How to repudiate a contract and end up ahead…

Repudiation

In contract law, the concept of Repudiation was developed where one of the parties to a contract by actions, words, or inaction expresses to the other party its intention to no longer be bound by the contract to which they are a party.

A repudiation of a contract is a form of termination of the contract, however, it goes further in that a party that repudiates the agreement is signaling to the innocent party their intention to no longer be bound by the contract and to no longer perform.

The innocent party faced with a repudiation, can demand continued performance and then bring a court claim for damages or specific performance (ie. compelling the offending party to do the things they promised to do in the contract) if performance does not follow, or they can accept the repudiation, at which point all parties are relieved of further performance, however rights accruing under the contract prior to the repudiation remain.

Recently however, the Ontario Court of Appeal ruled in a way that would appear to be rewarding a repudiating party (in this case a law firm).  In the case of Miller, Canfield, Paddock and Stone, LLP v. BDO Dunwoody LLP, the Court of Appeal considered a contingency fee retainer agreement contract (the “Agreement”) between a law firm (MCPS) and the client (BDO).  The Agreement would call for BDO to pay an agreed percentage of funds recovered in a matter to MCPS as fees.  If MCPS was unsuccessful in recovering funds, there would typically be reduced or no fees at all.  The Agreement in this case contained an early termination clause requiring BDO to pay certain fees to MCPS in the event BDO were to terminate MCPS’s services prior to completion of the matter or recovery of funds by MCPS.

An early termination provision is common in contingency fee matters as it acts as a disincentive for clients to switch law firms prior to recovery of funds, and ensures that the law firm recovers some of its costs incurred in representation to the date of an early termination.

In this case, MCPS declined to retain (and pay) a third party appeal counsel to conduct an appeal of the matter.  BDO took the position that this refusal was in fact a repudiation of the Agreement by MCPS and BDO then accepted the repudiation which ended the relationship.

At the lower level court, the court found that BDO was entitled to accept the repudiation of the Agreement by MCPS and was relieved from further performance under the Agreement, and particularly the early termination provision requiring BDO to pay MCPS fees to the date of termination.

The Court of Appeal however went a very different direction and determined that while MCPS may have repudiated the Agreement, and BDO was entitled to accept the repudiation, BDO would still have to pay fees to MCPS to the date of acceptance of the MCPS’s repudiation because the act of accepting the repudiation was in fact a termination of the Agreement as contemplated by the early termination provision in the Agreement.

The way I see it (and I am no doubt swimming against the tide of old contract law on this one), is that if MCPS repudiates the Agreement, and the repudiation is accepted by BDO, the Agreement is being terminated by MCPS, not BDO.  Accordingly, the early termination provision that acts to compensate MCPS if BDO terminates early, ought not to be applied.  Essentially, MCPS as the breaching party ought not to be able to enforce a termination provision of the very Agreement they declined to abide by (in effect they terminated first).

It seems to be a very odd result that the offending party MCPS ought to be able to repudiate its own Agreement (that they likely drafted), refuse to perform, and effectively terminate the Agreement, and then in the result find an entitlement to fees from the innocent party for purporting to trigger a termination.

While I understand basic contract law concepts, I sometimes find myself in situations like this on the sidelines scratching my head at how a repudiating party ended up ahead on this.  While the result may be legally correct, it leaves something to be desired in the justice department.

Published by D. Jared Brown – Lead Counsel – Brown Litigation

Phantom Contractors

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In an era where organizations increasingly engage consultants, independent contractors, and short term employees, there is a new reality where the contingent workforce of a company can become a nameless faceless entity.

Working from home and remote connection only increase the risk that a company loses track of its workforce.

Both companies and 3rd party organizations that provide contingent workforce management must rise to meet the challenge posed by this disparate, decentralized, and increasingly mercenary workforce.

Thorough onboarding, management, tracking, and checks and balances should be integral components of the normal payroll function.

Take the scenario mentioned by the National Post in the article linked below.  A spanish employee found there wasn’t much for him to do at his job so he simply stopped showing up. He collected wages for 6 years until he managed to win an award for long service. Problem is… no one could find him to present the award.

While potentially a more damning condemnation of government as a competent employer, all large organizations should take heed.

http://www.nationalpost.com/m/wp/news/blog.html?b=news.nationalpost.com/news/world/a-spanish-man-didnt-report-to-work-for-six-years-and-no-one-noticed-until-he-won-an-award&pubdate=2016-02-14

Posted by D. Jared Brown – Lead Counsel

 

D. Jared Brown judges at U of T Upper Year Moot

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D. Jared Brown joined Mr. David Bristow Q.C., and Ms. Lise Favreau on a panel adjudicating the U of T upper year moot program regarding a contract law issue.

With the mentorship of ‘Chief Justice’ Favreau, the students performed remarkably well, and everyone including the judges enjoyed the experience.

I was appreciative of being allowed to participate in the program.

Confidentiality in Employment Settlements

It is typical in most settlements of employment disputes for the employer to request, and the employee to agree, to provide a confidentiality provision with respect to the settlement.

Typically these clauses prohibit the employee from disclosing the details of the settlement to any third party (spouse, financial and legal advisors excepted).

Some clauses stipulate that the fact that the matter settled may be disclosed but nothing else.

Other clauses contain an explicit penalty provision that permits a clawback or forfeiture of settlement funds if a breach.

The rationale for these clauses is quite simple.  An employer in resolving a dispute has an interest in ensuring that a settlement of a dispute does not create a “shark effect” of future claimants coming forward with the mistaken notion that the employer will settle any dispute.  In most respects, it is the confidentiality clause that the employer is paying for as much as avoiding the time and cost of a trial.  A trial would be a public proceeding whereas a settlement affords the employer the opportunity to control disclosure.

The Toronto Star recently reported on the decision of a Labour Relations Arbitrator  that found that an employee should forfeit the financial remedy received on a successful grievance on account of the employee’s breach of the confidentiality provision.

Interestingly, the employee in question did not sign the settlement agreement or the confidentiality provision.  The grievance having been handled by the employee’s union and as is apparent from the article against the desires of the employee to have an airing of the grievance in a hearing.

We encounter many employee clients who, whether on account of emotion or bad feelings, actually would prefer to have a public airing of their issues with the employer in court for the world to witness, rather than a strictly monetary resolution of the claim.

Similarly, we encounter may employees who are part of a bargaining unit/union, and find that the union is not representing their interests in the way in which they may have expected.

We strive to meet the client’s objectives in any employment matter, however, it is our duty to properly inform the client on what reasonable objectives are attainable from the outset.  Conducting a trial or hearing simply for the purpose of broadcasting a complaint to the public ignores the fact that our civil court system is designed primarily to grant monetary remedies for wrongs.  Clients seeking publicity are best to achieve this objective through the media, rather than a costly and less than ideal court process.

Confidentiality provisions, properly negotiated, and agreed to by the parties are enforceable, and should be treated as such following conclusion of the settlement.

D. Jared Brown – Lead Counsel

A new standard for punitive damages in wrongful dismissal?

The Toronto Star is reporting on a recent decision of a jury trial in B.C. which awarded a long service (34 years) electrical manager significant punitive damages at trial ($573k).

http://www.moneyville.ca/article/1254936–jury-awards-809-000-in-record-wrongful-dismissal-case

The decision is unique not only because of the size of the award, but also because the employee elected to try the case by jury, rather than judge alone.

The article identifies that the case was uniquely suited to a jury trial on account of the fact that the business in question was the largest single employer in a small town, and it was thought a jury of the employee’s peers would better understand the undercurrents that resulted in the termination (the power imbalance between employer and employee).

While it is hard to imagine that this decision on its own will be representative of a new standard for punitive damages, it is noteworthy for the fact that a jury felt the employer’s actions warranted such severe condemnation.

Brown Litigation regularly assists employers and employees in employment disputes through strategies aimed at mitigating risk, minimizing cost, and ensuring favourable outcomes.

Posted by D. Jared Brown – Lead Counsel

 

Employer assistance for the terminated employee (Mitigation)

Mitigation is a two-way street.  While we have discussed in a previous blog post the employee’s duty to mitigate when terminated, the duty to mitigate is a concept that should resonate with employers as well.

While most employers want to use an employee’s apparent failure to take reasonable steps to find alternative employment post-termination as a defence to a wrongful dismissal claim, prudent employers recognize that assisting employees to mitigate can reduce the overall risks associated with wrongful dismissal claims.

When representing employers who have made the decision to terminate an individual, we typically recommend offering post-employment support and outreach to the employee to assist the employee in their mitigation efforts.  Offering services such as outplacement counseling to the departed employee ensures that the employee begins the job search in a timely way, and further has all necessary tools and skills to ensure a successful job search.      As mitigation earnings can set off against entitlements to reasonable notice, timely re-employment (particularly during any period of reasonable notice) ensures cost and risk containment for the employer.

Further, offering post-employment assistance to transitioning employees evidences an employer acting in good faith during the termination process, with due regard to the sensitivities and issues inherent in an employee termination.

In certain situations, it may be appropriate for the employer to offer a new position in the organization to the departing employee either in a different department or geographic region.  In some court cases, the employee’s failure to accept a reasonable offer of alternative employment from the same employer, was ruled to be an unreasonable rejection of an opportunity to mitigate by the departing employee thereby reducing the employee’s entitlement to reasonable notice.

Whether these employer strategies (and the myriad of others available) are appropriate depend upon the circumstances in each case, including the employee in question, the personal relationships at stake, and the anticipated duration of the notice entitlement.

Posted by D. Jared Brown – Lead Counsel