Northern Exposure

Transferred employee’s wrongful dismissal suit lands in New York court

by Bonny Mak Waterfall and Rachel Younan

When a Canadian employer transfers its employee to a non-Canadian entity, is it still on the hook for wrongful dismissal damages? Recently, an Ontario court declined to hear a civil action claiming wrongful dismissal damages from an employee who was transferred to a United States subsidiary of a Canadian company. However, the judgment left open the possibility that different facts may lead to a different result.

Facts

An employment relationship between an employee and Four Seasons Hotels Limited began in Toronto, Ontario, when the employee became Four Seasons’ director of sales. After five years in that role, the employee signed a new employment contract in Ontario that arranged for her transfer to and employment by Nevis Resort in New York. Nevis Resort was a subsidiary of Four Seasons.

Three years after moving to New York, the employee’s employment was terminated without cause. She commenced a civil action in Ontario against Four Seasons, alleging wrongful dismissal and various violations of Ontario’s human rights legislation.

In response, Four Seasons brought a motion before the Ontario court seeking a dismissal or permanent stay of the civil action on the grounds that the Ontario court lacked jurisdiction over the matter or, in the alternative, that the court should decline to exercise its jurisdiction.

At stake for the employee was the availability of common law reasonable notice of termination—an entitlement that existed in Ontario but not in New York.

Parties’ arguments—jurisdiction

In order to determine if the Ontario court had jurisdiction over the employee’s claims, the court asked whether there was a “real and substantial connection” between the dispute and the Ontario court by analyzing the relevant factors:

• Where the defendant is domiciled or resident in the province;
• Where the defendant carries on business in the province;
• The tort at issue was committed in the province; and
• A contract connected with the dispute was made in the province.

The employee argued that since Nevis Resort was managed by Four Seasons’ Ontario head office and was a subsidiary of the Ontario corporation, the first two factors were present. In addition, as both contracts were prepared and signed in Ontario, the fourth factor was also established. Finally, the employee referred the court to the “common employer” doctrine in Canada, which imposes joint and several liability for breaches of an employment contract on the legal entities that had a meaningful role to play in the employment relationship.

In response, Four Seasons argued that the common employer doctrine was not an appropriate factor to consider in the “real and substantial connection” analysis. Four Seasons emphasized that Nevis Resort was the true employer as it exercised control over the employee through the supervisors it employed. Further, Four Seasons noted that the execution of the second contract in Ontario showed only a “tenuous connection” since the contract was a contract for employment in the United States.

The court found that there were compelling reasons to conclude that Four Seasons’ human resources manager in the Ontario office had effective control over the employee’s employment as she had drafted the second contract, advised the supervisor who terminated the employee’s employment, and regularly advised human resources supervisors in other offices.

The court further agreed that Nevis Resort’s termination decisions were subject to the influence of the Ontario office. Based on those findings, the court concluded that there was an employment relationship between the employee and Four Seasons and that the Ontario court had jurisdiction to hear the dispute.

New York court better suited for case

The burden then shifted to Four Seasons to show that, despite having jurisdiction, the court should decline to exercise its jurisdiction on the basis that New York was a forum “better situated to deal fairly and efficiently with the dispute” in light of the relevant factors:

• The location where the contract in dispute was signed;
• The applicable law of the contract;
• The location of witnesses, especially key witnesses;
• The location where the bulk of the evidence will come from;
• The jurisdiction in which the factual matters arose;
• The residence or place of business of the parties; and
• The loss of a legitimate juridical advantage.

In this case, although both contracts were executed and signed in Ontario, the witnesses who would provide the majority of evidence at trial were situated in New York and the factual matters relating to the employee’s termination of employment also arose in New York. Further, the residence or place of business of the parties was generally split between Ontario and New York.

As the two contracts failed to address which law would apply to the dispute, the court could not assess this factor. Despite the employee’s emphasis on her loss of access to the remedy of common law reasonable notice if the Ontario court declined to exercise its jurisdiction, the court agreed with Four Seasons that this consideration should not weigh heavily in the analysis. Ultimately, the court concluded that New York was the more appropriate forum.

Lessons learned

In this case, the involvement of Four Seasons’ Canadian human resources manager in drafting the employment contract, assisting with the employee’s immigration matters, and providing performance management and termination advice to Nevis Resort were all significant factors that led the court to conclude that Ontario had jurisdiction over the employee’s claims.

In addition, it is likely that the court would have concluded that the action should proceed in Ontario but for the fact that the factual matters at the core of the dispute—and most of the witnesses and the evidence—were located in New York.

As a result, this case serves as a note of caution for Canadian employers who regularly transfer employees to the United States and intend for the non-Canadian entity to assume the role of the employer. Such employers may wish to carefully review their cross-border transfer practices to determine if they are exposed to similar risks as Four Seasons and then consider implementing strategies to minimize those risks.