Ryan v. Laidlaw Transportation Limited et al.
[Indexed as: Ryan v. Laidlaw Transportation Ltd.]
26 O.R. (3d) 97
 O.J. No. 3137
Court of Appeal for Ontario,
McKinlay, Labrosse and Doherty JJ.A.
October 24, 1995
Employment -- Wrongful dismissal -- Damages -- Notice -- Vice-president dismissed after 12 years' service and four months after being required to sign non-competition agreement -- Appropriate notice period 15 months.
Employment -- Wrongful dismissal -- Damages -- Gross-up -- Plaintiff transferred to Texas and subsequently dismissed -- Trial judge awarding plaintiff damages for lost salary during notice period and for loss of opportunity to exercise stock option -- Trial judge properly grossing up salary part of award to reflect fact that plaintiff's income tax liability greater than it would have been had he received salary in Texas -- Gross-up not applicable to damages for loss of stock option as plaintiff would have been back in Canada by time he could have exercised option.
The plaintiff was transferred by the defendant employer to Texas in 1982. In March 1985, he was required to sign a non-competition agreement as a prerequisite to approval of his participation in a stock option plan. Four months later, he was dismissed. At the time of his dismissal, he held the position of vice-president and had been employed by the defendant for 12 years. He successfully sued for damages for wrongful dismissal. The trial judge held that the appropriate notice period was 15 months and that the plaintiff was entitled to receive the value of the stock option which would have been available to him had his benefits continued during the notice period. The defendant appealed, questioning the plaintiff's entitlement to the stock option and the trial judge's grossing up of the damages for income tax. The plaintiff cross-appealed the quantum of damages.
Held, the appeal should be allowed in part; the cross-appeal should be dismissed.
Per Labrosse and Doherty JJ.A.: The stock option had become a part of the respondent's compensation package when he was dismissed and his wrongful termination deprived him of the opportunity to exercise the option. He was entitled to damages for that loss.
The trial judge properly grossed up the salary part of the award to reflect the fact that the plaintiff would pay tax on that money at a higher rate in Canada than he would have had he received his salary in Texas. However, no gross-up was applicable to the damages for loss of the stock option, as the plaintiff was to be temporarily located in the United States and would probably have been back in Canada by the time he could have exercised the stock option.
The trial judge did not err with respect to the notice period or his failure to award business expenses claimed by the plaintiff.
Per McKinlay J.A. (dissenting in part): Having regard to the facts that the plaintiff was made to sign a non-competition agreement shortly before being dismissed and that he and his family were stranded in Texas without any income and with virtually no ability to obtain similar employment, the appropriate notice period in this case was two years and two months.
The trial judge erred in disallowing the plaintiff's claim for business expenses on the ground that he had not submitted his expense claims in a timely manner contrary to the defendant's policy. There was no evidence of a corporate policy regarding timeliness in presenting expense claims.
APPEAL from a judgment for the plaintiff in an action for damages for wrongful dismissal; CROSS-APPEAL from the quantum of damages.
Myron W. Shulgan, Q.C., and James H. Cooke, for appellants.
Raymond G. Colautti, Robert J. Dumont and Lou-Anne Pope, for respondent.
LABROSSE and DOHERTY JJ.A.: -- The appellant raised numerous grounds of appeal. We required the respondent to answer to only two grounds: the respondent's entitlement to the stock option plan and income tax "gross-up". As to the other grounds of appeal, we agree with the detailed and considered reasons of the trial judge and find no merit in those grounds.
The trial judge found that the respondent was entitled to receive the value of an option to purchase the number of shares of the appellant company which would have been available to him had his benefits continued during the 15 months' notice period following his dismissal. We agree. The annual stock option had become a part of the respondent's compensation package by July of 1985 when he was dismissed. The appellant's wrongful termination of the respondent without notice denied him the opportunity to exercise the stock option given to him in the spring of 1985.
The appellant also submitted that the terms of the 1985 stock option limited its availability to employees who remained employed by the appellant or its subsidiaries to the end of 1986. The appellant maintained that even if the 15-month notice period is taken into account, the respondent was not in the employ of the appellant at the end of 1986. The language of the stock option itself is somewhat ambiguous with respect to the period of time during which the recipient of the option must continue in the employ of the appellant. The prospectus filed by the appellant with the American securities authorities and the appellant's own practice in relation to the respondent's 1984 share option make it clear that the one-year period referred to in the plan is calculated from the date of the grant of the option (May 1, 1985) and not on a calendar year basis as argued by the appellant. Using the date of the grant as the operative point in time and taking into consideration the 15-month notice period, the respondent was eligible to exercise his 1985 option. The trial judge properly considered the value of the 1985 stock option in assessing the respondent's damages.
As to the "gross-up" for income tax, the trial judge concluded that the failure of the appellant to pay the plaintiff's salary in Texas during the reasonable period of notice resulted in the plaintiff incurring an additional tax obligation as the equivalent of the respondent's salary during the notice period and the value of the 1985 stock option will now be received by the respondent in Canada and will attract a higher rate of income tax than in the United States. We agree with the trial judge with respect to the salary part of the award. However, the trial judge did not address the issue of "gross-up" for the value of the stock option. We must therefore consider this issue on the basis of the evidence. As the plaintiff was to be temporarily located in the United States and his visa was to expire in 1985, we find it far more likely that by the time he could have exercised the 1985 stock option in 1990, he would have been back in Canada. Consequently no "gross-up" would be applicable in these circumstances.
The respondent has cross-appealed the quantum of damages. He has argued that the trial judge was in error with respect to the period of notice (15 months), the failure to award business expenses of $18,350.27 and the failure to award punitive damages. We required the appellant to address only the first two issues. However, we have not been persuaded that the trial judge was in error with respect to these issues and we would dismiss this cross-appeal.
Accordingly, para. 15 of the judgment is struck out. In all other respects, the appeal is dismissed. This minor variation is not sufficient to deprive the respondent from his costs of this appeal and the appeal is therefore dismissed with costs. The cross-appeal is also dismissed with costs.
MCKINLAY J.A. (dissenting in part): -- I agree with Labrosse and Doherty JJ.A. in their disposition of the appeal. The very complete and careful reasons of the trial judge were of great assistance.
With respect to the cross-appeal, while I agree with my colleagues' position on the issue of punitive damages, I cannot agree on the issues of length of notice and expenses incurred by Mr. Ryan.
At the time of his dismissal, Mr. Ryan had been employed by Laidlaw for 12 years of his life, starting when he was 32 years of age. In 1982 he was transferred to the Texas arm of the Laidlaw waste management operations. He was identified as regional vice-president of Laidlaw Waste Systems Inc. for operating purposes, and vice-president of Laidlaw Industries Inc. for purposes of obtaining a visa to work in the United States. The work transfer to Texas took place in November of 1982, but Mr. Ryan commuted to Ontario until his visa was issued on April 30, 1983. That visa was valid until December 31, 1985. In March 1984, he was informed that he was eligible to participate in the Laidlaw Transportation Limited stock option plan. A year later, in March of 1985, he was required to sign a non-competition agreement (dated "as of May 1, 1984") as a prerequisite to approval by the Board of Directors of his participation in the plan. Approximately four months later, on July 12, 1985, Mr. Ryan was informed of his dismissal from his position in Texas.
The facts surrounding Mr. Ryan's dismissal are contained in the reasons of the trial judge and need not be repeated in detail. It is important to note, however, that he was offered a severance package by Mr. Murray, the officer to whom he reported, but before the time for acceptance or rejection of that offer, Mr. Murray had himself been dismissed. Mr. DeGroote, president of Laidlaw Transportation Limited, in a telephone conversation with Mr. Ryan, withdrew the severance offer made by Mr. Murray, informed Mr. Ryan that he would be getting no severance settlement, and that if he did not return the company automobile immediately the sheriff would be sent to seize it. Mr. Ryan's evidence was that Mr. DeGroote told him to hire a lawyer and that he would see him in court. It was Laidlaw's position that Mr. Ryan had recourse only to Texas law, which would have precluded his recovering any damages for wrongful dismissal, Texas being an "employment-at-will" jurisdiction. Mr. Ryan did not see Mr. DeGroote in court, because Mr. DeGroote was not called as a witness by Laidlaw.
In addition to the foregoing, Mr. Ryan was informed that expense claims he had for past periods of his employment would not be paid, and he was offered no letter of recommendation.
Length of notice
On the question of length of notice, I would have had no doubt as to the correctness of the trial judge's decision that 15 months constituted reasonable notice had the dismissal of Mr. Ryan taken place while he was employed in Ontario and before he signed the non-competition agreement with Laidlaw. However, in my view, the very unusual facts of this case take it out of the mainstream law respecting notice requirements in wrongful dismissal cases. Mr. Ryan, along with his wife and young son, had moved to Texas at the request of Laidlaw, and had built a home there, utilizing all of their capital. It was reasonable for Mr. Ryan to expect that they would be living there for at least as long as his visa and any extension thereto permitted, and that thereafter he would continue to work somewhere within the Laidlaw group of companies. It is highly unlikely that Mr. Ryan would have signed a five-year non-compete agreement with Laidlaw if he had had any reason to believe that four months later he would be stranded, unemployed, in Texas. It is true that the non-compete agreement was signed as a prerequisite to approval of Mr. Ryan as a member of the stock option plan. However, that plan itself anticipated ten years of employment with Laidlaw. I find it hard to believe that Laidlaw did not have some idea in March of 1995, when they had Mr. Ryan sign a back-dated non-compete agreement, of their intentions to terminate the employment of both Mr. Ryan and Mr. Murray that very summer. Two such senior officers of an operating company cannot be replaced instantaneously.
It was argued by the appellant that Mr. Ryan would have found employment more readily had he returned to Ontario immediately after his dismissal. In my view, that was not a reasonable alternative in the circumstances. Mr. Ryan could not legally gain employment in Texas without a visa. With his capital invested in the house and no income, it was difficult for him to travel to Canada frequently to search for employment, although he did so on a few occasions. His young son was in school, and had already been separated from his father for substantial periods of time during the early months of Mr. Ryan's initial transfer to Texas. The possibility of further work-related separation from his family was an unacceptable strain on Mr. Ryan.
It was no more feasible for him to pick up and leave Texas with his family following his dismissal. The real estate market in Texas at the time was not buoyant, and it took Mr. Ryan more than two years to sell his home for $220,000. It was originally listed for $295,000. There, at least, he had a home in which he and his family could live. Had he returned to Ontario, he would have had to find accommodation for himself and his family, but with no income and no capital to do so. The mortgage costs and expenses of upkeep on his Texas home would have continued until its sale.
Finally, the non-compete agreement made it impossible for Mr. Ryan to obtain employment in the waste management industry, his only area of expertise for the past 12 years. The trial judge also found as a fact that the circumstances surrounding Mr. Ryan's dismissal would have created a cloud of suspicion in the mind of any prospective employer. Even if Mr. Ryan had taken the position that the non-compete agreement was unenforceable given the facts surrounding his dismissal, he would have had to divulge its existence to any prospective employer. It is most unlikely that he would have been employed in the field under the circumstances. The agreement was, by its terms, effective for a period of "five years from the date on which the covenantor [Mr. Ryan] ceases for any reason whatsoever to receive remuneration from Laidlaw". That Laidlaw was serious in its intent to enforce non-compete agreements was evidenced by the fact that it commenced legal proceedings in Ontario against another officer whose employment was terminated in March of 1986 for an alleged breach of a similar agreement.
The trial judge properly and specifically took the above facts into account in considering the appellant's argument that Mr. Ryan had not made reasonable efforts to mitigate his damages. However, in the portion of his reasons dealing with the appropriate notice period, there is no indication that the trial judge took these facts into consideration. In my view, it was imperative to do so. Reasonable notice must be notice which is reasonable in the circumstances, and must take into account not only the type of facts which exist in all wrongful dismissal cases, but also any facts specific to the immediate case which would make it likely that the dismissed employee's ability to find new and appropriate employment would be impeded by acts of the employer.
Here the most egregious facts were the dismissal of Mr. Ryan four months after Laidlaw had had him sign the non-compete agreement as a condition of participation in the stock option plan, which plan itself anticipated employment with Laidlaw for ten years, and the stranding of Mr. Ryan and his family in Texas without any income on which to live, and virtually no ability to obtain appropriate employment there.
From Mr. Ryan's dismissal until they were able to sell their home in the fall of 1987, both Mr. and Mrs. Ryan, and also their young son, worked illegally in Texas at menial jobs to make ends meet. I am of the view that a notice period which runs until the fall of 1987, allowing to the Ryans time to move back to Ontario after the sale of their home, would be reasonable. I would allow a notice period of two years and three months, ending on October 12, 1987.
Expenses incurred by Mr. Ryan
The trial judge disallowed Mr. Ryan's claim for expenses incurred by him from January 1983 to November 1984 in the course of his employment with Laidlaw in Texas. Those claims were quantified in his reasons in the amount of $9,304.95 U.S. Mr. Ryan's cross-appellant's factum referred to a similar amount (see para. 57). All claims were made in U.S. dollars. We were informed at the time of the appeal by Mr. Ryan's counsel that that amount was incorrect, and that there were additional claims advanced at trial. The argument on appeal did nothing to establish the validity of these additional claims. For that reason, I am of the view that they should not be considered. There is, however, a substantial issue with respect to the $9,304.95. That amount was not disputed by counsel for Laidlaw. He merely relied on the trial judge's reasons, in which he stated at p. 41:
A corporate policy applicable to reimbursement for business expenses required that claims be submitted in a timely fashion. Although the plaintiff's evidence was that the rule was given some flexibility and that he, at other times, had delayed his reimbursement requests, I cannot imagine why it would be that he would have waited the length of time that he did in this case to recover expenses which he claims that he paid on behalf of the company from his own pocket. There is reason for the corporate policy, in that it permits the employer to be able to effectively determine the legitimacy of the claim for reimbursement of expenses if it is submitted in a timely fashion. The time lapse in this case is far too excessive and the defendant, quite properly, refused reimbursement. The plaintiff, consequently, is not entitled to recover in these proceedings those expenses.
A review of the transcript, of which the trial judge did not have the benefit, and of the exhibits, does not reveal evidence of a corporate policy regarding timeliness in presenting expense claims. The closest thing to such evidence among the exhibits is a "Travel and Subsistence Allowance" policy issued February 4, 1985, which is after the date for which the expenses are claimed. That policy states that it supersedes a policy dated August 23, 1983, which was not included in the exhibits; however, even the 1985 policy, after stating that each expense report must cover only a one-month period, says nothing about when these reports must be filed.
The first reference to a requirement of timely submission of expense claim is in a letter from the treasurer of Laidlaw, dated October 10, 1985, after Mr. Ryan's dismissal, stating that Mr. DeGroote has refused to pay expense claims "due to their past nature".
In examination-in-chief, Mr. Ryan testified that he was "always very tardy" in submitting his expenses, but that Laidlaw had never failed to reimburse him. A letter from the treasurer of Laidlaw, dated March 14, 1985, is a request of Mr. Ryan to submit expense accounts some of which were over one year old, which clearly indicates that Laidlaw did pay late expense claims, although they were unhappy about the tardiness.
In cross-examination, Laidlaw's counsel observed that although Laidlaw had always paid Mr. Ryan's expenses, he had never taken two years to submit them before. Mr. Ryan agreed. However, in his questioning, counsel did not refer to any formal corporate policy; instead, he referred to and found authority for this supposed "policy" in the treasurer's letter refusing to reimburse Mr. Ryan.
Since there was no evidence of a policy requiring timely submission of expense claims, the trial judge's logical assumption of a reason for such a policy cannot assist Laidlaw. Mr. Ryan clearly had a valid claim for expenses incurred on behalf of Laidlaw, and the quantum of those expenses, as referred to by the trial judge, was not disputed.
In result, I would allow the appeal to the extent of increasing the notice period to which Mr. Ryan is entitled to two years and three months, and would allow the claim for expenses in the amount of $9,304.95 U.S. I would dismiss the cross-appeal, and in all other respects than the notice period and expenses affirm the judgment below.
Appeal allowed in part; cross-appeal dismissed.