Canada H0H 0H0, it’s possible the workshop is a federal corporation. If this is true, the directors of the workshop could sue Scott to try and enforce the terms.

There is no real way to figure out who the other parties are to the contract since the contract was not signed and it did not list the parties.

The Bottom Line

If Scott Calvin decided he did not want to be the new Santa Claus and he was sued for it, he would almost certainly win that battle. He did not mean to accept the contract, the terms of the contract are too vague, he does not receive any consideration, and it is not even clear who the parties are.

If you find yourself the unwilling successor to Santa Claus, or if you have any other contract issue, contact our team at Kane Shannon Weiler LLP.

From everyone here, we wish you and your family a safe and happy holidays, and a very merry Christmas!

Note to our Readers: This is not legal advice. If you are looking for legal advice in relation to a particular matter, please contact us.