Employee breached fiduciary duty when he drew up own unenforceable contract, but employer didn’t have just cause to dismiss him
An employment contract with a generous termination clause created out of the worker’s collusion and a conflict of interest is unenforceable, but the employer still has to have just cause for dismissal. Such was the case for an Ontario casino who got out of a seven-year contract with its general manager that had no early termination clause but still had to pay six-and-one-half months’ pay in lieu of notice because it didn’t follow its own progressive discipline policy.
Tyler Waddilove was the general manager of the Muncey-Delaware Nation Paradise Bingo, a bingo hall located on the Muncey-Delaware First Nations reserve in Ontario. The bingo hall is a charitable corporation and all shareholders and the board of directors are band members of the Muncey-Delaware First Nation.
Paradise Bingo was incorporated on Jan. 31, 2008, and Waddilove was hired as its operational manager. After growing up on the reserve, Waddilove had completed one year of an international business program with the intention of working at international casinos and then worked for one year at Casino Rama in Orillia, Ont.
Early on in his employment with the Paradise Casino, Waddilove was terminated for cause after being captured on video asleep at his desk. He was rehired in the same position on March 1, 2009, but was suspended without pay in December 2010. After Waddilove filed a complaint with the labour board, the casino offered him the position of general manager in September 2011. Waddilove accepted the promotion and dropped his complaint.
At the time of his rehiring to the position of general manager, the casino’s board of directors included his father, a close friend of his father’s, and a former employee of his father. The band chief was his cousin.
Worker drew up generous contract for himself
A few months later, on Feb. 1, 2012, Waddilove raised the idea of employment contracts for casino staff at a board meeting. He said the contracts would improve job security for employees, attract better workers, and improve staff morale. The board agreed and tasked Waddilove with drafting the standard contract to be used for all employees.
Waddilove drew up contracts for casino employees. The one he drew up for himself was for a seven-year term and required at least two weeks’ notice by either party to terminate the agreement. In addition the contract stated that “At any time if there is a change in board of directors or a restructuring, this contract will be honoured in its entire length. Any (dismissal) that does not have sufficient grounds will declare all wages of the remaining contract is paid out in full. This also includes demotion, layoff, lack of work, decrease in pay, change of title, and shutdown of business.”Waddilove, his father, his father’s friend, and his father’s former employee all signed his contract on Jan. 1, 2013.
Contracts for other casino employees were mostly for one or two years, with the exception of the operational manager, who was given a five-year term. All contracts — with the exception of Waddilove’s — contained a termination clause that limited notice entitlement for without-cause dismissal to “an amount as required by the Employment Standards Act, 2000 or other such legislation as may be in effect at the time of termination. This payment shall constitute the employee’s entire entitlement arising from said termination.”
In March 2013, a new board of directors for the casino and a new band chief were elected, none of whom were related to Waddilove. On Sept. 1, 2015, the board — who was unaware of Waddilove’s employment contract — terminated his employment and provided statutory notice, paying his salary until Nov. 1. Waddilove produced his contract that provided for payment of wages for the balance of its term until January 2020 upon termination for any reason without cause. He filed a claim for the additional four-plus years of pay.
Contract suspect for multiple reasons
The Ontario Superior Court of Justice noted that when Waddilove was rehired in September 2011 and appointed to the position of general manager — the most senior management position at the casino — it should have been clear that if the board of directors changed, his job security would be at risk. However, at that time he didn’t ask for a fixed-term contract guaranteeing his employment. In addition, when he signed his contract in January 2013, there was no change to his job duties or salary. Therefore, there was no fresh consideration given to the casino in exchange for him receiving what was essentially seven years’ notice of termination, the court said.
“When there is an absence of fresh consideration in a continuing employment relationship, the contract will be held to be unenforceable,” said the court.
The court also found that the Ontario Business Corporations Act (OBCA) required “every director or officer of a corporation in exercising his or her powers and discharging his or her duties to the corporation shall act honestly and in good faith with a view to the best interests of the corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.” However, Waddilove drew up a contract for himself that was the only one that didn’t provide the casino with the right to terminate without cause with payment of the statutory minimum. He gave himself special treatment and couldn’t explain why he didn’t bring this to the attention of the casino’s board of directors.
The court also noted that the casino board members who signed Waddilove’s contract — all with close ties to him — were ousted two months later and Waddilove didn’t mention anything to the new board members about the newly-signed employment contracts.
“To suggest the circumstances surrounding the execution of the contract have a strong odour of collusion would be an understatement — they reek of collusion,” said the court. “It is difficult to imagine a greater situation of conflict than the one created by (Waddilove) when he drafted and executed his own employment contract with his father, his father’s friend and his father’s employee executing the contract on behalf of the (Paradise casino).”
The court determined Waddilove breached his fiduciary duty to the casino by failing to disclose his conflict of interest to the board of directors and the band, which was a contravention of the OBCA. This, along with the lack of consideration the casino received for the contract’s termination provision, made Waddilove’s employment contract unenforceable, said the court.
The court also found that while Waddilove’s job performance deteriorated about one year after the change in the board of directors — he was often late, refused to follow orders from the board, and didn’t report daily to the bookkeeper — the casino didn’t follow its own progressive discipline policy, which stipulated informal coaching followed by a formal verbal warning, a formal written warning, and a final written warning before reaching the point of termination. Despite “numerous concerns” with Waddilove’s performance, the board didn’t give him warnings in accordance with the policy — three written warnings and one informal verbal warning in the summer of 2015. Without proper notification that his job was in danger and the opportunity to improve, Waddilove could assume he was doing a satisfactory job and the casino didn’t have cause to terminate his employment, said the court.
The court determined that the Paradise casino was free to terminate Waddilove’s employment without cause because his contract was unenforceable, but it had to provide proper notice. Since Waddilove had worked for six-and-one-half years with the casino, the court found he was entitled to six-and-one-half months’ pay in lieu of notice, minus the two months’ wages he received upon termination — a total of $18,000.
For more information see:
• Waddilove v. 1748960 Ontario Limited, 2018 CarswellOnt 564 (Ont. S.C.J.).
