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EMPLOYEE ON FIXED TERM CONTRACT HAS NO WRONGFUL DISMISSAL RECOURSE ON CONTRACT'S EXPIRY, JUDGE RULES

An Ontario Superior Court judge has dismissed the wrongful dismissal lawsuit of a bond broker who was employed on a series of one-year contracts, but sought damages far in excess of severance owing when his contract was not renewed. Details below

FAILURE TO FOLLOW STATED DISCIPLINARY POLICY PRECLUDES EMPLOYER FROM DISMISSING EMPLOYEES FOR CELL PHONE ABUSE, ARBITRATOR DECIDES

An adjudicator appointed under the Canada Labour Code has ruled that a trucking company wrongfully dismissed three drivers for unauthorized personal use of employer-supplied cellular phones because the policy was ambiguous, and the company did not comply with its own stated disciplinary procedures. While substituting suspensions for the dismissals, the arbitrator awarded monetary compensation instead of reinstatement because he found that a breakdown in trust made return to the workplace inappropriate. Details below.

Joining Shorcan Brokers Limited in November 1998 as a senior, highly-respected bond broker shortly before the company moved to a system of fixed term one-year contracts, Frank Flynn signed the first of a series of such contracts in January 1999.

In December 2002, however, Flynn and the employer did not negotiate a new contract, primarily because he had grown tired of the lifestyle his work required and wanted to return to his native United States in preparation for becoming a teacher. As a transitional measure, the employer proposed a consulting arrangement, but they were unable to agree on terms. After the final consulting offer expired on December 13, Shorcan notified Flynn that the employment relationship was at an end and paid him severance of $100,000, a “goodwill gesture” considerably richer than the $65,000 to which he would have been entitled under the Ontario Employment Standards Act.

Flynn then commenced employment negotiations with Tradition, a company in New York City with which his employer Shorcan had a correspondent relationship. Shorcan expressed concern to Tradition that, if Flynn were competing for Shorcan’s clients from New York, this would put pressure on the relationship between the two companies by making them competitors rather than collaborators. Tradition did not hire Flynn for six months, during which he was unemployed.

Flynn sued Shorcan for wrongful dismissal, seeking damages of $700,900 for breach of contract of employment, and punitive or aggravated damages of $100,000. He alleged that he had been employed by Shorcan on a permanent basis for an indefinite term, and claimed that the company had improperly induced Tradition to defer hiring him.

Ontario Superior Court Judge Ellen Macdonald dismissed the action, ruling that there was no doubt that Flynn had knowingly and willingly signed a series of one-year contracts and had received no undertaking of indefinite duration.

Reviewing the most recent contract, Judge Macdonald held that “[a]gainst the backdrop of the very clear and unambiguous terms of this agreement and the agreements that preceded it, I found it highly surprising that it was being suggested to me that portions of this agreement, when parsed from the entire agreement, imply employment for an indefinite term.” The evidence satisfied Macdonald that Flynn and Shorcan had agreed that his employment was over, largely because Flynn wanted to return to the U.S., and the only remaining issue was whether there would be a consulting arrangement. When negotiations on such an arrangement reached an impasse, Shorcan acted entirely within its rights in severing the relationship, the judge ruled, stating: “The fundamentals of contract such as offer and acceptance … and a meeting of the minds are key to the formation of the contract, even if it be in an employer-employee setting. Contract law does not impose an obligation on Shorcan to accede to every demand made by Flynn as the negotiations progressed.”

Macdonald likewise rejected Flynn’s contention that Shorcan had improperly induced Tradition not to hire him. At the time the company expressed its concerns, the judge noted, Flynn did not have a job offer from Tradition. In her view, the employer action was not an agreement not to hire Flynn, but rather “an attempt to protect the pre-existing business relationship between Shorcan and Tradition.”

The judge acknowledged that the Ontario Court of Appeal in Ceccol v. Ontario Gymnastic Federation, [2001] O.J. No. 3488 (QL) had emphasized that a fixed term must be explicit, and that any ambiguity will result in the assumption that an employment contract is for in indefinite term, with notice pay due in the absence of cause for dismissal. However, MacDoanld found no such ambiguity in this case. “[T]he contracts of employment were clear and comprehensive, particularly with respect to the issue of termination,” she ruled.

Flynn v. Shorcan Brokers Limited

Ellen Macdonald

For many years, the company-supplied cellular telephones in the trucks operated by Transfreight Inc. were locked in such a way that a driver could dial only one of the company’s numbers and no other calls were possible. Then a policy change occurred which led to the abrupt dismissal in 2002 of drivers Doug Gerth, Edith Hooper and Art Jackman for unauthorized personal use of the phones.

The situation arose from the company’s decision, in June 1999, to unlock the phones, while still restricting their use to business calls. In response to questions at an employee meeting, a company representative stated that an emergency call home would be considered unauthorized cell phone use that could lead to disciplinary action, as would calls to other drivers except as a last resort in exceptional circumstances. The company’s 1999 Employee Handbook stated that its trucks may be equipped with a cellular telephone “primarily for the purpose of business communication with the team member’s Traffic Department.” The handbook warned that “[u]nauthorized use of the cellular telephone for personal use is prohibited, and use in this manner will result in corrective action.”

The corrective action to which this warning referred was described in section 5.6 of the handbook under the heading “Corrective Action.” This section stated that “Transfreight has developed a Performance Discussion Form and that “[s]upervisors utilize this form to document both corrective action discussion as well as recognition discussion.” It went on to say that in both instances, “a one on one discussion will occur” and areas of the form would be completed documenting the incident/behaviour, how the incident/behaviour “impact[ed] the [company]” and “the team member’s understanding of the situation.” The section ended by stating that “depending on the severity of the incident/behavior, corrective action may result in anything up to and suspension and/or termination.”

The employer monitored cellular usage on a monthly basis until October 2001, notifying truck drivers if they were in violation of the personal use policy. When the individual carrying out this task moved on to other duties, there was no monitoring for eight months. In 2002, finding the cell phone costs to be higher than anticipated, the employer ordered a detailed audit for the period from January to August 2002 for any cell phones that had accrued charges of more than $100 a month for “non-business” calls, defined as calls to any numbers other than the company’s. As a result, drivers Gerth, Hooper and Jackman were called to meetings with the employer in early September 2002. They justified their cell phone usage by claiming that some of the calls were business-related communications with other drivers related to challenges faced crossing the U.S. border, or other work-related issues, and that the rest, while admittedly personal, had been tacitly authorized by representatives of the employer in one way or another, or involved urgent personal situations requiring the drivers to communicate with close family members. All three were dismissed a few days later, and challenged their dismissals, through complaints under s.240 of the Canada Labour Code.

At the hearing, the employer maintained that the drivers had no excuse for making personal calls at the employer’s expense, whether to other drivers or to their homes, in contravention of the company’s clearly stated policy. Knowingly misappropriating company resources for their personal benefit was a dishonest act and one that prima facie carried the penalty of dismissal, the employer submitted.

The employees responded that, while the company undeniably had a policy concerning personal usage of cell phones, it was enforced only selectively and sporadically. They argued that they had not acted with intentional dishonesty, believing that calls to other drivers were business-related and that their personal calls were either known and accepted by company representatives or were reasonable in the circumstances.

Their calls home, the drivers claimed, had arisen mainly from the need to deal with important domestic matters such as a property purchase, a water leak and a pending divorce while travelling in the course of their work. In any event, they maintained, their personal use of the phones was not grave enough to warrant dismissal even if it was inappropriate, and the employer had failed to meet its obligation of imposing progressive discipline.

In three separate but related rulings, Adjudicator Richard McLaren upheld the complaints, ruling that the drivers had been wrongfully dismissed when lesser penalties would have been more appropriate.

The adjudicator found that the employer had breached its own stated disciplinary procedures by failing to complete Performance Discussion Forms describing the incidents and their impacts on the company, as set out in s. 5.6 of the employee handbook.

As well, the employer had ceased monitoring the phone usage on a monthly basis, foregoing the opportunity to promptly bring any violations to the attention of the drivers. Then, when it realized that there was a problem and began looking closely at the bills again each month, it allowed several months to pass during which it could have told the drivers that they were acting improperly. Instead, it waited until large totals had accumulated, and confronted the employees only to dismiss them.

Therefore, McLaren held, “the [employer] did not comply with its own corrective devices,” precluding any opportunity for the employees to maintain their employment with the company and comply with the phone policy. This failure to take prompt “corrective action” as specified in the handbook in the form of performance discussions, McLaren found, led to higher billing amounts than necessary being accrued over the months that were audited. As the adjudicator noted, “there was … a significant amount of time for the [employer] to bring the bills that it was unsatisfied with to the complainant[s’] attention. When action was taken, it was to terminate employment.”

This employer’s failure to apply progressive discipline was particularly significant, in McLaren’s view, since the cell phone usage policy contained ambiguities that could cause legitimate confusion on the part of drivers. While the employer regarded the policy as an outright ban on personal use, the handbook stated that the cell phones were “primarily” for the purpose of business communication. Likewise, the handbook prohibited “[u]nauthorized use of the cellular telephone for personal use,” yet there was no mechanism for obtaining authorization for personal calls. In McLaren’s view, some of the cell phone calls that the employer characterized as “personal” were more properly characterized as business-related, where the calls were made between operators for the purpose of increasing the efficiency of the company. In other cases, family-related emergencies led to the personal calls, and, in omitting to provide a procedure for obtaining authorization from the company in those circumstances, McLaren held, the company in fact contributed to the problems which arose. In other cases, management’s silence led to the driver’s perception that the use of the phones was authorized.

Adjudicator McLaren concluded that the employer took excessive action in dismissing the complainants when it had failed to carry out the monitoring and progressive discipline promised in its own stated policies. On the other hand, some discipline was warranted for the drivers’ admittedly personal calls. He substituted suspensions of two months for Gerth and three months for Hooper and Jackman, based on the differing circumstances of their cases.

However, having determined that some discipline was warranted, but that discharge was excessive in all the circumstances, McLaren nevertheless declined to order reinstatement as a remedy for any of the employees, determining instead that a breakdown in relations between the employees and the employer precluded a return to work.

In the case of Gerth, McLaren accepted that there was “no conscious effort to misappropriate company resources for personal benefit” on his part, and concluded that “[t]his individual thought with some reasonable justification that his actions were in accordance with Company policies.” Similarly, in the cases of Hooper and Jackman, McLaren concluded that they did not “knowingly misappropriate company funds” by the use of the cell phone for personal use. However, McLaren ruled that the conduct of Hooper and Jackman differed from that of Gerth in the sense that, in both cases, their explanations for their conduct were not “entirely satisfactory” as to veracity. In both cases, McLaren ruled, the “relationship between the complainant and the respondent has been affected to an extent that the usual remedy of reinstatement after the discipline imposed…ought not to be applied.” In so holding, McLaren noted that neither Jackman nor Hooper had “fully accept[ed] responsibility for [their] wrongdoing.” Further, while the conduct of Gerth was not as problematic in this regard, and his relationship with his employer “ha[d] not been affected to the same extent as with the other two complainants”, McLaren held that he had “cast his lot with the other complainants when he brought a joint application for these proceedings.”

Accordingly, McLaren substituted monetary compensation in lieu of reinstatement in the case of all three employees: “There is the factor that this case is part of a larger problem…There exists a lack of trust between the two parties, and there seemed to be animosity in the testimony given at the hearing…For these reasons the remedy of reinstatement [will not be] granted.” In the result, McLaren calculated the damages owing to Gerth at $21,967, based on payment of 1 ½ months of salary for each of his 4.7 years of service, less an amount to be deducted for the two months’ suspension imposed. In the case of Hooper and Jackman, damages of $21,709 and $40,708 were awarded, respectively, based on years of service of 6 and 7.5 years, less an amount for the three-month suspension imposed.

Analysis:

Ambiguity in company policies, and failure to follow disciplinary procedures can, as this case demonstrates, lead to a finding of unjust dismissal.

Gerth v. Transfreight Inc.

Hooper v. Transfreight Inc.

Jackman v. Transfreight Inc.