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Court denies employee's claim for negligent misrepresentation during the recruiting/hiring process

Jurisdiction: - British Columbia
Sector: - Forestry

Despite the employee's sympathetic facts in Lesage v. Canadian Forest Products Ltd.,
2009 BCSC 1427
, the BC Supreme Court denied his claims for (1) negligent misrepresentation and (2) constructive dismissal.

Background 

The employee started working for Ainsworth Lumber Company Ltd. ("Ainsworth") in 100 Mile House in 2000. He was a divisional accountant or divisional controller.

In the fall of 2006, a representative from another forestry company, Canfor, who knew the employee, contacted him to advise of an opening at Canfor. Canfor ultimately filled this position with another candidate, but subsequnetly discussed with the employee his interest in a Regional Controller position.

The employee was initially not interested in the position because it required living in Fort Nelson. However, in December 2006, Canfor advised the employee that he could be based in Prince George, and that the position would provide him with accounting responsibility for three of its mills.

In the first few months of 2007, the discussions between the parties continued. At Canfor's request, the employee also underwent management potential testing.

The employee was interested in the position, but he had a young family and had to be persuaded that the move would be good for them.

In March 2007, Canfor brought the employee and his wife to Prince George for a weekend so that they could visit the city. On March 16, during the visit, the employee and his wife went to dinner with two Canfor representatives. During the dinner conversation - which was a key focus in the trial - the parties discussed the position, the company and the state of the industry.

On March 20, 2007, Canfor offered the employee the Regional Controller position, which he accepted shortly thereafter.

On April 10, 2007, the employee commenced work at Canfor. Around the same time, he sold his house in 100 Mile. About a month later, he purchased a house in Prince George for $345,000.

In early May 2007, Canfor appointed a new CEO and on May 22, 2007 the new CEO announced a significant payroll cost reduction program.

On June 14, 2007, the employee was advised that his Regional Controller position was being eliminated. At the same meeting, he was advised that he could transfer to a Divisional Accountant position at one of Canfor's mills in Prince George.

In early July 2007, the employee started working in the Divisional Accountant position.

On July 30, 2007, he received an offer of employment from a company in Grand Prairie, Alberta. The employee left Canfor on August 9, 2007. He commenced work in Grand Prairie on September 4, 2007.

The employee listed his house in Prince George in September 2007. A little over a year later, the house sold for $305,000, which was $40,000 less then the employee had purchased it for.

Overview of Claims

The employee's legal claims against Canfor were for negligent misrepresentation and constructive dismissal.

Negligent Misrepresentation

The court stated that the law on the tort of negligent misrepresentation had been described by the Supreme Court of Canada in:

  1. Queen v. Cognos Inc., [1993] 1 S.C.R. 87; and
  2. Rainbow Industrial Caterers v. Canadian National Railway Co., [1991] 3 S.C.R.

Based on these cases, the five requirements for a successful claim in negligent
misrepresentation are:

  1. there must be a duty of care based on a "special relationship" between the
    representor and the representee;
  2. the representation in question must be untrue, inaccurate or misleading;
  3. the representor must have acted negligently in making the misrepresentation;
  4. the representee must have relied, in a reasonable manner, on the negligent misrepresentation; and
  5. reliance must have been detrimental to the representee in the sense that damages resulted.

Canfor conceded that there was a special relationship under which it owed a duty of care to the employee. It denied, however, that the other four requirements had been satisfied.

The court stated that the employee had asserted his claim in four main ways:

  1. that there were affirmative representations that the job was long term and secure, that Canfor had substantial cash holdings and in difficult economic times, Canfor had plans to acquire weaker players. 
  2. that the comments made at the March 16 dinner either implied or expressly indicated the position was long-term and secure. 
  3. that Canfor made inaccurate statements regarding how certain parts of the operation were performing which were relevant to the tenure of his position.
  4. that Canfor made a misrepresentation by failing to disclose facts they knew or ought to have known made the employee's new position precarious.

The court, noting that whether there has been a misrepresentation or not depended on the facts of each case, ruled that the employee did not prove that there had been a misrepresentation by Canfor during the hiring process. In reaching this decision, the court noted that:

  • An employee must prove that the employer was aware of facts, or ought to have been aware of facts, that would make its representations inaccurate or false (para. 92).
  • The employee's knowledge of the industry, the employer's specific ircumstances, etc. is a relevant factor in determining whether the failure to disclose certain information constitutes a misrepresentation. This of course is also a factor in considering whether the employee's reliance was reasonable (para. 94).

Constructive Dismissal

The employee also alleged that he had been constructively dismissed on the day that he was informed that Regional Controller position had ended and that he was being transferred to the Divisional Accountant position.

The employer took the position that the employee had not been demoted because his compensation continued to be the same in the new position and he had similar duties.

The court first noted that the test for whether a unilateral variation to the contract could be treated as a termination is an objective one. It then concluded that the transfer had been a demotion that went to the root of the employment agreement. In this regard, the court noted that:

  • the employee went from being the controller of three mills to a divisional accountant for one mill;
  • there was was documentary evidence showing that the employer referred to the new position as a "lower grade" position.
  • the employer had told the employee that if he did not accept the new position he was entitled to severance pay.
  • the employment contract did not permit the employer to make this change.   

The employer also took the position that if the transfer was a fundamental breach, the employee had accepted the new terms and conditions.

In response, the employee argued that the parties had agreed that he could try out the new position and if he did not like it he would still be entitled to a severance payment.

The court agreed with the employer's general premise that the acceptance of the new terms and conditions, whether express or implied, would prevent an employee from being successful on a constructive dismissal claim. However, in this regard, the court noted that:

...it does not necessarily follow that because an employee tries out the new position that he has accepted it and given up his right to treat the change as a fundamental breach. An employee has a reasonable time after learning of a unilateral change to make an informed decision whether to accept the new position, before his conduct will amount to acceptance of that new position or a waiver of the breach (para. 111).

After reviewing the evidence on this issue, the court concluded that the employer had given the employee the option of taking the new position or accepting a severance payment. The employer did not, however, give the employee the option of trying out the position and, if he did not like it, still receiving severance pay.

In this regard, the court specifically chose not accept the employee's evidence that: (1) he had told the employer at the time that his acceptance of the new position was conditional; and (2) the employer had told him that he could accept the new position without endangering his right to severance.

As such, the court concluded on this issue:

Although the elimination of his current position and the re-assignment of Mr. Lesage to the new position of divisional accountant was a fundamental breach of contract if not accepted by the plaintiff, I find that it was accepted and as such, Mr. Lesage's subsequent decision not to stay does not constitute a dismissal (para. 145).

Damages

As noted above, the court ruled that the employee did not make out his claim for negligent misrepresentation or constructive dismissal. However, in the event that it was wrong and the decision was overturned on appeal, the court proceeded to address the issue of damages.

Negligent Misrepresentation

As it related to his claim for negligent misrepresentation, the employee had sought damages in connection with:

  1. the purchase and sale of the home in Prince George, including a capital loss on the re-sale, real estate commissions, legal fees and maintenance trips from Grand Prairie to Prince George, as well as duplicate housing costs in Grand Prairie; and
  2. damages related to his pension loss associated with leaving Ainsworth to join Canfor.

The court ruled that his claim for the capital loss on the sale of his home, including real estate commission, fees and "interest penalty", would be recoverable as reasonably foreseeable losses. However,  because the employee incurred these losses along with his wife, who was not a plaintiff in the action, the court stated that his recoverable loss was limited to one-half of the amounts claimed.

The costs associated with the employee's maintenance trips, as well as his duplicate housing costs and the vehicle transfer costs would be recoverable in full, however.

The employee's claim for damages for his lost pension at Ainsworth was $253,300, which he argued, based on an actuarial report, was the capitalized value as of July 1, 2008 of his foregone pension at Ainsworth, assuming he had worked there and retired at age 65 (in
March 2022).

Canfor argued that this would be a windfall to the employee and, based on evidence, that it was entirely speculative, given that it was based on the employee: 1) working to age 65; 2) working at Ainsworth for another 15 years until retirement; 3) getting an increase in salary each year, 4) receiving an annual bonus and 5) the pension plan remaining extant and able to satisfy its obligations.

Canfor also argued that this damages estimate did not take into consideration substantial negative contingencies, such as the employee being terminated from Ainsworth  or dying before age 65.

The court noted that the Supreme Court of Canada had discussed the measure of damages in negligent misrepresentation as follows:

  • The plaintiff seeking damages in an action for negligent misrepresentation is entitled to be put in the position he or she would have been in if the misrepresentation had not been made.
  • What that position would have been is a matter that the plaintiff must establish on a balance of probabilities. In a case in which a material negligent misrepresentation has induced the plaintiff to enter into a transaction, the plaintiff's position is usually that,  absent the misrepresentation, the plaintiff would not have entered into the transaction. The plaintiff was restored to the position he would have occupied had he never entered the transaction in the following cases

Relying on these principles, the court stated that there were serious flaws in the quantum of the employee's claim for pension loss. The court further stated that the loss was very difficult to assess. However, in arriving at a figure of $40,000 instead, the court:

  • accepted that the negative contingences set out by Canfor that were not considered by the actuary.
  • the employee would have been obligated to act reasonably to mitigate his loss by otherwise building up a RRSP or a pension through other employment.

Constructive Dismissal

In his claim for constructive dismissal, the employee sought damages equal to his lost wages for the three week period after leaving Canfor and before starting at the position in Grand Prairie; and (2) his housing related damages.

Although not expressly clear, it appears that the court would have awarded the employee his lost wages for the three weeks between employment.

However, the court would not have awarded the housing-related damages in connection with the wrongful dismissal/constructive  dismissal claim, as they were not claims that were a consequence of the employer's failure to give reasonable notice.