Ontario court sends stinging message to U.S.-based company

Canadian employee awarded nearly $650,000 in damages after 18 months on the job; judge blasts company as “bullies in a David and Goliath situation”

Geotel Communications (now Cisco Systems Inc.) was given a stern rebuke by Justice Donald Ferguson of the Ontario Superior Court in his reasons for judgment in a recent wrongful dismissal decision.

The case was launched by Carlyle Buchanan, a former district sales manager for Geotel. The reasons are important for their assessment of damages as well as the analysis of the implications in Ontario of employment documents which refer to U.S. law.

Given the number of issues dealt with by Justice Ferguson, this article will be published in two parts (the second part will be published in the April 16 issue of CELT.) This part focuses on the award of damages.

Buchanan was an experienced sales professional in the high-tech industry. In 1997 he was interviewed by Geotel for the position of district sales manager. During the hiring process Buchanan was assured he would be the sole Canadian sales representative and would represent all of Geotel’s product lines.

Geotel sold intelligent call routers (ICRs) which were used by individual call centres. Geotel also sold network intelligent call routers (NICRs) used by large telecom companies, such as AT&T Canada, to provide call-centre services to clients.

Shortly after Buchanan started, Geotel hired another sales professional to represent the NICR product line in Canada.

In certain cases a client would be considering purchasing an ICR directly from Geotel or entering into a service contract with AT&T Canada because of its NICR capability. This was known as “channel conflict.” It effectively pitted Buchanan against Geotel’s NICR sales team.

On April 12, 1999, after 18 months on the job, Buchanan was terminated. The termination was precipitated by a complaint from a senior AT&T executive that Buchanan had solicited a kickback from AT&T.

At trial the court found the AT&T representative could not be believed. In assessing credibility, the court was strongly influenced by the fact AT&T found itself in fierce competition with Buchanan’s ICR sales team.

There were also certain inconsistencies in the testimony given by the AT&T witness during trial and what he had previously written down in his e-mail complaint.

Accordingly no cause existed for dismissal. Given Buchanan’s relatively short stint at Geotel, the court awarded three-months’ compensation in lieu of notice. The court also analyzed whether further compensation was warranted because of the circumstances surrounding Buchanan’s hiring and firing.

The existence of channel conflict impacted negatively on Buchanan’s ability to earn large commissions on sales. The court found Buchanan was partly induced to accept the position with Geotel because he was not advised another sales group would be competing with him in Canada.

The Geotel sales compensation plan reserved the right to change Buchanan’s territory with a month’s notice. This provision, however, did not constitute a legal defence against the award of extended notice.

As a result the court awarded a further two-months’ compensation in lieu of notice based on the inducement and misrepresentation.

The court also awarded another three months of compensation due to a finding of bad faith in handling the dismissal. There were numerous instances of bad faith:

•Geotel made the decision to terminate Buchanan for cause, even before Buchanan could respond to the complaint;

•Geotel had failed to give the written complaint from AT&T to Buchanan, even when requested to do so;

•Geotel failed to give Buchanan a meaningful opportunity to respond to the complaint;

•Buchanan was not told the name of the accuser, so it was impossible for Buchanan to respond or give his side of the story;

•Geotel never provided Buchanan a written explanation of the reasons for his termination; and

•Geotel had sent a false letter purporting to confirm Buchanan’s resignation, when Buchanan had not resigned.

Justice Ferguson also observed, given the nature of the industry, the circumstances surrounding Buchanan’s termination would leave a “cloud of suspicion” over him.

There was also evidence regarding the devastating personal impact the termination had on Buchanan.

As an employee with a relatively short service history with Geotel, Buchanan was initially entitled to three months’ notice. The court increased the damage award by another five months because of its condemnation of the way in which the employer had treated Buchanan — both at the hiring and firing stages. Buchanan was awarded about $642,000 for damages in lieu of notice and for the loss of stock option rights. In separate reasons, the court awarded more than $238,000 for legal costs. In the costs decision, the court concluded:

“The defendants acted as bullies in a David and Goliath situation. While they had a right to litigate the factual issue of whether the plaintiff had made improper statements to a client, they should have known their position could not succeed because of the improper manner in which they handled that allegation.”

The moral of the story: be honest when you hire and be cautious when you fire for cause.

For more information see:

Buchanan v. Geotel Communications Corporation [2002], 18 C.C.E.L. (3d) 17, additional reasons, [2002] 26 C.P.C. (5th) 87 (Ont. S.C.J.)

Neena Gupta is a partner with Goodman and Carr LLP in Toronto. She is a member of the firm’s Human Resource Management Group. She can be reached at (416) 595-2480 or [email protected].

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