Welcome to our third annual ranking of the Top 10 business decisions in Canada. This is the first of a two-part series, which begins below with the cases ranked 6-10, in ascending order. The top five cases, found in Part II, are here.
By Julius Melnitzer | March 7, 2022
10. Sahlaoui v. 2330-2029 Quebec inc. (Medicus) (QCCA)
This Quebec Court of Appeal decision refines employees’ duty to act with loyalty and honesty to their employers. Can employees prepare for departure while still employed, and how long does the duty persist after employment ends?
While still employed, the court stated, employees are free to take all “necessary steps and preparations” to change jobs. Employees, however cannot: make departure preparations on their employers’ time or using their employers’ tools; use employers’ confidential information; hide or divert business opportunities or clients; appropriate property or client lists; denigrate employers or their customers; or indulge in “other such behaviours”. Otherwise, and absent restrictions in an employment contract, employees are free to compete upon leaving their jobs.
The duty of loyalty may subsist from a few weeks to a few months. It “cannot ordinarily exceed three or four months, more rarely six months, and will often be less” the court stated. Both intensity and duration may vary according to the nature of the employee’s job.
“This decision is a nightmare for Quebec employers,” says Martin Bergeron of Lex Commercialis Avocats in Montreal, who represented the successful appellant Lotfi Sahlaoui. “And employers elsewhere should be aware that the law in Quebec, where the right to earn a living is sacred, is very different from the law in the common law provinces.”
Sahlaoui’s former employer sought leave to appeal to the Supreme Court of Canada (SCC). The court dismissed the application on March 3, 2022.
In this decision, the SCC overruled the prohibition against pre-post compensation in Companies’ Creditors Arrangement Act proceedings, permitting first-instance judges to allow it in appropriate but rare circumstances.
“Although there are practical problems with implementing the decision, the guidance will be very useful to bankruptcy and restructuring practice,” says Guy Martel, a partner in Stikeman Elliott’s Montreal office, who represented the successful respondent Deloitte.
8. Canada v. Canada North Group Inc. (SCC)
Here, a 5-4 majority in the SCC ruled that deemed trusts in favour of the Crown for source deductions do not have priority over court-ordered “superpriorities” such as charges related to administration, directors’ and officers’ remuneration, debtors-in-possession or interim financing.
“This case is critical because it provides interim lenders and debtors in possession with the assurance they’ll be paid first,” says Darren Bieganek, managing partner of Duncan Craig LLP in Edmonton, who represented the successful respondents, including Canada North. ” And while it’s not absolutely clear that Crown trusts can never override superpriority charges, this decision goes to the heart of the Canadian insolvency system, which respects the presiding judge’s discretion in these matters.”
7. ONTARIO (LABOUR) v. SUDBURY (CITY) (OCA)
For all the brouhaha about what the Ontario Court of Appeal (OCA) did or didn’t do in Ontario v. Sudbury, or what courts might do in the future, what transpired is really quite simple: a unanimous Court said that an owner whose direct employees (as opposed to third party contractors, an entirely different issue) are present at a workplace and perform work there are “employers” who have responsibilities and liabilities under the Occupational Health and Safety Act (OHSA). This whether or not the owner had hired a “constructor” (think “general contractor”) for the project.
“The Court of Appeal’s decision that an owner can be an ’employer’ who must ensure safety on the project, without considering the sphere of operations or other contextual factors like control, could significantly expand liability,” says Jeremy Warning, a partner at Mathews, Dinsdale & Clark LLP in Toronto.
Chetam Muram, who represented the Workers’ Health and Safety Clinic in Toronto, says the broad definition of “employer” adopted by the court will ensure an appropriate level of accountability.
“The decision helps to ensure that workers – – – especially low income, non-unionized employees – – – will be able to hold relevant parties responsible for health and safety violations.”
As Warning sees it, however, Ontario v. Sudbury presented “challenging” facts.
“The City may have been involved in a number of ways that took it out of the stereotypical owner’s role that weighed in the court’s analysis,” he says.
Sahil Shoor, a partner in Gowling WLG’s Waterloo Region office, believes that future jurisprudence may develop along previous lines that exempt owners from liability where their obligations as an “employer” are so limited that they exercise no “control” over a project.
Still, the uncertainty is such that owners should consider revising existing practices for construction project monitoring, quality control, and safety.
“It may no longer be prudent for an owner to send its own employees to conduct such activities at a project, even though those functions may have nothing whatsoever to do with the construction work being performed,” Shoor says. “Failure to account for these exposure points may trigger substantially more liability than the owner initially anticipated or contracted for.”
At the very least, Warning cautions employers to clearly establish their “sphere of operations” in their contracts, communications and other documents.
“Further, because the actual activities carried out on the project are likely to receive significant scrutiny, it would also be prudent for employers to be attentive to the activities workers engage in on a project so that any expansion of the intended sphere of operations can be avoided or managed,” he adds.
But all this could change. In December, the SCC granted leave to appeal the decision.
This decision made LegalWriter.net’s Top 10 because it established the important principle that abandonment and reclamation obligations (AROs) were real liabilities despite not being, in accordance with the SCC’s decision in Redwater, “claims provable in bankruptcy”. As the Alberta Court of Appeal saw it, while AROs did not perhaps fit into the concept of conventional debt, they were an obligation that oil and gas companies “owed to the public” and surface landowners. In an insolvency context, AROs, which the SCC declared stood in priority even to secured creditors, depressed the value of affected assets in an insolvent estate.
“And because AROs have value, they remain important considerations for directors and officers, who must manage then in accordance with their fiduciary duties,” says Kenneth Lenz, the Calgary-based co-head of Bennett Jones’ litigation department who represented the Orphan Well Association.
Julius Melnitzer is a Toronto-based legal affairs writer, ghostwriter, writing coach and media trainer. Readers can reach him at [email protected] or https://legalwriter.net/contact.