



COURT OF APPEAL FOR ONTARIO

CITATION: Chapman v. GPM Investment Management, 2017 ONCA 227

DATE: 20170321

DOCKET: C61512

van Rensburg, Hourigan and Miller JJ.A.

BETWEEN

Brent Chapman

Plaintiff (Appellant)

and

GPM Investment Management and Integrated Asset
    Management Corp.

Defendants (Respondents)

Paul J. Pape and Jerome R. Morse, for the appellant

Christopher J. Cosgriffe and Ryan Watkins, for the
    respondents

Heard: October 25, 2016

On appeal from the judgment of Justice Drew S. Gunsolus
    of the Superior Court of Justice, dated November 27, 2015, with reasons
    reported at 2015 ONSC 6591.

B.W. Miller J.A.:

Overview

[1]

The sole issue on this appeal is whether an employers refusal to pay a
    bonus merely breached the appellants employment contract, which the employer no
    longer contests, or whether it also constituted constructive dismissal. For the
    reasons that follow, in my view the trial judge made no error in finding, on
    the facts before him, it did not. I would dismiss the appeal.

Background

[2]

GPM is in the business of providing real estate management services. The
    appellant was employed by GPM for nine years, as its chief executive officer and
    president, and was also a director of IAM, which holds an ownership interest in
    GPM.

[3]

Over the course of his employment, the appellant entered into three
    successive memoranda of understanding, setting out the terms of employment. The
    most recent of these, dated November 17, 2008, was for a term of three years
    and was in force at the time the appellants employment ended on October 26,
    2011.

[4]

This memorandum of understanding provided that the appellant was
    entitled, in addition to his base salary and various benefits and stock
    options, to an annual bonus that was to be calculated as follows:

Annual pro rata bonus available shall
    be 10% of pretax profit of GPMA and Darton less interest income and
    depreciation. Profit shall not include present level, if crystalized, of
    performance fees to GPMA on GPM/Endow (8) of $0.60MM.

[5]

On October 19, 2011, the appellant met with Steven Johnson, the Chief
    Financial Officer of the respondent IAM, to discuss the quantum of his 2011 bonus.
    The appellant was surprised to learn that GPM planned to exclude from the
    calculation of its pretax income (which was used to calculate the appellants bonus)
    profit from the sale of lands that it had purchased several years earlier as an
    investment (the Ellerslie lands). The exclusion of profits from the sale of
    the Ellerslie lands reduced the appellants bonus by $329,687.

[6]

Johnson and the appellant met again on October 24, 2011, and Johnson confirmed
    this decision. He left open the possibility, however, that GPM might reconsider
    if the other investors in the Ellerslie lands would be willing to contribute.
    The appellant did not follow up on this suggestion, on the basis that the other
    investors had no legal obligation to contribute to his bonus.

[7]

On October 26, 2011, the appellant left his employment, after taking the
    position that GPMs refusal to include the profit from the sale of the
    Ellerslie lands in the calculation of his bonus constituted constructive
    dismissal. GPM took the position that he had voluntarily resigned.

[8]

The appellant sued for damages for breach of his employment contract and
    for constructive dismissal. The respondents defended the action, asserting that
    no bonus was payable on the Ellerslie lands and that the appellant had not been
    constructively dismissed.

[9]

Although the trial judge found that GPM had breached the appellants
    contract by not including the profit from the Ellerslie lands transaction in
    the calculation of the appellants bonus, he did not find that the appellant
    had been constructively dismissed. The trial judge found that the breach did not
    alter an essential term of the appellants contract. He characterized the
    dispute between the parties as more a matter of disagreement over the
    interpretation of the application of Mr. Chapmans bonus scheme. This was not,
    therefore, a unilateral change in the bonus structure by the employer, but a
    disagreement over the interpretation of the contract, and a disagreement
    regarding the calculation of a bonus is not necessarily constructive
    dismissal.

[10]

The
    trial judge concluded that (a)ny reasonable person would conclude that the
    essential terms of the employment contract had not been changed, but in fact
    remained intact.

Issues

[11]

The
    appellant raises two issues on this appeal:

1.      Did
    the trial judge misapply the test for constructive dismissal? and

2.     If so,
    should the damages for constructive dismissal be assessed on the basis of a
    four year average of  pre-dismissal remuneration?

[12]

As
    I would find that the trial judge did not err in his application of the law of
    constructive dismissal, it will not be necessary to address the second issue.

Analysis

A.

Principles

Constructive dismissal

[13]

As
    the trial judge noted, there are two routes that a plaintiff can follow to
    establish constructive dismissal, as set out in
Potter v. New Brunswick Legal
    Aid Services Commission
, 2015 SCC 10, [2015] 1 S.C.R. 500
.

[14]

The
    first branch is apt where an employer has, by a single unilateral act, breached
    an essential term of the contract of employment. The second branch allows for
    constructive dismissal to be made out where there has been a series of acts
    that, taken together, show that the employer no longer intended to be bound by
    the contract. On both branches, it is the employers perceived intention no
    longer to be bound by the contract that gives rise to the constructive
    dismissal:
Potter
, at para. 43.

[15]

The
    first branch  for a single unilateral act  has two steps: (1) the employers conduct
    must be found to constitute a breach of the employment contract, and (2) the conduct
    must be found to substantially alter an essential term of the contract:
Potter
, at para.
34.

[16]

In
    contrast, the focus of enquiry on the second branch is not on a single act of the
    employer, but on the cumulative effect of past acts by the employer that
    establish that the employer no longer intends to be bound by the contract:
Potter
, at para.
33.

[17]

The
    perspective shifts during the analysis. In ascertaining whether an employers
    conduct has amounted to a breach of contract (the first step of the first
    branch), the test is objective:
Potter
, at para.
62. Thereafter, on both the second step of the
    first branch and on the second branch, the perspective shifts to that of a
    reasonable person
in the same circumstances as the employee
The
    question is whether, given the totality of the circumstances, a reasonable
    person in the employees situation would have concluded that the employers
    conduct evinced an intention to no longer be bound by [the contract] (emphasis
    in original):
Potter
, at para. 63. In these parts of the analysis, the
    trial judge must conduct the enquiry from the perspective of the reasonable
    employee. This perspective excludes, for example, reliance on information that
    the employee did not know about or could not be expected to have foreseen.
Potter,
at paras.

62 and 66. Furthermore, the employee is not required to
    establish that the employer actually intended to no longer be bound by the
    contract, but only that a reasonable person in the employees situation would
    have concluded that this was the employers intention:
Potter
, at
    para. 63.

B.

THE Principles Applied

[18]

The
    appellant runs arguments under each branch of
Potter
. First, he argues
    that the trial judge muddled the two branches of
Potter
and imported
    elements of the second branch into the first. Additionally, he says that the
    trial judge relied impermissibly on the employers perspective rather than the
    employees.

[19]

With
    respect to the second branch, the appellant argues that the trial judge erred
    in not considering the second branch of the
Potter
test at all, and
    ought to have found constructive dismissal based on GPMs course of conduct.

[20]

Each
    of these arguments is explored below.

The first branch  a single
    breach

[21]

The
    appellants argument is that the trial judge wrongly used a criterion exclusive
    to the second branch (whether a reasonable person in the employees position
    would conclude that the employer no longer considered itself to be bound by the
    contract) to resolve the question on the first branch of whether the breach was
    a substantial alteration of an essential term of the contract. He argues that
    the trial judge then committed a further error by answering this question from
    the employers perspective, using evidence of the employers intentions that
    could not have been known by the appellant.

[22]

The
    trial judge, however, did not conflate the two branches of
Potter
and the
    appellant is simply mistaken. In reading the trial judges reasons, it must be
    borne in mind that both the first and second branches of
Potter
are in
    service of the same ultimate enquiry: the determination of whether the employer
    has, by its conduct, evinced an intention not to be bound by the contract:
Potter
, at para.
63. The question of whether there
    has been a substantial alteration of an essential term of the contract is not
    an end in itself, but a step towards answering this ultimate question. The
    trial judge had this ultimate question in mind, and did not conflate the two
    branches of the
Potter
test.

[23]

As
    I explain below, the trial judge did not err in concluding that the breach of
    contract did not constitute a substantial alteration to an essential term of
    the contract, nor did it evince an intention not to be bound by the contract.

The breach: denial of bonus
    from sale of the Ellerslie lands

[24]

Of
    critical importance to this appeal is the trial judges analysis of the breach
    of contract, and whether that breach constituted a substantial alteration to
    the contract.

[25]

GPM
    is in the business of providing real estate management services. As noted by
    the trial judge, its income, for the most part, is generated through operating
    fees. As part of his remuneration, the appellant was entitled to a bonus
    calculated on GPMs profits. There were two exceptional asset sales, outside of
    GPMs ordinary operations, that generated substantial capital gains for GPM.
    One of these was the disposition of a property management company, Darton Property
    Advisors & Managers Inc. Income generated by Darton was included in the
    calculation of the appellants annual bonus. The trial judge found that when
    Darton was sold, the appellant was paid a discretionary bonus. Although the
    appellant disputes the nature of the Darton bonus, the trial judge found that
    IAM, in its statements to its shareholders, characterized the bonus as
    discretionary.

[26]

The
    second asset sale was the Ellerslie lands. The trial judge found that this
    investment was unusual, in that it was acquired prior to the commencement of
    the appellants employment with GPM, and was the only real estate investment
    held by GPM during the entirety of the appellants tenure. The trial judge
    accepted GPMs evidence as to why this was the case: subsequent to purchasing
    the Ellerslie lands, GPM concluded that the acquisition of real estate investments
    put it in a conflict of interest with its investors. GPM made no further real
    estate investments. It did engage in other real estate transactions, but these were
    different in kind. The trial judge found that in these transactions, GPM earned
    a fee by securing agreements to purchase and then assigning its rights to third
    parties. On these deals, GPM had no intention and no ability to complete the
    purchases, let alone hold them as investments.

[27]

Although
    the non-investment policy was not communicated to the appellant, and the
    appellant did not agree that the acquisition of the Ellerslie lands constituted
    a conflict of interest, the fact remains that during the entire course of the
    appellants employment, GPM did not acquire a single real estate investment. Thus
    the appellant had no expectation of further bonuses from capital gains in the
    future.

[28]

The
    trial judge found that the appellants employment contract with GPM required
    that he be paid a bonus based on all of GPMs income, including capital gains
    on real estate investments such as the sale of the Ellerslie lands, and not
    just operating income. GPM was therefore found to have breached its contract
    with the appellant. Did the trial judge nevertheless err by concluding that
    this breach was not a substantial alteration of an essential term of the
    contract?

A substantial alteration of an
    essential term

[29]

The
    appellant argues that the trial judge erred in not finding that GPM had converted
    the appellants overall bonus scheme from a non-discretionary bonus to a
    discretionary bonus, and that this constituted a substantial alteration of an
    essential term of the contract.

[30]

The
    trial judge rejected this argument, and found that there had been no alteration
    to any term: the appellants duties and his compensation, including the bonus
    calculation, remained unchanged. The dispute between the appellant and GPM
    amounted to a dispute over the interpretation of the application of one
    transaction to Mr. Chapmans bonus scheme and nothing more.

[31]

The
    appellant argues that the trial judge erred in this conclusion because he
    considered the breach from the employers perspective rather than that of a
    reasonable employee: the trial judge made note of Johnsons evidence that GPM
    thought it would be business as usual going forward, and that GPM intended all
    along to continue to be bound by the terms of the memorandum of understanding.
    The appellant argues that as these intentions were not communicated to him, they
    were unknowable by him, and a reasonable employee in his position, confronted
    with a denial of $329,000 in bonus income would have concluded that GPM had no
    intention to continue to be bound by the contract.

[32]

The
    trial judge, however, made no such error. Although he noted Johnsons evidence
    that GPM intended to continue to be bound by the contract, this was secondary
    in the trial judges reasoning. What was primary was the appellants statements
    in cross-examination that he believed that none of the terms of his employment
    had changed. As the trial judge summarized the appellants evidence, at paras.
    69-70:

During cross-examination, Mr. Chapman admitted the following:


i.

No one told him that his duties as president/CEO of GPM had or would
    change;


ii.

No one said that his duties as a director of IAM had or would change;


iii.

No one told him that his base salary had or would change;


iv.

No one told him that the way in which his bonuses would be calculated in
    the future would or had been changed.

Mr. Chapman further acknowledged that he expected that his
    bonuses would be paid as they had been in the past. To quote Mr. Chapman, when
    asked whether he expected his bonuses would continue, he said, Oh, yes; most
    certainly.

[33]

Although
    the appellant distanced himself from this statement on re-examination, the
    trial judge was entitled to prefer the evidence elicited on cross-examination.

[34]

Furthermore,
    the trial judge considered all of the relevant surrounding circumstances in
    concluding that there were no other factors that could lead a reasonable person
    in the appellants position to conclude that GPMs breach indicated an
    intention not to be bound by the memorandum of understanding.

[35]

Against
    this, the appellant argues that the trial judge erred in not finding that he had
    been placed in the untenable position of having to either forego the $329,000 in
    bonus income and keep his job, or sue to recover the $329,000 and lose his job.

[36]

The
    trial judge, however, found on the evidence that the appellant had options
    other than suing GPM on the one hand and foregoing the bonus on the other,
    including proposing arbitration and/or following up on Johnsons suggestion
    that GPM might reconsider paying something towards a bonus if the other investors
    in the Ellerslie lands agreed.

[37]

In
    my view, it was open to the trial judge to find that there were, on the facts
    of this case, dispute resolution alternatives that the appellant, a
    commercially sophisticated party, could have been expected to explore, and that
    a reasonable person in the appellants position would not have considered
    himself to have been constructively dismissed when the bonus on the sale of the
    Ellerslie lands was refused.

[38]

In
    summary, the trial judge made no error in characterizing the dispute as solely about
    whether a particular transaction  one that he accepted could not be repeated
    during the remainder of the contractual term  fit within the unaltered bonus
    structure. The trial judges rejection of the appellants argument that the
    respondents had converted the appellants bonus structure from
    non-discretionary to discretionary, and his finding that the disagreement over
    what constituted income for the calculation of the appellants bonus was not an
    alteration to the contract, let alone a substantial alteration, were supported
    by the evidence.  Finally, the conclusion that the failure to pay the bonus in
    question did not constitute constructive dismissal, notwithstanding that
    non-payment was in breach of the appellants employment contract, was
    reasonably open to the trial judge after a proper analysis and application of
    the first branch of the
Potter
test.

The second branch  a course of
    conduct

[39]

A
    further argument on appeal is that the trial judge failed to address the second
    branch of
Potter
, specifically the argument that the respondents
    unequivocally told the appellant that they would not be bound by the contract,
    and that this was a continuing course of conduct that evidenced an intention
    not to be bound by the contract in the future.

[40]

The
    respondents objected that this theory of liability was neither pleaded nor
    advanced at trial, and so it is unsurprising that it does not feature more
    prominently in the trial judges reasons.

[41]

In
    any event, the argument fails on the facts, as found by the trial judge, that
    no evidence was presented upon which one could conclude that GPM did not
    intend to be bound by the terms of the 2008 employment Memorandum of
    Understanding. None of the evidence that the appellant marshalled in support
    of the argument that the respondents resented the appellants level of
    remuneration and intended to curtail it when his contract was next up for
    renegotiation, is relevant to the question of whether a reasonable employee in
    the circumstances of the appellant would believe that the respondents did not
    intend to be bound to the existing agreement. And against this is, again, the appellants
    own evidence that he believed at the relevant time that despite GPM refusing to
    pay a portion of his bonus, nothing had changed going forward. In such circumstances,
    constructive dismissal is not made out on the second branch either.

Disposition

[42]

I
    would dismiss the appeal. I would award the respondents costs in the amount of
    $17,000 inclusive of disbursements and HST.

Released: BWM MAR 21 2017

B.W. Miller J.A.

I agree. K. van
    Rensburg J.A.

I agree. C.W.
    Hourigan J.A.


