Employees can shop around for a favourable jurisdiction

Life in the post-NAFTA era

Background

In the post-North American Free Trade Agreement era, it is not uncommon for related corporations to have operations in the United States, Canada and Mexico. Current immigration regimes facilitate the mobility of senior management throughout the organization, regardless of national boundaries.

Recently there have been a number of cases which illustrate some of the complex employment issues that arise when the laws of more than one jurisdiction are invoked over a dispute. Employers with operations in both the United States and Canada should take note of the decision of the Superior Court of Ontario in Hodnett v. Taylor Manufacturing Industries Inc.

The case: Hodnett v. Taylor Manufacturing Industries Inc.

Steve Hodnett was employed in Ontario by Taylor Manufacturing Industries Inc. between 1992 and 1997. During the course of his employment with Taylor, Hodnett worked in sales and ultimately rose to the position of director of international sales. In January 1998 Hodnett moved to Atlanta to assume control of Taylor Malone, an associated U.S. company.

From 1999 onwards, he was paid by the U.S. division, had U.S. deductions taken from his earnings and paid U.S. taxes on those earnings. In June 2001 Taylor terminated Hodnett's employment without cause. Under Georgia law, he was not entitled to either reasonable notice or compensation in lieu, as Georgia assumes that employment agreements are “at will” and can be terminated by either party without notice.

Hodnett did not have a written contract with either company. He sued both the Canadian and American operations of Taylor in Ontario for wrongful dismissal. Both defendants moved to stay the action in Ontario, taking the position Ontario was not the proper forum for the determination of the wrongful dismissal action.

Determining jurisdiction

The court in Hodnett applied a two-stage approach to jurisdiction in order to determine if it should assume jurisdiction over the wrongful dismissal action. The first stage is to determine if there is a "real and substantial connection" between the Canadian court and the subject matter of the claim. In this respect, the court considered the following factors:

•the connection between the jurisdiction and the plaintiff's claim;

•the connection between the jurisdiction and the defendant;

•any potential unfairness to the defendant in the Ontario court assuming jurisdiction;

•any potential unfairness to the plaintiff in the Ontario court not assuming jurisdiction;

•the involvement of other parties in the case;

•the court's willingness to recognize and enforce an extra-provincial judgment rendered on the same jurisdictional basis;

•whether the case is inter-provincial or international in issue; and

•whether the Ontario judgment would be recognized and enforced in the other jurisdiction and whether Ontario recognizes and enforces decisions made in the other jurisdiction.

Why the Ontario court agreed to hear the case

After reviewing those factors, the court concluded Hodnett's claim had a real and substantial connection to Ontario. The court considered that:

•Hodnett was a long-term employee of Taylor Ontario;

•the agreement concerning the U.S. company was made in Ontario when Hodnett was still employed by Taylor Ontario;

•there was a strong argument that the law of Ontario would govern the employment agreement;

•the operations of Taylor in Ontario and the U.S. were controlled by the same individual who was principally in Ontario;

•there was no unfairness in having the U.S. company stand beside Taylor’s Ontario operations before the same court in Ontario to answer Hodnett's claims;

•the claim against the Ontario operations of Taylor was properly brought in Ontario; and

•courts in Ontario and Georgia recognize each other's judgments.

In addition the court found there would be significant unfairness to Hodnett if he were compelled to litigate the dispute in Georgia, which is an "at will" employment law jurisdiction. Hodnett would have no claim in Georgia as he would not be entitled to reasonable notice of termination of his employment.

Even though the court found Hodnett's wrongful dismissal claim had a "real and substantial connection" to Ontario, the court still had the option of invoking its discretion to decline jurisdiction on the basis that Georgia was the more appropriate jurisdiction. In this case the court refused to exercise its discretion to decline jurisdiction.

The fact Hodnett would be precluded from advancing his claim for damages for wrongful dismissal in Georgia weighed very heavily in the mind of the court.

Although this was a preliminary jurisdictional motion, the court awarded the successful plaintiff employee legal costs in the amount of $10,000 as a result of successfully defending the employers’ jurisdictional motion. An employer who wishes to bring this type of motion should therefore be mindful of the potential significant costs involved if the motion is unsuccessful.

For more information see:

Hodnett v. Taylor Manufacturing Industries Inc. (2002), 18 C.C.E.L. (3d) 297 (O.S.C.)

Protecting multinational employers

Employers can avoid uncertainty of which laws and jurisdictions are in play

Multi-jurisdictional employers can protect themselves by entering into specific employment contracts with their employees that deal with all aspects of any transfer to a related company in another jurisdiction. Such contracts can include the following:

•a contractual stipulation regarding which law governs the employment relationship and the employment contract;

•a contractual stipulation regarding which court has jurisdiction over any disputes;

•a waiver and release of all claims and rights against the original employer, except for specific on-going obligations such as registered retirement savings plans and pensions;

•an explicit indication regarding how seniority with the original employer will be credited or treated by the new related employer;

•details regarding when benefits from the original employer will end and when benefits with the new employer will commence;

•commitments regarding the cost of relocation and whether the employee will have to repay a portion of the relocation costs if he voluntarily quits with a specified period of time;

•assistance regarding immigration approval for employee and family;

•general relocation assistance, including tax consultation, real estate services and transition counseling for a working spouse; and

•specific terms regarding the employee’s rights and obligations if terminated without cause including the terms of a severance package, if any, and relocation to the home jurisdiction.

By including these types of terms in an employment contract an employer can protect itself and avoid the uncertainty that accompanies the exercise of judicial discretion regarding both the law that will govern an employment dispute and the jurisdiction that will ultimately hear such disputes.


Cases of note

In Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 (S.C.C.), the Supreme Court of Canada established the “real and substantial connection” test for determining whether a Canadian court should assume jurisdiction over a matter.

The court noted that “the approach of permitting a suit where there is a real and substantial connection with the action provides a reasonable balance between the rights of the parties. It affords some protection against being pursued in jurisdictions having little or no connection with the transaction or the parties.”

The court also noted that in determining whether or not a real and substantial connection existed, the court should not adopt a rigid approach but should adopt an approach that allowed for more flexibility.

See also: Muscutt v. Courcelles, 2002 CarswellOnt 1756 (Ont.C.A.)


This in-depth look at employment contracts was provided by Neena Gupta and Mark Mason, lawyers with Goodman and Carr LLP. They are members of the firm’s Human Resource Management Group. They can be reached at (416) 595-2300.

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