Employment agreement anticipated change in role and Ontario employee proposed new arrangement himself
An Ontario employee who proposed a consulting arrangement after his role with the company changed was not constructively dismissed from his employment contract that anticipated such a change, a court has ruled.
George Carras founded RealNet, a real estate information services company, in 1995. He ran the company until 2014, when he sold it to Altus Group Limited. Although Carras intended to leave RealNet once the sale was completed, Altus convinced him to stay on as president of RealNet during the transition.
Carras agreed to a three-year employment agreement — beginning on the date that the sale of RealNet closed — that stated he would continue to manage the business as its president during the first year. For the last two years, the agreement stated that “the company is amenable to having discussions with you about redefining your ongoing role and accountabilities with the company and, if mutual agreement is reached, amending the terms of this agreement.” According to Carras, Altus’ CEO told him he would be moved to a consulting arrangement after the first year.
Carras also agreed to a lower salary in exchange for stock options in Altus. To encourage Carras to stay on for the full three years, Carras wouldn’t be entitled to the stock options until the end of the last day of the employment agreement’s term. To receive the stock options, Carras had to be actively employed with Altus on the last day of the agreement’s term or be providing consulting services under a consulting agreement, unless Altus terminated him without cause.
The sale of RealNet closed in July 2014 and Carras continued to serve as its president into early 2015, when Altus decided to merge RealNet with three other divisions into a new division called Altus Data Solutions. Carras expressed interest in leading the new division, but Altus didn’t think he would be a good fit and felt he was better suited to remain in an external market-facing role.
Shift to consulting role
In early April 2015, Carras told Altus’ president of research, valuation and advisory in Canada that he would like to discuss a “fork in the road” with regards to his role with Altus. In August, the company hired someone to lead the new, amalgamated division and Carrus suggested he take on a “strategic advisor role that involved a one-year term in which he would attend the office twice per week and be paid monthly, and he would assist with business development, client meetings and market briefings.
Altus agreed to the preliminary terms of the consulting agreement and, although it didn’t finalize a written agreement or discuss the stock options from the original employment agreement, began paying Carras monthly and providing him with administrative support in exchange for market-facing services and attendance at the office two days per week.
In January 2016, the managing director of the new division asked Carras about the nature of his consulting work while reviewing the budget. Carras said he considered his consulting services to be the equivalent of termination pay or pay in lieu of notice of termination and he would leave at the end of the one-year term. He also said it allowed Altus to “leverage his relationships” and “bounce ideas off him” while he was still there.
In August 2016, the one-year consulting term ended. Carras went out for a drink with Altus’ CEO to mark the end of his relationship with the company. Carras went on vacation afterwards and, when he returned, his Altus email and telephone number had been disabled. He didn’t come into the Altus office anymore and no longer received any payment from the company. Carras worked on other projects, including some he had started while still consulting for Altus, and founded new companies.
On Aug. 4, 2017, Carras contacted Altus about exercising his stock options, as it had been three years since Altus had acquired RealNet and he had signed the original employment agreement. Altus responded that he wasn’t entitled to stock options because he wasn’t currently employed with the company or providing consulting services to it.
Constructive dismissal claim
Carras filed a claim for damages, saying Altus had terminated his employment after one year when it merged RealNet with other divisions and didn’t offer him a new role, instead converting his employment to a consulting position. This amounted to constructive dismissal without cause and entitled him to stock options, he argued.
The court found that Carras’ position didn’t change when Altus merged RealNet into a new division under someone else. Altus wanted Carrus to continue performing the same external market-facing duties he had been doing and, although Carrus was interested in heading the new, amalgamated division, it was a different role. The company’s failure to put Carrus in that role wasn’t a significant change in the terms of his employment, said the court.
The court noted that, after the merge, Altus didn’t take any formal steps to separate Carras from the terms of the original employment agreement signed in 2014 and Carras didn’t indicate that he felt his employment was being terminated. Carras didn’t ask to have his stock options conveyed to him and never asked about their status during the following year when he was performing consulting services. If he had, Altus “would have been contractually required to confirm they were still available,” the court added.
“There was no constructive dismissal because the employer did not act as if the agreement was at an end or as if it was no longer bound by it.”
The court also found that the original employment contract “anticipated that the parties could agree to alter the form of their relationship from employment to a consultancy,” which they did, therefore, “carrying out the contractual intent.” There was no ambiguity in this contractual intent, as Carras was “a sophisticated individual with extensive business experience” and it was his proposal to move into a consulting role in August 2015 — a proposal Altus accepted and under which it began paying him, said the court.
While the court found there was no constructive dismissal, it also pointed out that, if there was, Carras acquiesced to the changes in the employment relationship. Carras didn’t dispute the appointment of someone else as president of the new division, ask for severance pay or claim he was entitled to receive his stock options at the time of the change. In fact, Carras initiated the negotiations for his consulting agreement and worked for one year under the terms he proposed, said the court.
Carras’ constructive dismissal claim was dismissed.
For more information, see:
- Carras v. Altus Group Limited, 2020 ONSC 2936 (Ont. S.C.J.).
