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Court Awards Employee the Balance of a Five Year Contract and Value of 15% Ownership Stake

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Dawn Loyst commenced employment in 2003 with Chatten’s Better Hearing Service (“Chatten’s”) in the role of Office Manager.  When the business was purchased by Jim Maizis in 2006, Maizis entered into an agreement with Loyst whereby Loyst would continue her work as Office Manager for Chatten’s for a period of five years, at the conclusion of which Maizis would turn over 15% ownership in the business to Loyst and would work with Loyst to renegotiate her employment contract.  Loyst agreed.

Unfortunately, the business relationship between Loyst and Maizis began to sour.  In early March 2009, Loyst and Maizis had a tense phone call.  When they met a few days later to discuss the phone call, tensions once again escalated.  During this conversation, Maizis said he could no longer allow Loyst to be the Office Manager and that going forward, she was to have limited access to the business’ patients and she was to perform accounting services only.  He also told her that there would be no more bonus trips, or partnership meetings – which she had frequently attended in the past – as he did not want her representing the company.  Loyst responded that the proposed changes were unacceptable, to which Maizis replied that if she felt that way, she should pack up her desk.  Loyst did so later that day, left the office and did not speak to Maizis after that time.  Loyst then commenced a wrongful dismissal action against Chatten’s in the Ontario Superior Court of Justice.

At trial, Justice McEwen found that Chatten’s, by changing Loyst’s job description and her remuneration, had unilaterally altered fundamental terms of Loyst’s employment contract and that Loyst had expressly rejected the new terms.  Justice McEwen went on to state that since Chatten’s did not respond to the rejection by terminating Loyst with proper notice and offering to re-employ her on the new terms, it owed her what it had promsied to her under contract.

As a result, Justice McEwen ordered Chatten’s to pay Loyst her salary for the remaining 29 months and 13 days of her five year contract (less income she had earned during that period).  In addition, because Chatten’s agreement with Loyst stated that Maizis would turn over 15% ownership in the business to Loyst at the end of the five year period, the court ordered Chatten’s to pay Loyst the cash equivalent of 15% of the value of the business in addition to her salary over the remainder of the five year period.  As a result, Loyst was awarded approximately $257,000 in damages.

This case illustrates that employers need to proceed with caution when attempting to implement significant changes to an employee’s terms and conditions of employment – particularly where those changes are likely to be rejected by the employee.  The employer may need to resort, in many cases, to terminating the employee’s employment with proper notice and offering re-employment on the employer’s new terms.

Loyst v. Chatten’s Better Hearing Service, 2012 ONSC 1653: