Monday 30 June 2014

Two Employers Learn Costly Lessons: Significant downside to not properly investigating human rights concerns


Two recent decisions of provincial human rights tribunals highlight the risk that an employer faces in not appropriately addressing and/or investigating an employee’s claims of discrimination in the workplace.  It is not simply enough to have a workplace harassment and discrimination policy.  Unless the employer has procedures to address concerns when they come forward, including protocols for effectively investigating complaints of discrimination and harassment, those policies will not offer much protection.
In Cromwell v. Leon’s Furniture Limited, the Complainant employee, an African-Canadian woman, had been a Sales Associate with a furniture store in Halifax for approximately 4 years.  Over the course of several months, she was subject to multiple disciplines for alleged violations of the employer’s attendance policies, and was the recipient of unwanted comments and name-calling from her manager.  The employee claimed that the manager referred to her as “Condoleeza Rice” or “Contessa”, described her hair as being “wool”, and resolved disputes between the Complainant and a fellow Sales Associate in the other employee’s favour on more than one occasion.  Throughout the period of her employment, the Complainant was in regular contact with the Area Supervisor, with whom she had a “personal relationship”, but the corporate Respondent did not take any effective action to address her difficulties.  Instead, the Area Supervisor routinely advised the Complainant that she needed to take up her concerns with the store manager.  Ultimately, the Complainant reached the conclusion that her career with Leon’s was over when her manager greeted her at her performance review by telling other managers to leave the office, “There’s going to be a lynching”.  Three weeks later, the Complainant resigned, and set out all of the differential racial treatment in a letter to the company.
After determining that most of the racial discrimination alleged in the complaint had occurred, the Board of Inquiry had to assess whether the employer had taken sufficient measures to prevent and address workplace harassment and discrimination.  The company did have policies in place, and following the Complainant’s resignation, an investigation was conducted.  However, the investigation was performed by the Area Supervisor, who never disclosed to Leon’s the nature of his relationship with the Complainant.  The Board of Inquiry concluded that the employer’s policy was inadequate as it did not define “discrimination” or describe the mechanism for addressing complaints.  However, more concerning was the employer’s response after the Complainant’s resignation.  The “investigator” did not take any notes of his initial call with the Complainant, and rather than conduct an interview, he suggested she come in to meet with himself and store management – an offer which she declined.  The Complainant was effectively excluded from the investigation from this point forward.  Statements were obtained from the other managers at the store by the Store Manager (not the investigator), but he did meet with and interview a number of other staff.  Despite corroboration that the “lynching” comment had been made, and that none of the managerial staff present had offered any objection, the investigator concluded that the Complainant had not been subject to any racist behaviour.
At para. 354, the Board stated:
I cannot reasonably conclude than an investigation conducted by a manager who has been in a romantic relationship with the Complainant is reasonable or appropriate in these circumstances.  I find that this conflict of interest impacted the reasonableness of the findings [the manager] made and throws into question the bona fides of those findings.  As well, [the manager] failed to make findings on key aspects of information in the possession of the Respondent respecting the Complainant’s allegations.
Putting aside the conflict presented by the investigator’s relationship with the Complainant, the Board found that there were “significant flaws in the investigation”.  The investigator failed to consider or place weight on relevant evidence, failed to follow up on equivocal answers from witnesses, did not address key allegations, failed to seek information directly from the Complainant, and simply did not seem to understand what discrimination was, placing emphasis on intention over impact.

In the result, the Board of Inquiry awarded the Complainant eighteen (18) months’ wages, less mitigation earnings, and damages in the amount of $8,000.

Where an employer did not even undertake an investigation, before purportedly terminating the alleged victim of discrimination, the outcome was similar.  In Morgan v. Herman Miller Canada Inc., the Applicant had worked for the corporate Respondent for approximately 3 years before his employment was terminated for “cause”.  The employer asserted that the employee’s past disciplinary history, combined with spreading rumours of the company’s demise, constituted cause for dismissal, but still paid out his contractual entitlements.  At the hearing, the employer also alleged that the employee was slated for termination months before his employment actually ended, due to redundancy.  However, shortly before his employment was terminated, the Applicant had brought forward concerns about the assignment of work and other alleged incidents that he claimed revealed racial discrimination.  The complaint , therefore, raised allegations of both discrimination and retaliation.

The Human Rights Tribunal of Ontario heard the case, and determined that none of the conduct that the Applicant complained of amounted to discrimination prohibited by the Human Rights Code.  The employer was able to establish that its actions were either legitimate (due to actual concerns with the Applicant’s conduct) or had been misconstrued.  However, the Tribunal was not satisfied that the employer could justify its termination of the Applicant's employment, particularly on the shifting evidence of its reasons for doing so and having not investigated his complaints. 

At para. 108 of the decision, Vice-Chair Geneviève Debané found:
Instead of dealing with the applicant’s allegations in an appropriate manner, the company chose to terminate the applicant’s employment. I note that the termination letter itself relies on the fact that the applicant was “profoundly unhappy”. I find that this unhappiness was a direct result of the fact that he perceived that he was being treated in a discriminatory manner because of his colour. Although reprisal need only be one factor in the decision to terminate the applicant in order to find that the applicant was terminated contrary to his right to be free from reprisal under the Code, in my view the reasons in the respondent’s termination letter were otherwise pre-textual. This includes the breach of confidentiality that occurred on August 2009 and the comments made by the applicant about Ms. Ingham. A significant period of time had passed since the confidentiality incident and in my view the issue was largely “stale dated” by the time of the applicant’s termination. Further, the applicant was not even disciplined by Ms. Ingham at the time of the comments in relation to her but he was “cautioned”.
While the employer was clearly aware of his claims of discrimination prior to terminating the Applicant, the issue was merely forwarded to the U.S. parent company, and no investigation of his claims was ever undertaken.  Instead, he was dismissed.
For the “organizational failure” of having taken no action to address his complaints, the Applicant was awarded $15,000 in damages and 14 months’ pay as lost income arising from the termination of his employment, despite none of the underlying discriminatory conduct having been proven.

Whether an employer undertakes no investigation or performs a deeply deficient investigation, the outcome is essentially the same:  the employer will have failed to meet its human rights obligations with all of the liability that flows as a consequence.  Allegations of this nature must be dealt with in a timely and meaningful way.  The employer needs to ensure policies are adequate, that complaint mechanisms are effective and well-communicated, and utilize a trained investigator to perform a thorough inquiry.  Anything less will run afoul of human rights legislation, as both of these employers can attest.
If you have questions about dealing with human rights complaints or assistance with investigations, do not hesitate to contact Lance Ceaser.

Wednesday 25 June 2014

Can an Employer be held liable for privacy breaches by an Employee? For now, the answer is “maybe”


If an employer’s business collects and uses the personal information of individuals, there is always the risk that an employee could improperly access and misuse that information without the employer’s knowledge.  Whether or not the employer can be held responsible is the question raised by the case of Evans v. The Bank of Nova Scotia. 
Richard Wilson worked for the Bank of Nova Scotia (the “Bank”).  Unbeknownst to the Bank, Wilson provided the files of several hundred customers to an unknown third-party, who then used the information to commit identity theft and fraud.  When the Bank learned of the situation, Wilson was fired and all of the affected customers were notified.  Of the 643 customer files that Wilson accessed, 138 customers identified themselves as victims of fraud or identity theft.  The Bank compensated the affected customers for any monetary losses, and provided all of the customers whose information had been accessed with a subscription to a credit monitoring and identity theft protection service.
The affected customers commenced a class action for negligence, breach of contract, breach of fiduciary duty and good faith, the tort of intrusion upon seclusion (the “privacy tort”), and waiver of tort.  The action included a claim that the Bank was vicariously liable for Wilson’s violation of their privacy.  The Bank brought a motion challenging the certification of the class action, and alleged that an employer could not be held vicariously liable for the actions of a rogue employee who intentionally violated the privacy of customer information held by the employer.
Justice Robert J. Smith reviewed the elements of the privacy tort, laid out in the Court of Appeal decision in Jones v. Tsige, and also considered the rationale for imposing vicarious liability on an employer.  In order for the tort of intrusion upon seclusion to be made out, the plaintiff has to establish (i) that the defendant acted intentionally or recklessly, (ii) that the defendant invaded the plaintiff’s private affairs without lawful justification, and (iii) that a reasonable person would regard the invasion as highly offensive causing distress, humiliation or anguish.  In order for conduct of an employee to attract liability on an employer, the Court must determine whether the employer’s enterprise created or enhanced the risk of harm to the plaintiff, and whether the wrongful act of the employee is “sufficiently related to conduct authorized by the employer to justify the imposition of vicarious liability” (quoted from Bazley v. Curry at para. 41).  In determining if there’s sufficient connection between the wrong committed by the employee and the nature of the enterprise, the courts will consider a number of factors, including:
(a)          the opportunity that the enterprise afforded the employee to abuse his or her power;
(b)          the extent to which the wrongful act may have furthered the employer's aims (and hence be more likely to have been committed by the employee);
(c)           the extent to which the wrongful act was related to friction, confrontation or intimacy inherent in the employer's enterprise;
(d)          the extent of power conferred on the employee in relation to the victim;
(e)          the vulnerability of potential victims to wrongful exercise of the employee's power.
(Bazley v. Curry)
Justice Smith found that the Bank afforded Wilson unsupervised access to the personal and financial data of its clients, and had not implemented any method for monitoring his access to that information.  While the actions of Wilson did not benefit the Bank, it should have been aware that Wilson had an intimate connection with confidential customer information, giving him complete power over victims who were vulnerable to his misuse of that power.  Moreover, the Bank acknowledged a complete lack of oversight of how its employees accessed the information of clients.
While Justice Smith found that there was no evidence suggesting that the Bank took any positive action intended to harm its customers, he also observed that vicarious liability is a form of strict liability, meaning that the employer need not engage in misconduct in order to be responsible for the employee’s wrongdoing.  On the current jurisprudence and the facts (which are accepted as true for purposes of such a motion), the Judge found that it was not plain and obvious that the claim for vicarious liability would fail.  The Judge also found that the claim of negligent supervision against the Bank could proceed, as such claims had succeeded in the past and the Bank had acknowledged not supervising or monitoring employees’ access and use of customer information.  Most of the other causes of action were also permitted to move forward, and the Judge concluded that there were no impediments to certifying the class action.
While it remains to be seen whether the plaintiffs will ultimately prevail on the issue of the Bank’s vicarious liability for Wilson’s violation of their private information or its negligent supervision of Wilson, the fact that these claims were allowed to proceed suggests that employers need to pay particular attention to the confidential information in their possession.  Employers need to consider who has access to such information, what level of monitoring is appropriate to ensure that the information is not misused or accessed for improper purposes, and even whether certain information should be collected and retained in the first place.  Failure to supervise an employee (including the lack of effective monitoring of customer information) may attract both direct and vicarious liability.
Do you have questions about employment policies and practices to ensure the protection of information in your organization’s possession?  Please feel free to contact Lance Ceaser for further guidance.

Wednesday 11 June 2014

Limitation Period Starts When Reduced Commission Paid, Not When Employee Advised

Where an employer unilaterally changes the terms of a commission scheme, when does the limitation period start to run?  Must the employee immediately commence an action as soon as he/she is notified of the change, or can they wait until the employer fails to honour the original terms of the commission arrangement?

Under the Ontario Limitations Act, a claim must be commenced by or before the second anniversary of the claimant discovering that "damage" has occurred.  If the claim is not commenced within 2 years, it is untimely and will be dismissed.

In Ali v. O-Two Medical Technologies Inc., the claimant, Ali, was employed by O-Two as a medical engineer, but he also had a separate commission agreement with the employer. Ali negotiated a large sale to the Iraqi Ministry of Health in early December 2006, but one week later O-Two advised him of a unilateral reduction of the commission rate that he would receive on sales.  The parties met and exchanged correspondence over the coming months, but O-Two maintained that any commission on the sale to Iraq would be at the lower rate.  Ali resigned from O-Two effective September 10, 2007. Commissions on the sale to Iraq became payable in October 2007, and were paid out on November 23, 2007, at the lower rate set by O-Two.  Ali commenced a claim on September 16, 2009.

O-Two brought a motion for summary judgment, arguing that Ali's claim fell outside the 2-year limitation period, relying on its notification of the change in commission which occurred in December 2006.  The motions judge granted the motion and dismissed Ali's action.  Ali appealed.

The Ontario Court of Appeal upheld the appeal, finding that Ali's damage had not occurred until he actually received the payment that was alleged to be in breach of the commission agreement.  While he had the option of treating the change to the commission scheme as a "repudiation" of the agreement, and could have sued immediately, he was also entitled to insist on performance of the agreement in accordance with its original terms and could wait and see whether O-Two would honour its obligations.  He elected to take the latter course, and so his "damage" was not discovered until O-Two made the payment at the lower commission rate.  On this theory of when he incurred damage, his action was commenced within the limitation period.

While this decision is tightly focused on a legal issue, it is important for employers to recognize when an employee's claim may arise and how long the employee may have to commence a claim.  If the employee immediately rejects the unilateral change to a term of the relationship (and assuming such a change does not amount to constructive dismissal) and accepts the employer's "repudiation" of the agreement, the clock starts to run right away.  However, if the employee insists on the original bargain and treats the agreement as still in force, the limitation period does not commence until the point when the employer implements the change (e.g., when commission or bonus is paid at a reduced rate unilaterally introduced by the employer).  Depending on the timing of payments under commission or bonus schemes, this may significantly extend the time in which a claim can be brought.

Do you have questions about how to implement changes to employee terms and conditions of employment?  Wonder what to do when your compensation has been reduced unilaterally?  Contact Lance Ceaser for assistance.

Piercing the Corporate Veil - Many Related Companies Found to be Common Employer


It is not uncommon for multiple parent, subsidiary and affiliated companies to operate side by side, and often with only blurry lines separating their activities.  Where those companies have common share ownership and operate in the same or related fields of business, it can sometimes be hard for employees to discern who their actual employer is.  In a recent Ontario decision, the Superior Court of Justice had to grapple with the concept of the "common employer" in order to determine which, if any, of a group of closely related companies was the employer of an individual claiming wrongful dismissal.
 In King v. 1416088 Ontario Limited, the plaintiff was initially employed by Danbury Sales (1971) Ltd. starting in 1973.  The employee had a pension agreement with the company.  He continued to work for Danbury for 38 years, although the identity of his 'employer' changed from one member of the corporate family to another a number of times.  By 2011, he was employed by 1416088 Ontario Limited, a company owned by Danbury Sales' owner's former son-in-law and which carried on business as Danbury Industrial.  At that time, Danbury Industrial terminated all of its employees (with the exception of the President), and ceased doing business.  The plaintiff, who was then 73 years old, did not receive any of his entitlements, nor did he receive the pension that had been promised by Danbury Sales.  Subsequent to the closure of Danbury Industrial, another member of the corporate family, DSL Commercial, essentially took over and continued the business of Danbury Industrial.  It employed 5 of the 10 former Danbury Industrial employees (including the former President), was run by the grandson of Danbury Sales, and continued to use the "Danbury" name.

There was no dispute that the plaintiff was owed termination entitlements, but the Court was called upon to decide whether any entity other than Danbury Industrial was responsible for any outstanding payments and whether the plaintiff was entitled to a pension.  After laying out the history of the corporate group (which included 8 different companies operating over a period of over 40 years and carrying on the "Danbury" business), and the plaintiff's employment history (which included performing essentially the same duties for 5 or more of these companies), the Court observed that DSL Commercial had acquired the rights to use the Danbury name for 75 years (from the owner's grandfather's company), and owned the telephone line and website address for the Danbury business.  Moreover, the name chosen by the owner was influenced by the name of the original business ("Danbury Sales Ltd.").  DSL Commercial also owned and used the same offices, desks, chairs and telephone system that had belonged to Danbury Industrial before it was wound up.  An employee of Danbury Industrial had set up the credit card terminals for DSL while still employed by Danbury Industrial in anticipation of DSL's first auction, which took place less than 2 months after the closure of Danbury Industrial.  The Court also recounted the evidence on the "Retirement Compensation Agreement" offered to the plaintiff about 8 years after he started working.

 In deciding whether one or more of the corporations should be held responsible for compensating the plaintiff, the Court cited the decision in Sinclair v. Dover Engineering Services Ltd.:

 As long as there exists a sufficient degree of relationship between the different legal entities who apparently compete for the role of employer, there is no reason in law or in equity why they ought not all to be regarded as one for the purpose of determining liability for obligations owed to those employees who, in effect, have served all without regard for any precise notion of to whom they were bound in contract.  What will constitute a sufficient degree of relationship will depend, in each case, on the details of such relationship, including such factors as individual shareholdings, corporate shareholdings, and interlocking directorships.  The essence of that relationship will be the element of common control.

 The underlying rationale for the analysis, the Court observed, is to ensure that complex corporate structures "do not work an injustice in the realm of employment law" (para. 42). 
The Court concluded on all of the evidence that such a "degree of relationship" existed among the various corporations carrying on the Danbury business that none of them should be permitted "to escape from liability to the plaintiff" (para. 50).  All of the members of the "Danbury Group" carried on the same or related businesses and DSL Commercial was simply "the current incarnation of the business that the plaintiff worked for over a period of 38 years" (para. 51).  Accordingly, all of the corporations were found to be a "common employer" for purposes of liability.  The parties had agreed on 24 months' pay in lieu of reasonable notice, and the group as a whole was jointly and severally liable to pay this amount.

The Court also found that the plaintiff was entitled to the benefit of the pension arrangement offered in 1981, despite the fact that his "employer" had subsequently changed.  The plaintiff's role and responsibilities for the group of companies had not changed significantly from that time, and Danbury Industrial was a successor to the corporation that offered the pension scheme.  Given the finding of "common employer", the corporate defendants were also found to be jointly and severally liable to the plaintiff for the pension payments that he should have received, commencing upon the date of termination.
While the facts of this case may be somewhat unusual, complex corporate structures (particularly in closely-held, family-run businesses) are relatively common.  This decision highlights the fact that an employer (or employers) will not be permitted to hide behind a web of companies and business names to avoid their responsibilities to employees.  Where appropriate, the courts are prepared to "pierce the corporate veil" and attach liability to whichever entity or entities have received the benefit of the employee's services.

Have questions about the “common employer” doctrine?  Contact Lance Ceaser for assistance.