New owners made several changes to terms of employment enshrined in transition agreement that constructively dismissed former owner of Ontario funeral home
An Ontario funeral home must pay a former owner who became general manager after selling the business more than $1.2 million after changing several terms of a transitional service agreement that breached the agreement and amounted to constructive dismissal.
Grant McGuinty ran the McGuinty Funeral Home in North Bay, Ont. with his brother for many years. The funeral home was started by their grandfather many years earlier and had been a family-run business since its inception. McGuinty and his brother took over the business in 1990, with McGuinty serving as the face of the business, attending community events and participating in charitable work.
However, McGuinty’s brother fell ill and wasn’t able to continue working. The funeral home was too much for McGuinty to run on his own, so he decided to sell it to another set of brothers, Gary and Steven Eides, who owned a funeral home in a nearby town and a funeral chapel in another town.
The sale was completed on Oct. 1, 2012 and included a transitional consulting services agreement (TCSA) that provided for McGuinty to stay on working as the funeral home’s general manager for a period of 10 years until Sept. 30, 2022. It recognized McGuinty as “the key employee” of the business and he was to be available to the new owners “during normal weekday hours of operation or regularly scheduled evenings and for such lengths of time as may be mutually agreed” including 37.5 hours per week “during weekdays only and excluding evenings unless agreed upon.”
The TCSA also granted McGuinty expenses for a company vehicle and fuel, five per cent commission on prepaid funerals booked before the sale closing when they were paid for and 65 per cent of the “marketing allowance” component of “in-house” pre-arranged funeral packages.
However, early on into the arrangement, a dispute arose between McGuinty and the Eides brothers over how many hours were to be spent on funeral-related work versus customer relations, the use of the company vehicle and gas card for personal purposes, the length of time for which McGuinty received the five-per-cent commission on prepaid funerals and whether the marketing allowance was for in-house funeral packages McGuinty himself arranged or for all in-house packages.
Soon, a lack of trust developed between McGuinty and the new owners, and another employee — who was McGuinty’s subordinate — was asisgned with tracking the amount of time McGuinty spent in the office. The new owners asked McGuinty to return the company vehicle and reimburse the business for personal gas charges, which McGuinty believed was a breach of the TCSA.
In early September 2013, McGuinty went into the funeral home and removed several personal items. Gary Eides believed he also threw out some files, so he decided to change the locks without advising McGuinty.
Medical leave due to work-related stress
Shortly thereafter, McGuinty went on medical leave for two weeks, providing a note from his doctor. After a reassessment, McGuinty provided a second note that said he was to be “off work for medical reasons while work issues are resolved.” There was no further contact between McGuinty and the owners until McGuinty was invited back on Oct. 4. However, when he returned, Gary Eides said he looked terrible and Steven didn’t want him to come back — though Gary later denied this meeting took place.
McGuinty remained off work and in late October attended a funeral for his cousin at the funeral home, when he discovered his desk had been moved from a prime location in the office to the basement. The owners claimed the desk had been moved months earlier and was used by a pre-arranged funeral agent, but McGuinty took it to mean they didn’t want him back.
McGuinty met with Gary Eides on Dec. 13, 2013 and said he wanted to return to work. Gary Eides said he could return to work if he provided a doctor’s note that said it was “appropriate” for him to return. McGuinty denied this meeting took place and never returned to work, filing a legal action claiming he was constructively dismissed — requiring him to pay for gas and return the company vehicle along with tracking his hours, limiting commission on prepaid funerals, changing the locks and moving his workstation were all substantial changes in his employment contract — and discriminated against because of his medical issues. He also claimed damages for breach of the TCSA and intentional infliction of mental suffering.
The Ontario Superior Court of Justice agreed that the company vehicle and gas issue was a breach of the TCSA, as not providing those would mean no benefit to McGuinty, the contract didn’t specify it was just for business use and the funeral home paid all vehicle expenses for several months before the owners raised the issue.
The court agreed that the requirement for McGuinty to pay for his personal gas and vehicle was a breach of the TCSA and a significant change in the employment contract — the cost of a vehicle lease, insurance and gas was about $12,000 to $15,000 per year, which was an effective reduction of salary of 12 per cent. However, when McGuinty objected to it, he didn’t step down or raise the issue of breaching the TCSA, he continued working. As a result, he didn’t treat the owners’ conduct as a repudiation of the employment contract, said the court.
The court noted that the five-per-cent commission was meant only to be paid during the 10-year term of the TCSA, as the definite end date, the purpose of the commission — incentive for McGuinty to preserve the reputation of the business while he still worked there — and the fact the TCSA was a transition agreement made it clear it was only for the specific term of the agreement. In addition, the 65-per-cent marketing allowance wasn’t restricted by the language of the agreement, and it made sense to provide an incentive for McGuinty to train employees if it applied to all in-house funeral packages.
The court also found that, while McGuinty considered time spent on customer relations outside of the funeral home part of his required hours, the TCSA made it clear he was to be available for work at the funeral home during regular business hours and occasionally evenings when agreed upon. Customer relations work outside of the funeral home didn’t help with the transition of the business, which was the intention of the agreement. When the owners felt McGuinty wasn’t spending enough time in the office, they were entitled to “some assurance that this work commitment was being met” through monitoring of McGuinty’s hours, said the court.
However, though the funeral home owners were entitled to make some of the decisions, several of their actions taken together amounted to constructive dismissal:
• Improperly terminating McGuinty’s use of the company vehicle
• Assigning a subordinate employee to track McGuinty’s hours, thus undermining his authority
• Denying McGuinty commissions to which he was entitled
• Changing the locks to the funeral home without notifying McGuinty.
Overall, the course of conduct by the new owners of the funeral home would “lead a reasonable person in [McGuinty’s] postion to conclude that [the funeral home] no longer intended to be bound by the TCSA.” By not returning to work and staying on medical leave “due to depression and anxiety caused by that very conduct,” McGuinty accepted the funeral home owners’ repudiation of the employment contract, the court said.
The court denied the claim for damages for intentional infliction of mental suffering, as the new owners’ conduct stemmed from “an honestly held but mistaken understanding of the contractual obligation,” particularly since they didn’t know McGuinty was suffering from work-related stress issues until he went on medical leave. For this same reason, there was no discrimination based on disability, said the court.
The funeral home was ordered to pay McGuinty for his compensation and benefits for the remaining nine years of the TCSA — $900,000 in salary; $108,000 in vehicle expenses; $90,000 in medical benefits; $9,000 for an annual golf membership that was part of the contract; $125,350 in unpaid commissions from payment of pre-arranged funerals; and $41,823.83 in unpaid commissions from pre-arranged in-house funeral packages — for a total award of $1,274,173.83.
See McGuinty v. 1845035 Ontario Inc. (McGuinty Funeral Home), 2019 ONSC 4108 (Ont. S.C.J.).