The Ontario Superior Court’s recent decision in Antunes v Limen Structures Ltd is an important caution to employers who embellish the attributes of their company or a particular position when courting future employees. This decision makes clear that the general duty of honesty in contractual performance can impact an employer’s liability for compensation in lieu of reasonable notice upon termination.
The plaintiff, John Antunes started working as a Senior Vice President of Operations/Concrete Forming with the defendant, Limen Structures Ltd (“Limen”), on May 28, 2012. After just over five months, and without prior notice, Mr. Antunes was terminated without cause on November 9, 2012.
Mr. Antunes’ employment agreement provided that he would be compensated with a starting salary of $150,000 per year, which was to increase to $200,000 after his first year of employment. In addition, he was to receive 5% of Limen’s shares, with the potential for another 5% of the shares of Limen’s Residential Division within a year of the commencement of his employment. Lastly, the employment agreement provided for up to 12 months’ pay in lieu of notice for termination.
At the date of his termination, no shares had been issued to Mr. Antunes.
Prior to signing the employment agreement, Mr. Antunes discussed the terms of his employment with Mr. Lima during numerous phone calls and two in-person meetings. During these discussions, Mr. Lima advised Mr. Antunes that the company, in his opinion, was worth $10 million. Mr. Antunes relied on Mr. Lima’s representation, along with the promise of company shares, when he agreed to sign an employment agreement with Limen on May 28, 2012.
At trial, Mr. Antunes testified that shortly after starting at Limen, he realized that the company was not worth $10 million. Limen did not call Mr. Lima, or any other witness at trial. Given that he was as a material witness with direct and relevant knowledge of the value of the company and the negotiation of Mr. Antunes’ employment agreement, Justice Brown drew an adverse inference from Mr. Lima’s failure to testify.
Ultimately, Justice Brown awarded Mr. Antunes 8 months’ reasonable notice. In determining the amount of reasonable notice owing to Mr. Antunes, Justice Brown applied the well-established factors for determining the reasonable notice period as set out Bardal v Globe & Mail Ltd (1960), 23 DLR (2) 140; namely the character of the employment (project manager in construction with supervisory responsibilities), Mr. Antunes’ length of service (5 months and 11 days), his age (50 years old) and the availability of similar employment, having regard to Mr. Antunes’ experience, training and qualifications.
Justice Brown also considered the impact of Mr. Antunes’ allegation of inducement, which she quickly dismissed, and Limen’s bad faith in terminating Mr. Antunes (of which there were ample facts to support). Of particular note, however is her consideration of general duty of honesty in contractual performance.
In relying on the Supreme Court’s recent decision in Bhasin v Hrynew, Justice Brown states that parties must be able to rely on a minimum standard of honesty from their contracting partner in relation to performing the contract as a reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests (Bhasin v Hrynew, 2014 SCC 71 at paragraph 86). Justice Brown finds that Limen failed to act honestly in the performance of its contractual obligations when:
- Mr. Lima misrepresented the value of the company and the company’s shares, and
- Mr. Lima made up the existence of a Residential Division at Limen, then promised Mr. Antunes shares of this non-existent company.
The above misrepresentations, which Mr. Antunes relied on in accepting the offer of employment, were central to Justice Brown’s determination of an eight month reasonable notice period.
Interestingly, Justice Brown determines that Mr. Antunes is entitled to the 8 months’ reasonable notice under his employment agreement as well as at common law. Although she concludes that the contractual entitlement to eight months reasonable is justified on “the plain wording of the contractual provision, [Limen’s] failure to act in good faith vis-à-vis the employment contract and the misrepresentations on which [Mr. Antunes] relied, and on the adverse inference … drawn against [Limen]”(see paragraph 74) she seems to apply the same Bardal analysis as applicable at common law.
In Limen’s case, Mr. Lima’s embellishments cost them 8 months’ salary in addition to $500,000 for Limen’s failure to issue Limen shares to Mr. Antunes as per the terms of the employment agreement. Justice Brown accepted the uncontroverted evidence that Mr. Lima told Mr. Antunes the shares were worth about $500,000 and concluded that Mr. Antunes “is to be put in a position commensurate with his expectations arising from the contract and from Mr. Lima’s representations to him.”
While it is of no surprise that employer conduct at termination can impact the reasonable notice period, this decision serves as a warning to employers who over-sell the benefits of their offer to potential employment candidates. Where such embellishments are relied on in accepting an offer of employment, they may translate into greater employer liability post-termination.