A big breakup

The end of a romantic relationship can be messy for both sides. It can get even messier when one person in the relationship owns the company for which the other person works. But regardless of how the personal relationship ends, ending the employment relationship has a number of legal obligations that can’t be avoided.

Alissa Churchill, 39, was hired by Aero Auction Sales — a Barrie, Ont.-based company specializing in vehicle and heavy equipment sales through auctions — in July 2009. Her position was that of vice-president of administration, which involved overseeing and supervising employees through the company’s bank accounts, human resources and payroll functions.

At the time of Churchill’s hire by Aero, she was in a common law relationship with Aero’s owner, Michael Duns, and the company didn’t draw up a written employment agreement. The relationship lasted for six years — during which they had three children together — until November 2015, when the couple separated.

After Churchill and Duns split, their working relationship at Aero worsened and they became more hostile toward each other. On Feb. 29, 2016, Duns removed Churchill’s vice-president title, took away her direct reports and told her that she should only report to him. He also instructed her to contact other Aero employees by email only — with all emails copied to him — and she shouldn’t contact them any other way. In addition, he exchanged Churchill’s company vehicle for an older one.

Two days later, Duns asked Churchill to return her company credit card and gas card, as she would no longer be involved in the day-to-day operations of Aero. The following week, he informed her she was no longer authorized to log into Aero’s bank accounts and wire payments would be released from the company’s office in Edmonton.

On March 8, Duns had questions about household expenditures from when they were still together and threatened to withhold Churchill’s wages if she didn’t answer. The next day, she was told to release some wire transfers including the company payroll, at which point she noticed that she wasn’t on the payroll even though she had worked for the entire pay period. It appeared Duns had followed through on his threat of the previous day.

Employee left off payroll

On March 12, Churchill emailed Duns asking if her employment with Aero had been terminated, since she didn’t appear to be on the payroll and she had been required to return the company car, credit card and gas card. Duns replied that she was “considered having quit.” Churchill didn’t return to work and Aero didn’t provide any termination pay.

Churchill filed an action for wrongful dismissal, claiming her termination was directly related to her split from Duns and not related to her work.

In 2017, Aero ceased operations and Duns transferred its assets to a new company. Churchill argued her unpaid wages made her a creditor of the defunct Aero and sought an order under the Ontario Business Corporations Act (OBCA) imposing personal liability on Duns for “relief for certain persons against a corporation and its directors for any act or omission that is oppressive, unfairly prejudicial, or unfairly disregards the interests of that person.”

The court noted that it had been previously established that a former employee who is owed wages may qualify as a creditor and, therefore, bring an action under the OBCA. The court found that Churchill became a creditor when her wages were withheld from Aero’s payroll in March 2016 and, when “Duns caused Aero to cease operations and transfer all of its assets to a related company in order to leave it without assets to respond to a possible judgment in this action,” it was oppressive conduct under the OBCA. As a result, Duns’ conduct warranted personal liability under the OBCA.

“Churchill had a reasonable expectation that Aero’s affairs would be conducted with a view to protecting the interests of a former employee who was owed wages and benefits,” the court said. “As the sole director of Aero, Duns may be held personally liable for the oppressive action identified.”

The court found that Aero dismissed Churchill without cause when her job title, direct reports and privileges were stripped from her and then she was removed from the payroll. As a result, she was entitled to “basic wages, statutory holiday pay, vacation pay and pay in lieu of notice.”

Damages for notice of dismissal plus aggravated damages

The court considered Churchill’s seven years of service, her executive position that included managerial responsibilities and a fairly high salary and her age of 36 at the time of her termination, determining that she was entitled to 12 months reasonable notice of termination.

The court also found that the way in which Churchill was dismissed “was unfair and in bad faith.” When Churchill inquired as to why she wasn’t on the payroll, Duns made “a false allegation” that she was “considered having quit” in an effort to avoid paying her entitlement to severance pay or reasonable notice. The court saw Duns’ conduct as retaliation for the issues between the couple arising from the end of their common law relationship outside of work and not related to Churchill’s job performance or Aero’s business. The court accepted Churchill’s claim of $75,000 in aggravated damages.

Churchill claimed an additional $75,000 in punitive damages, but the court noted that punitive damages “are an extraordinary remedy.” While Duns’ conduct in transferring Aero’s assets to avoid a possible wrongful dismissal judgment was unfair and in bad faith, the imposition of personal liability for oppressive conduct through the OBSA served the same purpose as punitive damages would have — deterrence of similar conduct in the future. The court found it unnecessary to impose both aggravated and punitive damages.

Aero and Duns were ordered to pay Churchill $106,358 in unpaid wages, benefits and pay in lieu of reasonable notice, $75,000 in aggravated damages and $11,741 in legal costs — for a total of $193,099.

For more information see:

•  Churchill v. Aero Auction Sales Inc., 2019 ONSC 4766 (Ont. S.C.J.).