Former company president awarded <i>Wallace</i> damages

Company's principle shareholder reneged on a deal to pay him

Farrell v. Workgroup Designs Ltd., 2005 CarswellOnt 330 (Ont. S.C.J.)

The former president of a technology company has been awarded payment in lieu of notice plus Wallace damages after a court found its principle shareholder reneged on a deal to pay him.

Patrick Farrell joined WorkGroup Designs Inc. in December 1994, on a part-time basis, to interact with bankers and financiers. The company was owned by Christopher De Cairos, a self-described “techie” who was more interested in technology than corporate management. Farrell was not paid a salary — instead he was given five per cent of the company’s shares.

In 2000 thought was given to going public, and Farrell told De Cairos of a mechanism (a “reverse takeover” or RTO) whereby he could do so and retain the same degree of control. Farrell also found someone to invest in the company, who did so, said the Ontario Superior Court of Justice, on the condition Farrell be more active in the company’s day-to-day activities.

At a February meeting the three men agreed Farrell would become the company’s full-time president with a salary of $8,000 per month. It would not be received unless and until the RTO was completed.

Two directors were brought into the company and its activities went on in a more formal manner. The company’s executives discussed Farrell’s deferred salary and it was agreed he’d be paid 20 per cent interest on it.

Relations deteriorated between Farrell and De Cairos when Farrell, on orders from the board, refused to hire De Cairos’ sister. If De Cairos insisted on it he, “would probably lose the board and then there would be no deal,” Farrell told him by e-mail. The sister was not hired and the deal was concluded.

In the following months a dispute arose over what money Farrell was owed. De Cairos claimed the five per cent of the shares was his payment in full and a payment made to Farrell for having concluded the deal was rescinded. When the matter came to a head, De Cairos claimed, Farrell resigned from the company.

Farrell filed an action for payment in lieu, seeking 12 months’ damages and 22 months of back pay plus interest. He also sought benefits, medical and business expenses and share options. The court found in favour of Farrell. The five per cent of the shares was paid to Farrell when he joined the company.

That agreement was not contingent upon him taking the company public. When the company was looking to go public, it was agreed Farrell would work full-time for WorkGroup Designs Inc. and be paid $8,000 per month. This was contingent on and deferred until after the RTO. After the company was re-organized, and a new board constituted, Farrell was reassured about his salary.

De Cairos was angry at Farrell because he resisted hiring his sister. He decided to take matters into his own hands and went back on the commitments he had made. He took steps to get back on the company’s board, override its earlier decisions and oust anyone who disagreed with him, ruled the court. Farrell did not resign and was instead wrongfully dismissed.

Farrell was awarded $101,282 plus interest for having completed the RTO, reasonable notice of seven months’ salary and benefits plus two extra months for Wallace damages because the company treated him in a callous and insensitive manner.

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