



COURT OF APPEAL
    FOR ONTARIO

CITATION: Mikelsteins v. Morrison Hershfield Limited, 2019
    ONCA 515

DATE: 20190620

DOCKET: C66315

Lauwers, Fairburn and Nordheimer JJ.A.

BETWEEN

Ivars Mikelsteins

Plaintiff (Respondent)

and

M
orrison Hershfield Limited

Defendant (Appellant)

David Greenwood, for the appellant

James Heeney and Julia Burke, for the respondent

Heard: June 12, 2019

On appeal from the judgment of Justice Shaun Nakatsuru of
    the Superior Court of Justice, dated November 22, 2018, with reasons reported
    at 2018 ONSC 6952.

Nordheimer J.A.:

[1]

The appellant Morrison Hershfield Limited (MHL) appeals from the partial
    summary judgment awarding the respondent Ivars Mikelsteins, a former employee
    of MHL, an increase in the value of shares that he held in the parent
    corporation of MHL, along with a share bonus, through the period of reasonable
    notice.

Background

[2]

MHL is an employee-owned engineering firm that provides engineering and
    construction consulting services. Mr. Mikelsteins was employed by MHL for 31
    years, most recently in the position of Director, Business Development. On
    October 26, 2017, Mr. Mikelsteins was notified in writing that his employment
    was being terminated without cause, effective immediately.

[3]

Mr. Mikelsteins commenced an action for wrongful dismissal. He then
    brought a motion for summary judgment. In granting partial summary judgment,
    the motion judge awarded Mr. Mikelsteins damages for wrongful dismissal based
    on a notice period of 26 months. Since partial summary judgment was being
    awarded prior to the expiration of the notice period, the motion judge reserved
    to himself any challenge that MHL might wish to bring, in the future, regarding
    Mr. Mikelsteins mitigation efforts. None of those determinations are being
    appealed.

[4]

The motion judge also made a determination regarding the value that Mr.
    Mikelsteins was entitled to be paid for the shares that he held in MHLs parent
    corporation, along with his entitlement to a share bonus. Those determinations are
    the subject of this appeal.

[5]

Mr. Mikelsteins was one of a select group of MHL employees who were
    eligible to purchase shares of MHLs parent corporation, Morrison Hershfield
    Group Inc. Those shares were governed by the terms and conditions of the
    Amended and Restated Morrison Hershfield Group Inc. Shareholders Agreement,
    dated January 18, 2013 (the Shareholders Agreement). At the time that his
    employment was terminated, Mr. Mikelsteins owned a total of 5,108 shares.

[6]

Under the terms of the Shareholders Agreement, Mr. Mikelsteins and
    other shareholders were eligible to receive annual Share Bonuses. The share
    bonus payable in respect of each share is determined by an objective
    calculation based on the companys financial results. As a result, the total
    share bonus payable to each shareholder depends on the total number of shares
    that the shareholder had previously decided to purchase. The share bonus is not
    related to the shareholders contributions as an employee of MHL. It is, in
    effect, a dividend.

[7]

With respect to Mr. Mikelsteins shareholdings, the motion judge
    determined that he was entitled to: (i) hold the shares until the end of the reasonable
    notice period (i.e. 26 months after he was notified of his termination and his
    association with MHL had ceased); and (ii) receive damages for the loss of the share
    bonus that would have been payable during such 26 month period.

[8]

Article 3 of the Shareholders Agreement deals with Automatic Transfer
    Notices, and applies in situations where, among other things, a shareholder
    resigns, is terminated, becomes bankrupt, or dies. Article 3.2 applies in cases
    of termination, and states:

A Shareholder whose association with the Corporation and its
    Affiliates ceases by reason of termination by the Corporation of his/her
    employment with the Corporation and its Affiliates shall, immediately after
    such termination, be deemed to have given a Transfer Notice covering all of the
    Shares held by him/her on a date which is 30 days from the date he/she is
    notified of such termination by the Corporation.

The Shareholders Agreement proceeds to specify that a
    shareholder that is deemed to have given a Transfer Notice under Article 3 is
    entitled to the Fair Value of his or her shares (as that term is defined in
    the Shareholders Agreement).

[9]

MHL takes the position that Mr. Mikelsteins association with it had
    ceased by reason of the termination of his employment on October 26, 2017,
    which became the trigger date for purposes of the above provision. In
    accordance with that position, MHL paid Mr. Mikelsteins the sum of $999,431.28 (representing
    the Fair Value of his shares on November 25, 2017, which is 30 days from
    October 26, 2017, the date of his termination).

[10]

The
    motion judge disagreed with MHLs position. He concluded that Mr. Mikelsteins
    was entitled to receive payment for his shares with the value calculated at the
    end of the reasonable notice period. The motion judge also concluded that Mr.
    Mikelsteins was entitled to the share bonus that would have accrued during the
    notice period. The motion judge reached this conclusion based on his view that
    the basic principle to be applied is to put the person in the same position
    they would have been in if lawfully terminated: at para. 37. In so concluding,
    the motion judge relied on this courts decision in
Paquette v. TeraGo
    Networks Inc.,
2016 ONCA 618, 352 O.A.C. 1.

Analysis

(i)

The standard of review

[11]

I
    start with the standard of review applicable to the motion judges decision. MHL
    submits that the standard of review is correctness because the Shareholders
    Agreement is a standard form contract (sometimes called a contract of adhesion).
    Mr. Mikelsteins submits that the standard of review is reasonableness because
    the interpretation of the Shareholders Agreement involves a finding of mixed
    fact and law.

[12]

I
    agree with MHL. The evidence is that the Shareholders Agreement is a take it
    or leave it form of contract. An employee who is invited to become a party to
    the Shareholders Agreement has no ability to negotiate the terms of that
    agreement. The Shareholders Agreement is therefore fairly characterized as a
    contract of adhesion. Consequently, the factual matrix plays less of a role in
    the interpretative exercise. Further, the interpretation of the Shareholders
    Agreement will have implications for all of the other shareholders, both
    existing and future. It is important therefore that the Shareholders Agreement
    be interpreted in a consistent manner. All of this leads to the conclusion that
    the proper standard of review is correctness. As Wagner J. said in
Ledcor
    Construction Ltd v. Northbridge Indemnity Insurance Co,
2016 SCC 37,
    [2016] 2 S.C.R. 23, at para. 46:

Where, like here, the appeal involves the interpretation of a
    standard form contract, the interpretation at issue is of precedential value,
    and there is no meaningful factual matrix specific to the particular parties to
    assist the interpretation process, this interpretation is better characterized
    as a question of law subject to correctness review.

(ii)

The proper valuation of the shares and approach to share bonus

[13]

Turning
    to the central issue, in my view, the motion judge erred in concluding that Mr.
    Mikelsteins was entitled to compensation in respect of his shares calculated at
    the end of the notice period. He did so by improperly conflating Mr.
    Mikelsteins entitlement to compensation arising from the breach of his
    contract of employment with Mr. Mikelsteins contractual entitlements
    respecting his shares. Mr. Mikelsteins received his shares pursuant to the
    Shareholders Agreement. It is the terms of the Shareholders Agreement that
    determine Mr. Mikelsteins rights with respect to those shares. The common law relating
    to compensation for breaches of a contract of employment does not apply to Mr.
    Mikelsteins entitlements regarding his shares.

[14]

This
    fundamental distinction is why the cases relied upon by Mr. Mikelsteins,
    including
Paquette
, do not direct the proper result in this case. Rather,
    it is governed by the decisions of this court in cases such as
Evans v.
    Paradigm Capital Inc.,
2018 ONCA 952, 51 C.C.E.L. (4th) 21 which, in turn,
    confirmed the conclusion reached in
Love v. Acuity Investment Management
    Inc.
, 2011 ONCA 130, 277 O.A.C. 15. In
Love
, where virtually the
    identical issue was raised, Goudge J.A. said, at para. 54:

I therefore conclude that the appellant ceased to be an
    employee of the respondent on May 3, 2005, and that the trial judge erred in
    using the end of the notice period rather than his termination date as the
    trigger for the respondent's right to repurchase and for the valuation.

[15]

The
    motion judge attempted to distinguish the decision in
Love
from the
    situation before him, on the basis of the specific wording of the terms of the
    agreement that were at issue in
Love
. In particular, the motion judge
    relied on the fact that the agreement in that case used the language employment
    is terminated
without cause
 (emphasis added)
    whereas, in this case, the Shareholders Agreement refers simply to
    termination: at paras. 42-46. The respondent argues that the motion judge was
    correct to distinguish
Love
on that basis. I disagree.

[16]

With
    respect, contractual rights differ from common law rights. Contractual rights
    depend on the terms of the contract to which the parties have agreed. The
    principle enunciated in
Love
, and reiterated in
Evans
, is that
    there is a difference between what a dismissed employee is entitled to as
    damages in lieu of notice upon termination of the employment contract and what
    the employee is entitled to under the terms of more specific contracts.

[17]

Often,
    the terms of a dismissed employees rights to pension payments (e.g.
Taggart
    v. Canada Life Assurance Co.
, [2006] O.J. No. 310 (C.A.), bonuses (e.g.
Lin
    v. Ontario Teachers' Pension Plan Board
, 2016 ONCA 619, 352 O.A.C. 10, or
    similar entitlements, fall to be determined by the remedies that arise from a
    breach of the contract of employment where the employer fails to give proper
    notice. In such cases, the dismissed employee will be entitled to the benefits he
    or she would have received during the notice period. That, however, is not this
    case.

[18]

As
    pointed out in
Love
, the fact that a dismissed employee may be
    entitled to certain benefits during the notice period does not change the date
    when his or her employment ends. In this case, Mr. Mikelsteins employment
    ended on October 26, 2017. His entitlements relating to his shares are separate
    and apart from the relief to which he is entitled arising from his contract of
    employment. His entitlements relating to his shares fall to be determined by
    the terms of the Shareholders Agreement.

[19]

In
    that regard, the terms of the Shareholders Agreement are clear. Once the
    shareholders association with the Corporation and its Affiliates ceases by
    reason of termination by the Corporation of his/her employment with the
    Corporation a process is triggered whereby the shareholders shares will be
    repurchased either by the corporation or the existing shareholders. The
    Shareholders Agreement expressly provides that the corporation becomes
    entitled to repurchase the shares 30 days from the date the shareholder is
    notified of such termination by deeming the shareholder to have delivered a
    Transfer Notice as at that date. Where the corporation elects to purchase the
    shares, this in turn fixes the valuation date for the shares.

[20]

None
    of this turns on whether the employee has been terminated with or without
    cause. I note, for example, that the employee in
Evans
had not been
    terminated without reasonable notice but rather had taken the position that she
    had been constructively dismissed. Nonetheless, this court applied the
    principle from
Love
because the terms of the shareholders' agreement
    in that case clearly required the appellant to tender her shares for
    redemption on termination of her employment:
Evans,
at para. 27.

[21]

Similarly
    here, the Shareholders Agreement uses the cessation of Mr. Mikelsteins
    employment as the triggering event for the process to transfer his shares. The
    termination occurred on October 26, 2017. There is a very plain and obvious
    reason why a corporation, that is employee owned, and which has terminated an
    employee who also happens to be a shareholder, would wish to commence the
    process of repurchasing the employees shares the moment that employee is told
    of his or her dismissal, rather than at the end of the notice period.
    Understandably the corporation would not wish an employee to be able to
    exercise all of the rights of a shareholder once their employment is
    terminated.

[22]

This
    conclusion also deals with the share bonus issue. Once it is concluded that the
    shares had to be transferred resulting from Mr. Mikelsteins termination, he
    ceased to have any entitlement to any bonus arising from the shares that he no
    longer owned.

(iii)

Employment Standards Act, 2000

[23]

My
    conclusion regarding the shares requires me to address an alternative argument
    that is advanced by Mr. Mikelsteins  namely, that the terms of the
    Shareholders Agreement violate the
Employment Standards Act, 2000,
S.O. 2000, c. 41 and therefore are null and void and of no effect. On this
    point, Mr. Mikelsteins relies on s. 60(1)(a) of the
Employment Standards
    Act
, which reads:

During a notice period under section 57 or 58, the
    employer,

(a) shall not reduce the employees wage rate or
    alter any other term or condition of employment;

[24]

The
    Shareholders Agreement does not alter any term or condition of employment.
    Indeed, this alternative argument repeats the same error made by the motion
    judge which is the conflating of Mr. Mikelsteins rights under his contract of employment
    regarding his entitlement to reasonable notice, and his rights under the Shareholders
    Agreement regarding his shares, and treating them as one and the same. They are
    not.

[25]

Mr.
    Mikelsteins entitlement respecting the shares that he owned is determined in
    accordance with the terms of the Shareholders Agreement and only that
    agreement. The
Employment Standards Act
has no application. Mr.
    Mikelsteins received that to which he was contractually entitled when the
    appellant paid him for his shares.

C
onclusion

[26]

The
    appeal is allowed, paragraph 5 of the judgment is set aside and Mr. Mikelsteins
    claim in that respect is dismissed. MHL is entitled to its costs of the appeal
    fixed in the agreed amount of $12,500, inclusive of disbursements and HST.

Released: IN June 20, 2019


I.V.B. Nordheimer J.A.

I agree. P. Lauwers J.A.
I agree. Fairburn J.A.


