Magna exec’s transfer to lesser job really a termination: Court

Former CFO awarded $1.6 million after being misled into thinking a comparable position was coming

A former executive with Magna Entertainment Corp. (MEC) was wrongfully dismissed when he was shifted to a temporary position with a sister company, the Ontario Superior Court of justice has ruled.

Graham J. Orr, 61, joined the Magna Group of Companies in 1987. He moved up through the ranks until joining MEC as the executive vice-president and chief financial officer on Jan. 1, 2001, at the request of Frank Stronach, the chair of Magna. Orr signed an employment agreement specifying either party could terminate it by providing 24 months’ notice. After three years, the notice period would be reduced to 12 months. The agreement also allowed MEC to terminate Orr immediately if it gave him a “retiring allowance” equal to the salary and bonus he received in the two years before the termination. Again, after three years this amount would be reduced to one year’s salary and bonus.

Magna displeased with job performance

In mid-2002, MEC wasn’t happy with Orr’s performance and it hired an executive head hunter in October 2002 to find Orr’s replacement. Orr wasn’t told of the company’s sentiments and thought the company was pleased with the job he was doing, especially when it offered him the position of chief financial officer of another company in the Magna group. He declined it because it wasn’t comparable to his role at MEC.

On March 25, 2003, MEC told Orr it had found a replacement for him as chief financial officer and there was no possibility he would stay on. He was informed of a special project with MEC’s sister company Magna International Inc. (MII) that could result in a comparable chief financial officer position for him. Orr agreed to take the temporary special projects position rather than be terminated as long as the terms of his original contract with MEC remained in effect.

However, evidence in court showed Stronach had made it clear he “had no appetite to negotiate a new contract.” This upset Orr and he was concerned that since no permanent position had been established, Magna might wait until January 2004 and terminate him with only one year of severance pay as stipulated in his MEC contract. Stronach told Orr he didn’t want him to leave and wanted him in the special projects position. He assured him a comparable position would “materialize” in the future and assured him his retiring allowance wouldn’t be at risk. Orr signed an agreement on June 26, 2003, transferring his employment contract from MEC to MII.

To ensure Stronach and the Magna executive were clear on his position, Orr sent a letter to Stronach stating he would work on the special project until the anticipated completion date of Oct. 31, 2003. The letter went on to say if a comparable executive position didn’t develop in that time, he would be terminated under the two-year termination provisions of his existing employment contract.

Employer treated transfer as continuous employment

However, MII treated the contract transfer as uninterrupted employment and on Jan. 9, 2004, it terminated him with one year of working notice as more than three years had elapsed since the signing of the contract. In June 2004, MII told Orr there was no longer any work for him and paid him the balance of the working notice.

Orr filed for wrongful dismissal, saying the interim position was not a comparable position to the one under which he signed the contract. He maintained the timeframe would only continue when he received a comparable position as promised. Therefore, while he was in the interim position, the two-year termination provisions remained in effect.

Interim position not comparable

The court found Magna had not informed Orr it considered his special projects position as part of his permanent employment under the contract and were no longer looking for another position for him, despite the interim agreement and the fact MII had been looking for another job for him when he initially came over from MEC.

“(Magna) knew full well and throughout that (Orr’s) work at MII was an interim arrangement, he continued to rely on his rights with respect to the two-year termination retirement allowance provision, that the interim position was not comparable to the position set out in his employment contract and that he did not accept it as such,” the court said.

It was clear MII didn’t consider Orr’s special projects position as a comparable position, the court said, because “clearly a chief financial officer would not be given working notice, but (MII) purported to do just that when they gave him working notice on Jan. 9, 2004.”

The court found MII and Orr had an agreement in which MII would search for an executive position comparable to Orr’s MEC position with no change to his compensation and bonus, otherwise Orr wouldn’t have agreed to the transfer. Since MII had stopped considering him for an executive position, the court ruled Orr was terminated on July 28, 2003, the date his replacement at MEC began work. The termination provisions of his contract would be in effect on that date and not that of his Jan. 9, 2004 termination from MII. Therefore, the two-year retirement allowance would be in effect.

The court also found Magna had misrepresented Orr’s status when it gave him the impression in 2002 he was doing a good job, when in fact they weren’t happy with him and were planning to dismiss him from his position with MEC. Orr was also encouraged to stay in his interim special projects position with the promise of a permanent position which wasn’t going to materialize.

The court ruled Orr was entitled to the retirement allowance of two years’ salary and bonus as stipulated in his MEC contract, equal to $1,643,641.38 plus interest since his termination.

For more information see:

Orr v. Magna Entertainment Corp., 2008 CarswellOnt 114 (Ont. S.C.J.).

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