Employer cannot avoid contractual obligations

Coldmatic Refrigeration of Canada Ltd., a wholesaler of industrial refrigeration equipment based in Ontario, coveted the business of Bel-Par Industries Ltd., a competitor based in British Columbia. After its failed attempts to purchase Bel-Air, Coldmatic approached Frank Islip, Bel-Par’s refrigeration-division manager to try to hire him away.

Mr. Islip was interested in joining Coldmatic and had several discussions with George Zafir, Coldmatic’s president and principal shareholder. In May 1999 at the request of Mr. Zafir, Mr. Islip made a written employment proposal to Coldmatic.

In the proposal Mr. Islip indicated that his current salary with Bel-Part was $75,000 and he left blank the new salary to be paid by Coldmatic. His proposal also provided that Coldmatic would supply Mr. Islip with a pickup truck, the style and model of his choice. At the end of the contract Mr. Islip would have the option to purchase the vehicle for the price of $1. The proposal was for a two-year minimum contract.

On June 1, 1999, Mr. Islip traveled to Ontario to meet with Mr. Zafir and Coldmatic’s chief financial officer to review the offer. The offer was in the form as proposed by Mr. Islip with one addendum. The contract would be subject to a minimum $2 million sales target for 12 months. They did not fill in the blank regarding salary, merely circled the $75,000 figure as their acceptance of that amount.

On June 2, 1999, Mr. Islip tendered his resignation to Bel-Par, effective June 11, 1999. On June 7 he faxed some quotations for the pick-up truck to Craig Muzylo, Coldmatic’s vice-president of sales and marketing. Mr. Muzylo did not respond at first because he was concerned about the cost of the proposed truck. On June 15, 1999, Mr. Muzylo sent a letter to Mr. Islip outlining some less expensive trucks and stated that Mr. Islip would have the option of buying the vehicle at the end of the term of his employment for the residual value of the lease, rather than for the $1 stated in the signed document.

It became clear to Mr. Islip that Coldmatic would not agree to his truck proposal, so he took the position that Coldmatic had repudiated the agreement and informed Mr. Muzylo of his election to terminate the contract. In September 1999 Mr. Islip commenced an action against Coldmatic claiming damages for the repudiation of the contract of employment.

In defending the claim Coldmatic denied that there was a binding contract and denied the alleged repudiation. Coldmatic argued that Mr. Islip had fraudulently misrepresented the amount of his salary with Bel-Par. This misrepresentation entitled Coldmatic to avoid the contract or alternatively the misrepresentation manifested dishonesty which justified dismissal for cause.

At trial the judge found that there was a binding contract of employment between Mr. Islip and Coldmatic and that Coldmatic’s intransigence with respect to the truck constituted constructive dismissal. Mr. Islip was awarded damages in the amount of $109,786 for breach of the contract of employment.

Coldmatic appealed the trial judge’s decision. The primary question for the Court of Appeal was whether Mr. Islip’s pre-contractual false representation of the amount of his previous salary permitted Coldmatic to avoid the contract or to justify Mr. Islip’s discharge.

To establish fraudulent misrepresentation four elements must be established. First, the wrongdoer made a representation of fact to the victim. Second, the representation must be false in fact. Third, the party making the representation must have known that the representation was false at the time it was made. Fourth, the victim must have been induced to enter into the contract in reliance upon it.

The first two elements were clearly made out on the evidence. Mr. Islip’s salary at Bel-Par at the time of his negotiations with Coldmatic was $61,000 while he represented it in the employment offer as $75,000. The trial judge held that there had been no false statement knowingly made by Mr. Islip that induced Coldmatic to enter into the contract in reliance on that misrepresentation.

The Court of Appeal found that the evidence supported a finding that Mr. Islip knew that the misrepresentation was false. It is also clear that he made the representation intending that Coldmatic should rely upon it.

However it is not clear on the evidence that Coldmatic was induced to enter into the contract in reliance upon the misrepresentation. There was evidence from which it could be concluded that Coldmatic would have agreed to pay $75,000 annual salary even had they known that Mr. Islip’s annual salary at Bel-Part was only $61,000. Thus the four elements for fraudulent misrepresentation were not made out.

On the issue of dishonesty as a cause for dismissal, it is necessary to weigh the nature and degree of the dishonesty in the context in which it was manifested. Both the trial judge and the Court of Appeal agreed that the dishonesty was not sufficient to justify termination.

The Court of Appeal did agree to reduce the damage award to $72,800 as the evidence clearly demonstrated that Mr. Islip would not have reached the $2 million sales target in 12 months given the fact that he was on sick leave for one month.

For more information:

Islip v. Coldmatic Refrigeration of Canada Ltd., 2002 BCCA 255.

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