Superior Court of Justice Certifies a Class Action for Wrongful Dismissal Against IQT

On January 2, 2014 Justice Perell of the Ontario Superior Court of Justice certified a class proceeding by 527 wrongfully terminated employees led by Bob Brigaitis and Cindy Rupert (represented by Ted Charney of Charney Practice Group) against their now bankrupt employer, IQT Solutions and the officers, directors, shareholders John Fellows, Alex Mortman, David Mortman, Renae Marshall and affiliated companies IQT Canada, Ltd., JDA Partners LLC, and IQT Inc. The employees seek to recover $20 million in unpaid wages and severance plus aggravated and punitive damages of $10 million.

This is the third follow up to previous Slaw posts (here and here) regarding IQT’s closure. Back in July 2011, IQT Solutions shut down its Canadian operations: three call centres—one in Ontario and two in Quebec—without prior warning to employees. About 1,200 IQT employees were suddenly unemployed with no final paycheque, vacation pay, termination pay or pay in lieu of notice, severance pay or benefit continuance. On December 20, 2011, on an application by Revenu Québec and by order of the Superior Court of Quebec, IQT Ltd. was assigned into bankruptcy.

Some facts and certification motion

The government in Ontario took several measures over the last three years to try to protect the rights of these employees. In addition, 261 claims were filed with the Ontario Ministry of Labour, Employment Standards Branch to try to recoup unpaid wages and 242 employees have already received MOL orders against IQT and its directors in the amount of $503,794.97. In 2012, the ministry issued another pay order against the Mortmans to pay $124,584.67 in unpaid wages and vacation pay to 140 employees, 136 of whom had not filed a complaint with the ministry. The ministry filed a proof of claim with IQT Ltd.’s trustee in bankruptcy for amounts owing to employees. In addition, many former IQT Ltd. employees applied for and received payments under the federal government’s Wage Earner Protection Program Act. The Mortmans’ have filed a review at the Ontario Labour Relations Board and the federal government was granted standing to advance subrogated claims for the payments it made to the employees under the WEPPA.

Notwithstanding the above, some felt they could get better results by filing a civil action and did not participate in the MOL or WEPPA remedial processes, and on August 16, 2011, a class action suit was brought forth. Others withdrew their ESA claim and joined the class action suit.

The employees’ class action claims against IQT and the other defendant alleged in the certification motion, include: wrongful dismissal, conspiracy, negligence, inducing breach of contract, and breach of fiduciary duty. They alleged that despite IQT’s insolvency, the defendants transferred IQT Ltd.’s assets and funds into a bank account administered by JDA Partners (which has the same shareholders as IQT) and used those funds for their own purposes including travels, monthly golf and country club dues, cars, and quarterly dividend payments to the Mortmans’ family and friends.

Specifically, according to the motion:

  • The negligence claim is that the Defendants breached a duty of care to ensure that if IQT, Ltd. ceased operations, it could pay termination entitlements to the employees.
  • The conspiracy claim is that the Defendants conspired to wrongfully dismiss the employees and conspired to divert assets away from IQT, Ltd. that should have been available to the employees.
  • The inducing breach of contract claim is that the Defendants stripped IQT, Ltd. of assets disabling it from paying the employees upon termination.
  • The oppression claim is that the employees had a reasonable expectation of receiving termination compensation and the Defendants breached the duty of ensuring funds were available.
  • The breach of fiduciary duty claim, which relies on New York State law, alleges that the Mortmans stripped IQT, Ltd. of assets and prevented IQT, Ltd. from paying employees their termination entitlements.

Despite the fact that section 97 of the Employment Standards Act (ESA) specifies that an employee who files a complaint with the MOL for unpaid termination and severance pay under the ESA cannot commence a civil proceeding for wrongful dismissal if the complaint and the proceeding would relate to the same matter, 236 of the class members who had filed a complaint under the ESA had joined the class action suit.

The defendants challenged the class action suit claiming, among other things, that the Court could not assume jurisdiction over the claims of class members who had filed or obtained relief from the MOL, and that it is an abuse of process because there is another proceeding pending at the Ontario Labour Relations Board between the same parties in respect of the same subject matter. In their opinion, more than 70 percent of class members are attempting to collect a remedy twice.

As for the other claims, the defendant felt that the various claims advanced in the plaintiffs’ proposed class action fail the preferable procedure criteria under s. 5(1)(d) of the Class Proceedings Act (CPA). In other words, the class action would not be preferable to other reasonably available means of resolving the class members’ claim.

Decision

To help in the analysis of who should be part of this class action suit, Justice Perell divided the class members into three groups:

  1. The former employees who had filed claims under the ESA and received orders in their favour from the ministry (242 former employees)
  2. Those who did not file claims under the ESA but nonetheless benefited from the ministry’s orders when they were assessed (136 former employees )
  3. Those who did not file a claim and were not covered by the orders (149 former employees)

After careful analysis of the claim, Justice Perell decided not to exclude group 1 because although they could not pursue damages for wrongful dismissal, they were free to advance claims for the other aspect of the class action suit. As for group 2, although they received relief from the MOL, using a literal interpretation of s. 97 of the ESA, these class members had not voluntarily sought relief or filed claims under the ESA, and as a result could not be barred from any aspect of the claim. If the class action succeeds, amounts received by group 2 from the OLRB or Ministry of Labour will have to be taken into consideration and deducted from any award.

As stated by Justice Perell:

“[Group 2] will require individual issue trials to quantify their wrongful dismissal losses, and in those individual issues trials, will have to give credit for what they recover in the proceedings before the OLRB for unpaid wages and vacation pay.”

However, the claims for negligence, conspiracy, inducing breach of contract and oppression were not part of the ESA remedial proceeding and thus all former employees in all groups are permitted to seek a remedy under these causes of action.

As for the breach of fiduciary duty, Justice Perell decided that the plaintiffs’ claims for breach of fiduciary duty and aiding or abetting a breach of fiduciary duty should not be certified, and those claims should be dismissed.

Perell found that, in the case at bar, a class proceeding is the appropriate method of advancing the claims of the class members:

“[171] While it is true that the common issues trial will not necessarily be dispositive of all issues between the Class Members, and some of the Class Members (but not the Section 97 Group members [Group 1 in this article]) will have to go on to individual issues trials, the common issues trial will make a substantial advance in the litigation and will determine whether it is worthwhile for the Assessed Group and the No DOTP Group [Group 2 and 3 in this article] to proceed to individual issues trials for a quantification of their losses.

[172] There is no preferable procedure or meaningful alternative to the Superior Court adjudicating the Class Members claims’ for negligence, conspiracy, inducing breach of contract, and for an oppression remedy. If the Defendants are successful in defending these claims, there will be very few individual issues trials. Conversely, assuming that the Plaintiffs are successful at the common issues trial, there is also the prospect that some members of the Assessed Group [Group 2] may not need to proceed to individual issues trials. The Assessed Group [Group 2] may be satisfied with the quantum of the award made by the OLRB and the outcome that the Defendants are liable to pay that award as the damages for their negligence, conspiracy, inducing breach of contract, or oppression remedy claim.”

So, the Ontario Superior Court has added to the decisions confirming that class action proceedings are appropriate—even preferable—for claims arising from mass terminations, even if the common issues trial won’t dispose of all the issues and some of the class members have already started or finished proceedings in other forums, particularly with the Ministry of Labour and the Labour Relations Board, which preclude class claims. Together with the certification of classes in recent overtime actions, the IQT case provides a further example of the breadth of class proceedings that courts will certify in the employment arena. We look forward to seeing how this and the others play out in court.

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