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Where to sue – A complex issue of jurisdiction in wrongful dismissal

Through mergers and expansion many Canadian companies now have substantial foreign operations. As a result, employees often find themselves, whether by choice or compulsion, transferred to a foreign country. When a dispute arises with the employer while the employee is working in that foreign country, the question arises as to which justice system will take jurisdiction over that dispute. Clearly, the obligation on the employee to sue in the foreign jurisdiction will increase both the cost and the inconvenience of enforcing her rights under her contract of employment, whether written or oral.

A recent decision of the Ontario Superior Court highlighted the complexity of the issues that arise in such disputes. The plaintiff had worked for Four Seasons Hotels in its Toronto office from 2002 to 2007. In 2007, she was offered the opportunity to transfer to the company’s New York office to work on supporting various Four Seasons’ operations, including the operations in the Nevis Resort and other American locations. The offer letter received from Four Seasons did not refer to the U.S. entities nor did it indicate that the plaintiff’s employer had changed. After four years in this role, the plaintiff’s employment was terminated without notice or pay in lieu of notice. The plaintiff then commenced an action in Ontario for damages for wrongful dismissal.

The defendants in the action, being the U.S. and Nevis-based branches of Four Seasons, brought a motion to the court asking that the court either dismiss the action against them, or permanently stay the Ontario action on two alternative grounds:

  1. That the Ontario court did not have jurisdiction to hear the case; or
  2. That the Ontario court was not the most appropriate court to hear the case. (“forum non conveniens”)

The plaintiff based her response to this motion mainly on the fact that the head office of Four Seasons Hotels was located in Toronto, and that the head office provided management and support services to the Nevis Resort that employed the plaintiff.

The court first considered whether it could take jurisdiction over the dispute in general. The court applied the test mandated by the case law from the Supreme Court of Canada which requires that there be a “real and substantial connection” between the facts in dispute and the Province of Ontario. The court referred to the factors enumerated by the Supreme Court of Canada as being relevant to that determination:

  1. Is the defendant resident in Ontario?
  2. Does the defendant carry on business in Ontario?
  3. Was the wrong committed in Ontario (i.e. the tort or breach of contract)?
  4. Was a contract connected with the dispute made in the province?

In her argument, the plaintiff emphasized that as the head office was located in Toronto, all of its subsidiary companies should be considered as resident in Ontario. However, in making its decision, the court referred to the stated reluctance to “pierce the corporate veil” to treat all related companies the same. The court adopted the principle that each group of companies is a “separate legal entity possessed of separate legal rights and liabilities.” Therefore, the court rejected the plaintiff’s argument that the defendants should all be treated as Ontario domiciled corporations.

However, the court did find that the management structure of the defendants was such that there was a clear connection between the plaintiff’s employment and the Province of Ontario. The court relied on the fact that the Human Resources Department was located in Toronto and had a significant degree of control over the conditions and responsibilities of the plaintiff’s employment. The judge also found that the Toronto office had a “great influence” in the decision to terminate the plaintiff’s employment. Based on prior cases in the province, the court held that the fact that the contract was to be performed almost entirely outside of Ontario and that the damages were suffered outside of Ontario was not determinative of the issue of jurisdiction. In fact, the court found that “where the presumptive connecting factor is a contract made in the province, the presumption [of Ontario jurisdiction over the dispute] can be rebutted by showing that the subject matter of the litigation is unrelated to the defendant’s business activities in the province”. Another factor considered by the court is the fact that the plaintiff’s payroll was processed and managed by the Toronto office and the plaintiff was paid for her work in New York through the Toronto office.

In making this latter determination the fact that the defendant corporations may be resident in the province or carrying on business in the province is not necessarily determinative of the issue. If the defendants can show that the subject matter of the litigation is not closely connected to the business being carried on in the Province, jurisdiction may still be declined. Here, the court concluded that the defendants had not met this threshold. The court therefore found that it had jurisdiction over the dispute.

However, this finding did not end the inquiry. Even where the subject matter is within the jurisdiction of the Ontario court, jurisdiction over the lawsuit may be declined on the basis of “forum non conveniens” that the forum is not the most appropriate to deal “fairly and efficiently” with the lawsuit.

To determine this question, the courts will have regard to, inter alia, the residence or place of business of the parties, where the potential witnesses reside, the applicable law under the provisions of the contract, and the jurisdiction where the dispute arose. The court will also consider whether the plaintiff will lose a “legitimate juridical advantage” if jurisdiction is rejected. In other words, the court will consider whether the laws of the Province of Ontario provide the plaintiff with legal arguments not available in the competing jurisdiction. This issue is often a critical one in assessing competing jurisdictions between Ontario and the United States, as the employment laws in many U.S. states are much less favourable to employees than those that apply in Ontario.

The uncertainty of the determination of this question was highlighted by the judge when he pointed out that

…the assessment is neither mathematical nor mechanical, and not all factors will be relevant in a given case. The decision must be based not only on efficiency and convenience, but also on fairness and justice to all parties.”

In this case, the judge relied heavily on the location of the witnesses, largely in New York State, as was most of the evidence which would be called at any eventual trial.

In rejecting the argument on “forum non conveniens”, while recognizing the significant difference in employment law between New York and Ontario, the judge relies on the ruling in the Black v. Breeden decision where the Supreme Court of Canada said that such juridical advantage should not be given much weight in the analysis. The judge therefore agrees with the defendants’ argument and issues a permanent stay on the plaintiff’s Ontario action. Obviously, this was a significant win for the defendants. The plaintiff is now faced with the prospect of either seeking to overturn the decision on appeal, or commencing a new action in New York State for whatever relief is available in that jurisdiction. The defendants’ counsel has confirmed that the plaintiff has filed a Notice of Appeal of this decision. We will therefore have to wait for the Court of Appeal to review of the reasons.

The reasons should provide a cautionary tale to employees involved in cross-border transfers. In particular, employees should seek to obtain some contractual protection ensuring that their rights are covered by the laws of Ontario, and providing recourse to the courts of Ontario for any remedies that are available.

Earl Altman
Partner
Garfinkle, Biderman LLP

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Earl Altman

Legal consultant at EA Consulting
Earl Altman was a partner at Garfinkle, Biderman and now heads his own consulting firm. Earl has practiced commercial and employment litigation. Earl’s practice focuses on employment disputes, including acting for employees and employers in wrongful dismissal claims, and in breach of contract and breach of fiduciary duty claims. Read more
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