ADM Measurements Ltd. v. Bullet Electric Ltd., 2012 ABQB 150

Court of Queen ’ s Bench of Alberta Citation: ADM Measurements Ltd. v. Bullet Electric Ltd., 2012 ABQB 150 Date: 20120307 Docket: 0203 17582 Registry: Edmonton Between: ADM Measurements Ltd., Plaintiffs - and - Bullet Electric Ltd., Bullet Energy (Canada) Inc., Gregory William Young, and Larry Warnock Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice A. W. Germain _______________________________________________________ I. Introduction and Preliminary Applications........................................................... Page: 3 II.

Issues...................................................................................................................... Page: 4 A. The Action Against the Defendants......................................................... Page: 4 B. The Counterclaim....................................................................................... Page: 4

III. The Parties’ Positions........................................................................................... Page: 4 A. The Plaintiff................................................................................................. Page: 4 B. The Defendants.......................................................................................... Page: 5 IV. The Background..................................................................................................... Page: 6 A. ADM............................................................................................................ Page: 6 B.

Greg Young / Bullet.................................................................................... Page: 7 V. The Character of the ADM and Young/Bullet Relationship................................ Page: 8 A. Facts............................................................................................................ Page: 8 B. Analysis..................................................................................................... Page: 10 1. Bullet.............................................................................................. Page: 10 2.

Independent Contractor or Employee?..................................... Page: 10 VI. Obligations under the ADM / Young Contract................................................... Page: 12 A. Restriction on Competition..................................................................... Page: 13 B. Fiduciary Status....................................................................................... Page: 13 1. Fiduciary by Contract.................................................................. Page: 15 2. Fiduciary as a Key Senior Manager.......................................... Page: 16 C. Mr.

Young’s Fiduciary Status.................................................................. Page: 16 VII. The End of the ADM/Young Contract................................................................. Page: 19 A. The Events of September 18, 2000....................................................... Page: 19 1. Sale of ADM to Mr. Beaver......................................................... Page: 19 2. Sanction of Mr. Young’s Alleged Misconduct........................... Page: 21 a. The Generators................................................................ Page: 21 b.

Fighting............................................................................. Page: 23 c. Improper Billing................................................................ Page: 23 3. Conclusion - the September 18, 2000 Meeting....................... Page: 23 B. Mr. Young’s Response to the September 18, 2000 Meeting.............. Page: 24 C. Was Mr. Young Constructively Dismissed or Fired?........................... Page: 24 1. Constructive Dismissal............................................................... Page: 24 2. Employee Compensation...........................................................

Page: 25 3. Alternative Bases for Termination.............................................. Page: 26 4. Conclusion.................................................................................... Page: 27 VIII. Implications of the Wrongful Termination.......................................................... Page: 27

A. Implied or Specific Contract Terms....................................................... Page: 27 B. Fiduciary Obligation................................................................................ Page: 28 IX. Post-September 19, 2000 Developments........................................................ Page: 29 A. Interference with Contractual Relationships.......................................... Page: 32 B. Poaching ADM’s Employees................................................................. Page: 33 C.

Conclusion on Liability............................................................................ Page: 35 D. The Causation Question - Did Bullet Energy Cause ADM’s Business to Decrease? Page: 36 1. Bullet Energy’s Immediate Success.......................................... Page: 36 2. ADM Scaling Back...................................................................... Page: 36 3. Conclusion.................................................................................... Page: 37 X. Damages..............................................................................................................

Page: 37 A. Disgorgement of Profits or Award of Plaintiff’s Loss........................... Page: 37 1. Lost Profits or Disgorgement of Profit....................................... Page: 38 2. Making the Injured Plaintiff Whole.............................................. Page: 38 3. Mr. Warnock and ConocoPhillips.............................................. Page: 38 4. Mr. Young’s Own Activities......................................................... Page: 39 5. Mr. Young’s Contractual Right to ADM’s Profits....................... Page: 40 6.

Failure to Mitigate ....................................................................... Page: 41 7. The Duration of a Fiduciary Duty................................................ Page: 44 B. The Plaintiff’s Damage Model................................................................ Page: 45 XI. The Counterclaim................................................................................................. Page: 47 A. The Bonus Trigger Threshold................................................................. Page: 47 B.

Are Profits Before or After Tax?............................................................. Page: 48 XII. Conclusion............................................................................................................ Page: 50 I. Introduction and Preliminary Applications [ 1 ] The parties had a business relationship. It soured. ADM Measurements Ltd. [“ADM”] sues Bullet Electric Ltd. [“Bullet”] and its director Gregory William Young for breach of an alleged fiduciary duty arising out of a contract of services provided by Bullet or Young to ADM.

[ 2 ] ADM also sues Bullet Energy (Canada) Inc. [“Bullet Energy”] and Larry Warnock: 1. for unjustly enriching themselves at the expense of ADM, and 2. by unfairly interfering with contractual relationships between ADM and ADM’s third party customers and ADM employees. [ 3 ] ADM claims against the Defendants approximately $2.5 million in damages plus interest. The Defendants resist this claim, while Mr. Young/Bullet advance a counterclaim for unpaid compensation for a period when Mr.

Young was in an ongoing work relationship with ADM. [ 4 ] This lawsuit originally involved two other parties: plaintiff Doug McCullough, who operated as Willow Ventures , and defendant Colleen Mildred Young. At the commencement of the trial, upon the joint submission and agreement of both counsel, these two persons were discharged from the lawsuit without costs. The style of cause no longer reflects their involvement. II. Issues A. The Action Against the Defendants [ 5 ] There is no dispute that Young worked for ADM.

However, this case requires the Court go through a number of analytical steps to conclude whether Young injured ADM after that relationship ended. [ 6 ] That means I must: 1. characterize the nature of the contract relationship between Young (and Bullet) and ADM, 2. determine what obligations flowed from that relationship, 3. identify how the work relationship ended, specifically who breached the contract between Young (and Bullet) and ADM, and 4. conclude whether any of Young (and Bullet’

s) post-ADM conduct warrants an award of damages. [ 7 ] Larry Warnock and Bullet Energy were never in a contractual or other formal relationship with ADM. My analysis in relation to these parties will therefore focus on whether they interfered with ADM’s contractual relations, induced breach of a contract with ADM or were unjustly enriched. B. The Counterclaim [ 8 ] Young (and Bullet’

s) counterclaim is for cumulative unpaid bonuses that ADM had allegedly agreed to pay Young between 1998 through to 2000 under certain conditions. My analysis will therefore address three chief questions: 1. under what circumstances would those bonuses have been awarded,

2. were those criteria met, and 3. what would be the quantum of a bonus award, if one was warranted. III. The Parties ’ Positions A. The Plaintiff [ 9 ] ADM says that Mr. Young/Bullet had a fiduciary duty to act in ADM’s best interests, and that following his departure from ADM he breached this fiduciary duty. It asserts that the new company, Bullet Energy, benefited from this breach of fiduciary duty and accordingly must disgorge its profits. [ 10 ] ADM also argues that Mr.

Warnock contacted and hired employees of ADM in complete disregard of the existing employer/employee relationship between those employees and ADM, and that this lack of staff created further economic losses to ADM. [ 11 ] ADM’s submission on damages is that 90% of Bullet Energy’s business gain (about $2.5 million) from September 2000 to and including December 31, 2002 (a period of approximately 27 months) should be awarded as damages. ADM’s economic model is based on a comparison of the financial statements of ADM and Bullet Energy, supported by the opinion of an expert witness in

interpretation of that information. The damages are calculated on two alternative bases, “loss of income” and “disgorgement of profit”. The numbers flowing from both approaches are quite similar. B. The Defendants [ 12 ] The Defendants say that Mr. Young/Bullet did nothing wrong when he left ADM, formed a new company, and then entered into direct competition with ADM. Mr. Young/Bullet says that on September 18, 2000 ADM unilaterally changed the terms of his contract so that he was constructively dismissed. [ 13 ] The Defendants assert that Mr.

Young/Bullet was not a fiduciary, but simply the most senior hired hand, and owed no particular duty to ADM. Alternatively, if any duty was owed by Mr. Young/Bullet, that duty was not breached. If a fiduciary duty existed it was owed for a limited time, three months or less.

Further, if ADM was injured, then ADM failed to mitigate its losses. [ 14 ] The Defendants’ expert points out weaknesses in the Plaintiff’s approach to damages and the Defendant asserts that the assumptions upon which the alleged damages are based are without satisfactory proof and represent a flawed hypothesis. [ 15 ] Finally, the Defendant argues there existed no legal duty on the part of Mr. Warnock to ADM. IV. The Background A. ADM

[ 16 ] ADM was incorporated by Doug McCullough around 1987. Prior to this Mr. McCullough worked as an Instrumentation Technician for oil field companies in the Valleyview Alberta area. Mr. McCullough incorporated ADM and created a successful instrumentation business. He lived and operated out of Valleyview, Alberta, but grew his business and established a presence in four other Alberta locations: Red Earth, High Prairie, Zama, and Swan Hills.

Many businesses (often, but not exclusively in the oil and gas business) in these locations have mechanical sites or installations that require instrumentation servicing or electrical installation. [ 17 ] For ADM a typical business scenario would be to get a call from one of the oil or gas companies in the area that required a service technician to service instrumentation or an electrical technician to install, service, or repair an electrical service. The business consisted of numerous little jobs which had to be done quickly, professionally, and competently.

Although many of the jobs were on call to perhaps 400 area customers, ADM received much of its recurring and highly profitable work from only a few steady customers, who I accept treated ADM as their “go to” company. There were no exclusivity contracts with any customer. ADM was not without competitors and, as part of the business jungle, all the companies had to constantly hustle for work. The hallmark of this type of business is that success was often based on word-of-mouth reputation and longevity in the community.

The businesses would grow simply by familiarity with one another, in the often close-knit oil and gas community. Occasionally, customers would solicit quotes for larger or less routine work. [ 18 ] ADM encouraged journeyman employees to work for ADM as independent contractors. To customers, these workers would outwardly appear to be ADM employees, who would supply their own tools, and perhaps their own truck. Most worked through their own limited company, but were dispatched through ADM to the various job sites. [ 19 ] Mr.

McCullough opined that this structure was needed to keep the employees, but one suspects that there was considerable advantage to ADM to have independent contractors rather than employees. The societal obligations to a corporate independent contractor, working on a piece work basis, are recognizably different than to employees who have labour law and social obligations, and associated employment insurance and CPP payment costs.

Both ADM and its subordinate contractors may have enjoyed the independent contract relationship, but in this case that organization and structure makes it more difficult to ascertain the true nature of the worker- employer relationships, and therefore the corresponding obligations of each litigant to the other. [ 20 ] In this independent contractor relationship ADM would dispatch the independent contractor and the independent contractor would bill ADM for some percentage (as high as 90% in Mr.

Young’s case) of the hourly rate, which ADM in turn charged the third party client for the technician/electrician’s services. B. Greg Young / Bullet [ 21 ] Greg Young moved to Valleyview with his family when he was five years old. He met his best friend and co-defendant Mr. Warnock in grade 1, and lived in the community his entire life. He started as a roughneck on the rigs at 16 years of age, and ultimately became a journeyman electrician. In 1993 he worked directly for Mr. McCullough for a period of time. Mr.

Young incorporated Bullet in 1995, and worked as a journeyman electrician through Bullet. [ 22 ] Around 1997 Mr. McCullough was looking for someone to help with his business, specifically a general manager who could grow and then ultimately buy ADM. This person ideally should be an electrician to compliment Mr. McCullough’s skill set as an instrument technician. He approached Mr. Young. Around that same time Mr. Young was looking to go into business with his old friend Mr. Warnock. Mr. Warnock, at that time, worked in Zama for one of ADM’s customers, ConocoPhillips . [ 23 ] Mr. McCullough’s proposal was that Mr.

Young join ADM, work together to build ADM, and then purchase the company from Mr. McCullough. At that point Mr. Young did not have a lot of capital. He was only 30 years old, married with two children, and had been an oilfield electrician or a roughneck his entire working career. Mr. McCullough reassured him and said they would work the plan out to the benefit of both. Mr. Young talked this proposal over with Mr. Warnock and Mr. Warnock encouraged him to take the position with ADM because it sounded like a great deal. Mr. Warnock remained engaged with ConocoPhillips in Zama. However, Mr. Warnock and Mr.

Young tentatively agreed that when Young bought ADM, Mr. Warnock would get involved. [ 24 ] Mr. Young’s relationship with ADM had two phases. Initially, in March 1997, he was a field worker who operated as an independent contractor for ADM, as described in paragraph 18. Mr. Young provided his own equipment and tools. He received 90% of

the revenue that he generated as an independent contractor through his own electrical business, Bullet. His first invoice as an independent contractor reflects income of $10,231.50, including a fee for truck and generator rental. His invoices some months later would show higher income [Exhibit 1, tab 57, Bullet invoice number 7]. [ 25 ] Mr. Young’s relationship and activities with ADM during this period are of limited relevance to the result in this judgment. During this period, Mr. Young/Bullet were in an independent contractor relationship with ADM. [ 26 ] On November 1, 1997, Mr.

Young’s relationship with ADM changed. His corporation, the Defendant Bullet, was engaged to provide the services of Mr. Young to ADM as a manager. The remuneration for Mr. Young’s services was a flat fee of $6500.00 per month [Exhibit 1, tab 57, Bullet invoice #17]. Bullet would also receive an increasing share of the net annual profits of ADM, starting January 1 1998, if certain income criteria were met. Mr. Young operated in this new context until September 18-19, 2000. V. The Character of the ADM and Young/Bullet Relationship A. Facts [ 27 ] Mr. Young and Mr. McCullough had mutual respect for one another.

They both trusted each other, and Mr. Young admitted at trial, with some sadness, that his time working for Mr. McCullough was the best job he ever had. Mr. McCullough also viewed Mr. Young like a son and evidence was heard about how the families would even occasionally travel together. Mr. Young also had a good working relationship with Mr. McCullough’s daughter, who was the office manager at ADM. [ 28 ] The relationship between Mr. Young/Bullet and Mr. McCullough/ADM broke down on September 18, 2000. I will discuss this date and its implications to this lawsuit later in this judgment; however Mr.

Young did not provide any service to ADM after September 19, 2000. On September 19 he simply returned ADM corporate business items. [ 29 ] After the collapse of the Young/McCullough relationship, Mr. Young and Mr. Warnock formed a new company, Bullet Energy, and under that umbrella worked as electricians in the Valleyview and Zama areas. Bullet Energy was in direct competition with ADM. From that point forward their fortunes, through Bullet Energy, climbed while those of ADM faltered.

This, in a nutshell, was the seed of this litigation. [ 30 ] This case is challenging because although the basis for this proceeding is a sophisticated business dispute with millions of dollars at stake, key relationships between the parties are ill-defined and difficult to characterize. It is certain that there was some kind of relationship between ADM, Bullet, and Mr. Young, but what is not absolutely clear is whether Mr. Young was not also an employee of ADM. [ 31 ] The relationship between Bullet and ADM was not documented in any way. Mr. McCullough and Mr.

Young came to an oral agreement on the management service contract, profit sharing, and future opportunity to purchase of ADM by Bullet/Young, but never committed that agreement to paper. It rests only in the minds of Mr. Young and Mr. McCullough. [ 32 ] Two possible confirmatory documents were prepared: 1. a draft document prepared by ADM’s chartered accountant [Exhibit 1, tab 39]; and 2. the accountant’s “review engagement” working notes for the ADM year end December 31 1999; these notes calculate Mr. Young’s bonus for the prior year, 1998 [Exhibit 1, tab 40, 2nd sheet].

Neither of these documents is a satisfactory basis to clearly, nor completely, establish the terms of the ADM and Bullet/Young agreement. The first was an incomplete and un-executed draft services contract with option, while the second represents the accountant’s calculation of the bonus payable in 1998. 1998 was the first year of a five year arrangement in which ADM received the services of Mr. Young via a Bullet management contract. [ 33 ] The ADM accountant, and author of the two documents described in paragraph 32 did not give evidence at trial.

I am satisfied the draft document does not reflect agreed terms of the parties from a legal detail point of view (the ‘legalese’ presumably being supplied by the accountant) but does at least confirm the economic start point of the relationship and its overall economic scheme, absent the purchase price. Although never signed, I am satisfied that the economic indicators in the document reflect the overall cash scheme of the deal, which is partially confirmed by the testimony of each of Mr. McCullough and Mr. Young.

Nevertheless, those two witnesses dispute many details. [ 34 ] Despite the lack of documentation there is credible evidence that supports the following: • Bullet was to provide Mr. Young to ADM as a general manager; • Bullet would receive a flat monthly management fee of $6500.00 per month plus a percentage of the net profit [see para. 208 of this judgement]; • the agreement was to run for five years, commencing January 1, 1998 and continuing through to December 31, 2003, at which time it was anticipated, but not contractually agreed, that Mr.

Young would have enough resources to purchase ADM; and • ADM committed to Bullet that Bullet would be given the first opportunity to purchase ADM, although terms of that purchase were not finalized. [5] The above terms were never formalized as a detailed written contract. The minutia of a complex business deal like this, including whether the planned transfer of ADM was a sale and purchase of shares or of assets, was never worked out or even discussed. Nor were the job description, duties, and role of Mr. Young ever precisely defined. [6] Neither Mr. Young nor Mr.

McCullough struck me as a sophisticated businessman, both were weak on business detail, accounting, and business records. The failure to document something as important as a management contract, with an entitlement to purchase the business, shows that while Mr. Young and Mr. McCullough were probably well received in the oil patch and good at their trades, neither were business administrators. This is also borne out by the paper record filed in this case, and the opinion of ADM’s business evaluation expert who gave evidence that the books and records of ADM were not sophisticated.

That lack of management expertise is also clearly reflected in handling of the bonus cash flow, and the way the relationship ended on September 18, 2000. B. Analysis 1. Bullet [7] In Canada a worker can provide services as an employee or as an independent contractor. These two relationships have important legal, fiscal, and tax implications. Only a natural person can be an employee. [8] Though never documented in a formal sense, ADM hired Bullet to provide Bullet’s employee, Mr. Young, to provide services to ADM on Bullet’s behalf.

The relationship between ADM and Bullet would, by its nature, be an independent contractor relationship.

[9] The problem with this approach is that adding an intermediary corporation can distort the true nature of a worker/employerrelationship. Courts have rejected any legal effect in an intermediary corporation such as Bullet when that corporation “… is principally atool for tax planning and management for an individual employee who does the work while the money is paid to the corporate vehicle.”:Alberta Permit Pro v. Booth, 2007 ABQB 562 at para. 128, 442 AR 1, affirmed 2009 ABCA 146 [“Alberta Permit Pro”]. Bullet fallsinto that category, and can be ignored when evaluating the relationship between ADM and Mr.

Young. The limited operationalimportance of Bullet is illustrated by the fact that most of the bonus cheques issued by ADM were paid to Mr. Young on a personalbasis. Of those that were not, one was paid to Mrs. Young while others went to suppliers who supplied product at Mr. Young’s order as apersonal benefit. 2. Independent Contractor or Employee? [10] Was Mr. Young ADM’s employee or an independent contractor? The manner in which the worker and employer frame thatrelationship is of limited importance; what matters is how a relationship operates in practice: Walden v.

Danger Bay Productions Ltd.(1994), (BC CA), 114 D.L.R. (4th) 85, [1994] 6 W.W.R. 138 (B.C.C.A.); Wiebe Door Services Ltd. v. Canada(Minister of National Revenue - M.N.R.), (FCA), [1986] 3 F.C. 553, 46 Alta. L.R. (2d) 83 (F.C.C.)). [11] Justice Major in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 at paras. 36-48, 2001 SCC 59, [2001] 2S.C.R. 983 [“Sagaz Industries”] reviewed previously developed tests and indicia, and concluded at paragraph 47: The central question is whether the person who has been engaged to perform the services is performing them as a person in business onhis own account.

In making this determination, the level of control the employer has over the worker’s activities will always be a factor.However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or herown helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by theworker, and the worker’s opportunity for profit in the performance of his or her duties. [12] This is not a rigid but a contextual test, where the weight and utility of each factor varies, depending on the facts of aworker/employer relationship (para. 46): [t]he most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on thenature of the relationship between the parties concerned.

Clearly not all of these factors will be relevant in all cases, or have the sameweight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, betreated as the determining factor. [13] These factors generally favour Mr. Young being an employee. [14] Unlike a field worker who was given a job and then left alone, Mr. Young’s management activities were clearly subject toMr. McCullough’s direct control. Control is a question of the option to exercise control, even if positive control does not actually occur:Groupe Desmarais Pinsonneault & Avard Inc. v.

Canada (Minister of National Revenue - M.N.R.), 2002 FCA 144 at para. 5, 291N.R. 389. From their testimony it was clear that Mr. McCullough had a strong and ongoing role in supervising how Mr. Young exercisedhis management role. That is hardly surprising, as Mr. Young was learning new management skills as he worked for ADM. [15] A second factor is sometimes described as “organizational integration”, to what degree a worker is an integral part of anorganization. An employee is usually closely integrated, while an independent contractor operates on their own, and is not a corecomponent of the business. Here, Mr.

Young assigned work to and supervised ADM’s other employee’s and independent contractors.This is a supervisory type role. Mr. Young clearly thought of himself as a ‘part of ADM’, and that indicates the kind of integrationtypical of an employee: Alberta Permit Pro, at paras. 132-133. [16] Employers usually provide the tools and equipment used by an employee, while personal work equipment is typically ownedby an independent contractor. As an independent contractor, Mr. Young provided his own tools and equipment while he was a fieldworker. That changed once he switched to his managerial role.

Items such as offices, office equipment, stationery and other officesupplies are the modern equivalent of the hand tools of tradespeople: Te’mexw Treaty Ass. v. Canada (Minister of National Revenue -

M.N.R.) , [2000] T.C.J. No. 447 (QL) (T.C.C.) at para. 21 . As a manager, Mr. Young’s use of ADM’s office infrastructure favors his being an employee. [17] An independent contractor has the right, unless otherwise restrained by contract, to hire other workers as subcontractors. Employees typically cannot substitute another person for themselves: Truong v. British Columbia , 1999 BCCA 513 , 47 C.C.E.L. (2d) 307 at p. 317. Mr. Young contracted (via Bullet) for his services alone. That is a trait favouring employee status. [18] Last, there is the possibility of profit and loss.

An employee receives a return for work, without the risk of loss. They typically do not receive a portion of the profit of the business. In contrast, an independent contractor is in business for themselves, and may experience profits or losses during completion of a task: Sagaz Industries , at paras. 39, 44. [19] Mr. Young was to receive a fixed monthly salary, without an associated risk of excessive expenses, which is typical of an employee. However, he also may receive a part of ADM’s profits as a bonus.

What is decisive here is that the possibility of profit did not have an associated risk of loss. [20] This kind of worker/employer relationship in certain senses resembles that considered by Read J. in Alberta Permit Pro , at paras. 138-140. She noted that risk of loss has been interpreted in a strict sense ( Shaw Communications Inc. v. Canada (Minister of National Revenue - M.N.R.) , [2002] T.C.J. No. 314 (QL), 2003 D.T.C. 1459 (T.C.C.) , affirmed 2003 FCA 171 , 2003 D.T.C. 5707; Polimark Ltd. v. Canada (Minister of National Revenue - M.N.R.) , [2000] T.C.J.

No. 52 at para. 24 (T.C.C.) ), and that since the defendant in that case would, at worst, have been paid nothing but lost nothing, he had no risk of loss. Mr. Young’s possibility of a share of ADM’s profits is similar. If ADM failed to meet the necessary benchmarks, Mr. Young would not receive a bonus, but that would not affect his monthly basic salary. [21] I therefore conclude that Mr. Young was a direct employee of ADM from the point, November 1, 1997, when he began to work as a manager. Bullet’s intermediary role is irrelevant to my analysis that follows. VI.

Obligations under the ADM / Young Contract [22] Because the ADM and Young contract was never formalized my conclusion on its substance flows from the testimony of the parties and the manner in which the contract was implemented. [23] The contractual relationship continued from November 1997 to September 18, 2000, to the mutual benefit of both. ADM increased its sales revenue sufficiently to trigger the bonus entitlement in favour of Mr. Young. About $171,000.00 in bonuses were paid [Exhibit 1, tabs 26-29], over and above the $6500.00 per month management salary. [24] There is no serious allegation that Mr.

Young failed to properly perform his obligations or engaged in any dismissable misconduct during the November 1997 to September 2000 period. Stated short comings in his performance and character are dealt with in paragraphs 102 to 116. As previously described, Mr. Young and Mr. McCullough had an apparently excellent working relationship. What remains in dispute is whether Mr. Young breached the terms of his contract when he ceased working for ADM, and entered into competition with that business. Alternatively, ADM alleges that Mr. Young was a fiduciary of ADM, and Mr. Young breached his fiduciary duties. A.

Restriction on Competition [25] Once a contract has ended, an employee has a full right to compete with his former employer: RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. , 2008 SCC 54 at paras. 39-40 , 57, [2008] 3 S.C.R. 79 [“ RBC Dominion ”]; Imperial Sheet Metal Ltd. v. Landry , 2007 NBCA 51 at para. 34 , 315 N.B.R. (2d) 328. This “painful reality” ( RBC Dominion , at para. 39) extends to soliciting

business from the former employer’s customers with whom the ex-employee was acquainted during his employment: Imperial SheetMetal Ltd. v. Landry, at para. 34. That right to compete may be restricted by terms in the employment contract, with what is called arestrictive covenant: RBC Dominion, at para. 41. [26] The law presumes against restraint on trade and commerce: Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6at paras. 15-17, [2009] 1 S.C.R. 157 [“Shafron v. KRG”]. As a consequence a restrictive covenant must be reasonable: Shafron v. KRG,at para. 17.

The courts will refuse to enforce the claimed rights of an employer who attempts to assert an unreasonable restrictivecovenant. [27] Here, there is no evidence of a restrictive covenant between ADM and Mr. Young. I heard no evidence that the parties hadconsidered that issue when negotiating Mr. Young’s contract, and it would be against the presumption against restraint of trade for me toinfer that term into the ADM/Young contract. To the contrary, even the unexecuted accountant draft agreement [Exhibit 1, tab 39] didnot have a restrictive covenant suggested within it. B.

Fiduciary Status [28] A fiduciary relationship is a special relationship in which a person is obligated to act in the best interests of another. Thenature of a fiduciary relationship was recently examined by McLachlin C.J.C. in Alberta v. Elder Advocates of Alberta Society, 2011SCC 24, [2011] 2 S.C.R. 261 [“Elder Advocates”].

At para. 33 she identifies “traditional categories” of fiduciary relationship:“trustee-cestui que trust, executor-beneficiary, solicitor-client, agent-principal, director-corporation, and guardian-ward or parent-child.”Other kinds of fiduciary relationships, “… ad hoc fiduciary relationships must be established on a case-by-case basis.” [29] An employee does not traditionally have a fiduciary relationship to his or her employer, and so falls into the “ad hoc”category. [30] Chief Justice McLachlin lays out the criteria for an ad hoc fiduciary at para. 36, that: … the claimant must show, in addition to the vulnerability arising from the relationship as described by Wilson J. in [Frame v.

Smith, (SCC), [1987] 2 S.C.R. 99]: (1) an undertaking by the alleged fiduciary to act in the best interests of the allegedbeneficiary or beneficiaries; (2) a defined person or class of persons vulnerable to a fiduciary’s control (the beneficiary or beneficiaries);and (3) a legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the allegedfiduciary’s exercise of discretion or control. [Emphasis added.] [31] The “undertaking” component to the first element was identified by Cromwell J. in Galambos v.

Perez, 2009 SCC 48, [2009]3 S.C.R. 247, at paras. 67, 77. That undertaking “… may be found in the relationship between the parties, in an imposition ofresponsibility by statute, or under an express agreement to act as trustee of the beneficiary’s interests.”: Elder Advocates, at para. 32. [32] Courts have concluded that certain employees have a fiduciary relationship with their employer.

In RBC Dominion, at para.50, McLachlin J. identified the elements of command and control as the key characteristics of an employee fiduciary: Fiduciary duties do not arise from an employee's title, such as branch manager, but from his or her actual authority or control over theemployer's operation.

Based on the fact that Delamont had spent less than a quarter of his time performing a managerial role and had nocontrol over corporate decision-making, the trial judge concluded that Delamont was not in a fiduciary relationship with his employer.[Emphasis added.] [33] Sometimes these fiduciary employees are identified as “key employees”, see for example Capital Estate Planning Corp. v.Lynch, 2011 ABCA 224, 337 D.L.R. (4th) 523. Fiduciary employees may be restrained from competing with their former employers:Physique Health Club Ltd. (c.o.b. Physique Fitness Store) v.

Carlsen (1996), 1996 ABCA 358 , 141 D.L.R. (4th) 64, 193 A.R.196 (Alta. C.A.), leave denied [1997] S.C.C.A. No. 40; Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide CustomsBrokers Ltd. (1996), 1996 ABCA 169 at para. 32, 184 A.R. 81.

[34] The scope of who is or is not a fiduciary employee is a point of some dispute. Several appellate courts have sharply criticizedthe manner in which fiduciary status has expanded to capture practically any employee of a small business, or persons who directlyinteract with business customers: Imperial Sheet Metal Ltd. v. Landry; 57134 Man. Ltd. v. Palmer (1989), (BC CA),37 B.C.L.R. (2d) 50, 44 B.L.R. 94 (B.C.C.A.). Some trial courts have conducted ‘parallel’ assessments of employee fiduciary duty underalternative schemes: for example, Carson International Inc. (c.o.b. Can Am RV) v.

Biggar, 2010 MBQB 198, 322 D.L.R. (4th) 668,581257 Alberta Ltd. v. Aujla, 2011 ABQB 39, 507 A.R. 315. [35] Similarly, academic commentators have criticized the excessively broad characteristics of employee fiduciaries: StaceyReginald Ball, Canadian Employment Law, looseleaf (Aurora, Ont.: Canadian Law Book, 2006) at 13-16 to 13-17. [36] The rule that a key or senior employee may be a fiduciary in a manner analogous to a director was established in CanadianAero Service Ltd. v. O’Malley, (SCC), [1974] S.C.R. 592 at 620, 40 D.L.R. (3d) 371. [37] In Imperial Sheet Metal Ltd. v.

Landry, at para. 63, Justice Robertson described a “key” employee as a member of the mostsenior level of corporate decision making: While I make no attempt to set out a comprehensive code as to how one goes about deciding who is a fiduciary or key employee, thefollowing provides some specificity.

A "key" employee is: (1) an integral and indispensable component of the management team that isresponsible for guiding the business affairs of the employer; (2) necessarily involved in the decision-making process; and (3), therefore,has broad access to confidential information that if disclosed would significantly impair the competitive advantages that the formeremployer enjoyed. These employees fall within the categories: "top management", "senior management" or "key management". [38] That may be a narrower

interpretation than “employer vulnerability” as a basis for an employee being a fiduciary, seeImperial Sheet Metal Ltd. v. Landry, 581257 Alberta Ltd. v. Aujla, at paras. 41-56. Citing Smith v. Frame, (SCC),[1987] 2 S.C.R. 99, Topolniski J. observes at para. 56 in 581257 Alberta Ltd. v. Aujla that vulnerability is not general “... but rather isdependent on one parties’ inability to prevent the other from wrongfully exercising power or discretion.” [39] I believe I may safely conclude that the “vulnerability” line of fiduciary employee cases are no longer an accurate statement ofthe law.

McLachlin C.J.C. in Elder Advocates at para. 36 is explicit, vulnerability alone does not define a fiduciary relationship. Rather,a fiduciary employee is one who also undertakes to put the best interests of an employer above his own. 1. Fiduciary by Contract [40] Undertaking to put the best interests of an employer above your own arises in two circumstances. One is where an employeeexplicitly agrees by contract to undertake a fiduciary obligation. In B & R Development Corp. (c.o.b. Abbey Lane Homes) v. TrailSouth Development Inc.; 410675 Alberta Ltd. v.

Trail South Developments Inc., 2011 ABQB 470 at paras. 189-194, 508 A.R. 208,Smith J. applied the Elder Advocates fiduciary duty criteria and concluded that one should not presume a trust between equal corporatecontractual parties absent “... tangible evidence of an intention to create that kind of structure and relationship.” (para. 194). [41] The unequal bargaining power of employer and employee is notorious: Slaight Communications Inc. v. Davidson, (SCC), [1989] 1 S.C.R. 1038 at 1051-52, 59 D.L.R. (4th) 416; Wallace v.

United Grain Growers Ltd., (SCC), [1997] 3 S.C.R. 70 at paras. 91-93, 152 D.L.R. (4th) 1; Shafron v. KRG, at paras. 22-23; RBC Dominion, at para. 52. Thatimbalance of power is one of the reasons for the presumption against the operation and scope of restrictive covenants against anemployee (Shafron v.

KRG, at para. 23) and why Chief Justice McLachlin in RBC Dominion at para. 52 rejected introduction ofemployee ‘quasi-fiduciaries’, as that: ... is not only unwelcome in its uncertainty and punitive in its impact, it also risks widening what this Court has long recognized to be theimbalance of power in employment relationships, by further entrenching the inherent vulnerability of employees. [Emphasis added.]

[ 42 ] Factually, Mr. Young did not agree to take on a fiduciary’s obligations. Further, if equal contracting parties should explicitly identify their respective fiduciary relationships, then logically a fiduciary status should not be foisted on the more vulnerable of contracting parties in an employer/employee relationship. A fiduciary relationship should not be inferred but rather explicitly reflected in an agreement under which an employee agrees to work for an employer. 2.

Fiduciary as a Key Senior Manager [ 43 ] The second instance where an employee may be a fiduciary relationship is where that employee is a key senior manager. I adopt the definition of that category as set in Canadian Aero Service Ltd. v. O ’Malley and expressed in Imperial Sheet Metal Ltd. v. Landry at para. 63 .

An employee is a fiduciary where that employee has three characteristics: 1. an integral and indispensable component of the management team that is responsible for guiding the business affairs of the employer, 2. necessarily involved in the decision-making process; and 3. has broad access to confidential information that if disclosed would significantly impair the competitive advantages that the former employer enjoyed. [ 44 ] A contract of employment for a senior manager of this kind does not require explicit language that identifies the employee as operating in a fiduciary relationship.

The director-like authority of this kind of employee warrants a special duty for an employee who operates in this central a role. An employee of this type may not experience the vulnerability and imbalance of power experienced by the typical employee. Thus, no injustice results from implying the onerous though time-limited non-competition obligation that flows from the fiduciary relationship. Absent any contractual agreement, this categorisation puts the Plaintiff’s case on its highest plane. C. Mr. Young ’s Fiduciary Status [ 45 ] I have concluded that Mr.

Young was an employee of ADM and not subject to any explicit or implied restrictive covenant. The Plaintiff, who has the burden of proof on a balance of probabilities, asserts that it has satisfied to appropriate legal standard that Mr. Young was a fiduciary. Therefore Mr. Young owed a duty to his employer ADM irrespective of how he may have been treated by his employer and he breached that duty. [ 46 ] ADM claims that Mr.

Young breached that duty when he used his knowledge of ADM’s customer list, the customer’s key contacts, site specific knowledge and technical knowledge of the type of computer control systems that exist at oilfield and infrastructure sites operated by ADM’s customers. That meant Bullet Energy exploited Mr. Young’s knowledge of ADM’s operations and unfairly took away a significant portion of the ADM business. [ 47 ] I accept that prior to September 18, 2000 Mr. Young acted completely and consistently in the best interest of ADM.

This case cannot be compared to other precedent cases where high placed employees conspire while on the plaintiff’s payroll to leave the plaintiff and take business. What Mr. Young did after September 18, 2000 was precipitated solely, and triggered completely, by the effect of a September 18, 2000 meeting between Mr. Young, Mr. McCullough, and Mr. Beaver, coupled with Mr. Young’s need to work and care for his family. I also accept that Mr. Young took nothing from ADM that belonged to ADM when he left ADM. [ 48 ] Mr. Young did not agree to be a fiduciary of ADM.

Further, he does not have the criteria identified in Imperial Sheet Metal Ltd. v. Landry that characterize an implied fiduciary employee. [ 49 ] Simply put, Mr. Young was an electrician. His role at ADM evolved over time. He was the electrician that supervised the

men, he assisted with bidding and from time to time was the one who gave Mr. McCullough some advice, particularly in his own area of technical expertise, and on one proposed business expansion. However, Mr. Young never had the complete reins of the company. Regional managers in the management hierarchy, such as Mr. Beaver, who notionally reported to Mr. Young, still had the direct ear of Mr. McCullough. Mr. McCullough maintained an office at the company and in fact had placed his daughter in the key role of office manager. I find Mr. McCullough never took his hand off the throttle of this company. [ 50 ] Mr.

Young had no financial duties to the company that related to banking. He was not a cheque signatory and while he would be sought for advice from time to time he was not a primary decision-maker nor involved in the company’s strategic planning. He was an electrician with increased scheduling duties and who received a share of the profit. Putting the case bluntly, and certainly not intending disrespect, Mr. Young was not much more to ADM than a glorified electrician workhorse, and the “top hand”. [ 51 ] The real ownership of the company was Mr. McCullough and there is no evidence that Mr.

McCullough delegated his ultimate decision-making process to Mr. Young. Mr. Young was relied on by Mr. McCullough, but always the bottom-line decision- making process was that of Mr. McCullough’s. By September 2000 he had neither stepped aside nor brought Mr. Young into the innermost decision making processes. [ 52 ] There is clear evidence that Mr. Young’s position was not a controlling mind of ADM. While their evidence differed on certain specific points, generally Mr. Young and Mr. McCullough both agreed that Mr. Young was not ADM’s principal or primary decision maker. Mr.

McCullough clearly remained very much involved in the business. In the rudimentary draft prepared by the accountant it was contemplated that Mr. McCullough would get the same monthly compensation as Mr. Young, $6500.00 per month, to set the management expenses for the bonus calculation. This reflects that Mr. McCullough was still actively managing his company. That matches my conclusion that Mr. Young was only Mr. McCullough’s eyes and ears in the field. [ 53 ] Mr. Young was not the only regional manager. Mr.

McCullough had set up a senior manager in each region, one at the Zama site [Darren Dakin], Red Earth [Dean Beaver], High Prairie [John Rowes], and Swan Hills [Derek O’Connell]. [ 54 ] Mr. Young cannot be a fiduciary because he falls outside ADM’s core administration. At most, he was a high-level tradesman who reported to the corporation’s directing mind. He was not an irreplaceable member of the management team, or a necessary decision maker. His employment role does not have the characteristics identified in Imperial Sheet Metal Ltd. v. Landry . Put another way, it is difficult to imagine that Mr.

Young, as a wage employee and non-decision maker, would have implicitly undertook to put ADM’s interests beyond his own. [ 55 ] Further, any information available to Mr. Young is not the kind that would “significantly impair the competitive advantages” of ADM. There was very little of a proprietary nature to this business that could be abusively taken by any departing employee. [ 56 ] While it is true that ADM had a customer list, the customer list might as well have been the Yellow Pages of the oil and gas industry in the communities where ADM operated. Mr.

Young did not need a customer list to know where the work was. Upon his departure from ADM Mr. Young had all of the knowledge in his head necessary to make cold calls into the industry and get work. That is what he said under oath that he did. [ 57 ] Mr. Young also swore, under oath, that he raised his rates over that of ADM, and approached the oil companies that were generally ADM’s customer pool on the basis that his new company might be their second choice. Counsel for the Plaintiff urges that I find Mr.

Young lacks credibility on that point, however there is no real competing evidence as to what, if anything, Mr. Young did that was inappropriate. The work followed the ability to do it. This is evident by the fact that the operations in Red Earth, Swan Hills, and High Prairie were barely affected by Mr. Young’s withdrawal from ADM. [ 58 ] This is not the kind of special knowledge that strikes at the competitive advantages of a former employer.

It was not specialized and proprietary technical knowledge, or intimate knowledge of future undisclosed business strategies and fiscal states. [ 59 ] I therefore conclude that Mr. Young had not undertook to be a fiduciary of ADM, nor was his position of a kind that is properly described as a senior manager and fiduciary with a broad and central control of this organization. ADM throughout 1997-2000

had one directing mind, Mr. McCullough. What Mr. Young knew was common knowledge. [ 60 ] If I am incorrect, and Elder Advocates has not modified the criteria under which a worker becomes a fiduciary employee, then Mr. Young would still not be a fiduciary under the ‘vulnerability’ test. He was an employee in a low-level non-administrative position who reported to the ultimate owner and directing mind. If Mr. Young was a fiduciary, then that status would only warrant a very short, if any, period without any competition, which will impact the damages discussion. VII.

The End of the ADM/Young Contract [ 61 ] There is no dispute that on September 18, 2000 a dramatic change occurred in Mr. Young’s employment relationship. In his opinion he was fired. ADM says he quit. A. The Events of September 18, 2000 [ 62 ] Early in the morning on September 18, 2000, a work day, Mr. McCullough called Mr. Young into his office. Mr. Young did not expect this meeting. Also present in the office was Dean Beaver, the manager of ADM operations at Red Earth. In an adjacent office was Mr.

McCullough’s daughter, who indicates that she was unable to hear the details of the conversation but generally knew what was going on. There was not a single contemporaneous note taken of this conversation produced in evidence. [ 63 ] Exhibit 1, tab 17 may be an after-the-fact recount of certain events made by Mr. Young, but no foundational evidence about the date nor the circumstance under which this exhibit was created were adduced, so that item is not particularly helpful. 1. Sale of ADM to Mr. Beaver [ 64 ] Mr. Beaver, Mr. McCullough, and Mr.

Young testified on the events of that meeting, and their accounts do not entirely align. Nevertheless, some conclusions are inescapable. First, I conclude that prior to that meeting Mr. McCullough had changed his mind about selling the business to Mr. Young. Instead, he decided to sell ADM to Mr. Beaver. [ 65 ] The meeting was not about disciplining or sanctioning Mr. Young for perceived wrongdoings because Mr. Beaver would not have been present for that. Further, Mr. Young, Mr. Beaver, and Mr. McCullough all confirm that Mr. McCullough told Mr. Young that he (McCullough) had decided to sell the business to Mr.

Beaver. At trial Mr. McCullough said ADM was his business and he could sell it to whoever he wants. That much is true, but I am surprised at Mr. McCullough’s lack of explanation for, or documentation, of this very important meeting. [ 66 ] Mr. Young asserts that at the meeting he was told that Mr. Beaver could purchase the business by the end of that month, which clearly would have been an indication that Mr. McCullough had been anxious to sell. Mr.

Young’s prospective opportunity to purchase ADM was over two years away, as the profit share arrangement was contemplated to run until December 31, 2002. [ 67 ] The parties disagree on Mr. Young’s future role. Mr. Young denies that he was offered employment working for Mr. Beaver or the opportunity to go back to his tools as an ADM field contractor through his company. Mr. Young says he was in shock. Mr. Beaver confirms that. [ 68 ] Mr. McCullough must have had strong assurance that Mr. Beaver would buy the business as it makes no sense to retract Mr.

Young’s opportunity to purchase on mere speculation of a future deal. This is particularly so as 2000 was a very strong business year for ADM. There would be no business efficacy for Mr. McCullough to alienate Mr. Young. To Mr. McCullough chagrin Mr. Beaver never did buy the business, although he would later acquire the operational aspects of ADM’s presence in Red Earth.

[ 69 ] The only clue I can take from the evidence as to why Mr. McCullough would abandon his plans to bring Mr. Young in as the business owner and as a consequence so greatly impact his business comes from Exhibit 11, the McCullough Discovery read ins. In questioning Mr. McCullough said the following: Q. When did you enter into negotiations with Dean Beaver on the sale? A. He asked me if I wanted to sell it. There was no negotiations. Q. ... When did he bring that up? A. Specific dates I don't know. Probably a week before that. Q. ... And he said he could come up with the money? A. Yes. Q. Said he had backers? A.

Yes [Transcript, page 50, line 22 to page 51, line 6] [ 70 ] The other plausible reason for Mr. McCullough’s change of heart was never stated nor asked of Mr. McCullough. ADM had been meeting the criteria for the profit sharing agreement, which gave Mr. Young a share that escalated year after year. The funds to purchase ADM were going to Bullet through the increasing bonus percentage. It is possible that Mr. McCullough was starting to get concerned about the impact on his bottom line of the ever increasing bonus payable to Mr.

Young, however the evidence of what transpired at the meeting itself all seems to revolve around Mr. Beaver’s anticipated purchase. 2. Sanction of Mr. Young ’s Alleged Misconduct [ 71 ] ADM raises in evidence three other reasons why Mr. McCullough changed his mind and decided to sell ADM to Mr. Beaver. While not framed in quite this way, all can be viewed as Mr. Young engaging in some misconduct that caused Mr. McCullough to lose faith and trust in this planned future owner. These reasons were given, after the fact, to justify Mr. McCullough’s conduct. a.

The Generators [ 72 ] The first reason involves a power generator with a capital cost of over $100,000.00 that is capable of providing electrical services, where necessary, for a remote plant site that required considerable temporary electrical power. [ 73 ] Mr. McCullough had several of these generators, held through Willow Ventures , the Plaintiff discharged by consent in these proceedings. As part of his job Mr. Young helped with the placement of these generators as required by various oil companies. The generator profits were funnelled into Willow Ventures so Mr.

Young did not expect to share in the profits from the generators.

[ 74 ] The generator business was perceived and accepted by Mr. Young as a way to give Mr. McCullough some additional income after Mr. McCullough sold ADM to Mr. Young. A short time before the September 18 blowup Mr. Young approached Mr. McCullough about the desirability of purchasing another generator. Mr. McCullough declined, citing economic concerns. Mr. Young then offered to purchase the generator himself, and his evidence is that Mr. McCullough granted permission for that, plus advanced the down payment. Mr. McCullough says he did neither. In fact, he says he expressly prohibited the purchase, so that Mr.

Young would not be competing in the generator business with Mr. McCullough. [ 75 ] Mr. Young also says that Mr. McCullough was further involved with this generator, as he transported it northward from the distributor in Edmonton for Mr. Young. A $20,000.00 bonus advance [Exhibit 1, tab 27, cheque no. 10017] is identified as providing the down payment. This cheque is not explicitly linked to the generator, but only issued on the same day as its purchase. Mr McCullough’s evidence is that the cheque was simply a bonus advance, and not a down payment. Mr. McCullough also denies having any memory of picking up Mr.

Young’s generator in Edmonton and driving it north. [ 76 ] While I am highly suspicious about Mr. Young’s motives in purchasing a generator and entering competition against Mr. McCullough, I am in a position to find that this generator purchase had nothing to do with the September 18 meeting and its result. Mr. McCullough presents the generator purchase as an excuse to withdraw the prospective purchase of ADM from Mr. Young. I do not accept this, but instead I believe that this is a post-event litigation justification. [ 77 ] There are several reasons why I come to this conclusion: 1. Neither Mr. McCullough, Mr.

Beaver, nor Mr. Young indicated that the generator came up as a major focal point of discussion in the September meeting. 2. If the September meeting was intended to really be a dismissal over the issue of the generator why would Mr. Beaver be in attendance? Mr. Beaver was there so he could be introduced as the new prospective purchaser of ADM, and to perhaps encourage Mr. Young to continue to work for Mr. Beaver. 3. If the generator was indeed an issue of concern I conclude Mr. McCullough and Mr. Young would have ‘talked out’ the dispute.

They had a strong personal relationship, did not tend to approach business activities from a formal ‘paper-driven’ position, and in any case ADM was not in the generator business. 4. The generator did not generate any income for Mr. Young until the end of the September 2000 billing, so at the time of the blowup the competition between Mr. McCullough and Mr. Young over generator business was, at best, notional. Further, I accept Mr. Young’s evidence that he would have given a share of that revenue to Mr. McCullough had they discussed it.

These were persons who worked together in a positive, cooperative relationship. 5. If the Young generator had such significance that it constituted grounds for dismissal, Mr. Young would have been dismissed for cause and that fact documented. In evidence Mr. McCullough indicated that he did not fire or dismiss Mr. Young at the September 18 meeting. [ 78 ] There is one other element of the evidence about the Young generator that is disquieting. Mr. McCullough testified that he did not know Mr. Young was going to buy a generator, thereby suggesting and supporting the thesis that Mr. Young did this on his own.

However, when Mr. McCullough overheard a conversation between Mr. Young and a third-party about a generator having “blown a manifold”, Mr. McCullough’s question to Mr. Young was not “what generator?” but “is it one of mine?” This response is highly suggestive that Mr. McCullough knew that Mr. Young had purchased a generator, otherwise he would not have had to ask if the ‘blown’ generator was one of his. [ 79 ] However, from a practical point of view, nothing turns on this observation. My factual conclusion is that the September 18 meeting occurred because Mr.

McCullough had, for reasons best known to himself, made a decision to sell the business to Mr. Beaver,

perhaps expecting a more timely sale. Even the accountant’s draft agreement supports this as Mr. Young was only prevented from taking other work if that work interfered with ADM operations [Exhibit 1, tab 39, para 15]. ADM was not in the generator business! b. Fighting [ 80 ] During trial evidence, Mr. Beaver suggested that Mr. Young was an embarrassment to ADM and perhaps a liability. He suggested that Mr. Young’s character was that of a drinker and a fighter. It is true that Mr.

Young was both, although he says he drinks less now and probably fights less. [ 81 ] Two fights that were mentioned in evidence were fights during which Mr. Young was defending the integrity of Mr. McCullough and ADM. Both occurred before the September 18 trigger point that brings us to this case. One was at an oilman’s golf tournament, the other in a bar in Zama. Mr. Young and a group of his workers got into a fight with a group of transient oil workers. [ 82 ] I reject any proposition that Mr. Young was fired in this case over fighting. Certainly, Mr. McCullough never suggested anything of the sort.

The only witness who raised this issue was Mr. Beaver, who replaced Mr. Young as ADM’s general manager when the relationship between Mr. Young and Mr. McCullough soured. [ 83 ] Mr. Young and his employees work in the rough-and-tumble oil patch. Fights are not uncommon and would rarely affect the employability of the trained blue collar workers that are sorely needed in rural Alberta. I need say no more about this. As for Mr. Young being an embarrassment to ADM, history showed that after he left ADM the new company formed by himself and Mr. Warnock did very well, while ADM under Mr. Beaver’s watch did less so.

I think that says much of Mr. Young’s reputation amongst his peers and customers. c. Improper Billing [ 84 ] Finally there was some cross examination that suggests that Mr. Young may have padded his expense bills from time to time with personal entertainment items. The items identified are small. I reject this allegation as well. First, that subjective allegation would not constitute in law grounds of dismissal; second, what happened on September 18, 2000 occurred solely because Mr. McCullough decided to sell out to Mr. Beaver, instead of Mr. Young. [ 85 ] If Mr. McCullough concluded that Mr.

Young had bilked ADM then from my estimation of their relationship that would have been dealt with between the two. The issue would have been resolved or Mr. Young terminated for that reason. The evidence indicates neither. 3. Conclusion - the September 18, 2000 Meeting [ 86 ] I conclude that Mr. McCullough on September 18, 2000 informed Mr. Young that Mr. McCullough had unilaterally decided to withdraw from the agreement between ADM and Mr. Young that Mr. Young would have the first opportunity to purchase ADM in 2003. The meeting had no other purpose. Mr. McCullough did not intend to fire Mr.

Young, nor sanction him. Rather, Mr. McCullough had decided to sell ADM to another person. [ 87 ] As Mr. McCullough says, that is his right. He owned ADM. However, like many other decisions, this one had legal implications. B. Mr. Young ’s Response to the September 18, 2000 Meeting [ 88 ] Mr. Young’s response to the September 18 meeting is not in serious dispute. After being told that ADM would be sold to Mr.

Beaver, Mr. Young first dispatched the men for the workday. Then he went home, to think about what happened. He talked to Mr.Warnock. [89] The next morning, September 19 2000, he returned to ADM and gave Mr. Beaver all the ADM materials in his possession.Mr. Young said he no longer worked for ADM. [90] Mr. Young went to see his lawyer in Grande Prairie. He decided to form Bullet Energy (Canada) Inc. with the defendant Mr.Warnock. By September 22, 2000 Mr. Young and Mr. Warnock were incorporated as Bullet Energy. [91] Mr. Young then hit the road, trying to get work of the nature and type that he had done at ADM.

Bullet Energy was wildlysuccessful, leading the Plaintiff to the thesis that it was inappropriate conduct and the breach of Mr. Young’s fiduciary duties that led tothis business success. C. Was Mr. Young Constructively Dismissed or Fired? [92] Mr. Young ceased to be an employee at ADM on September 18-19, 2000. The question is, did he quit, or was he fired? Thatdistinction has a significant effect on Mr. Young’s obligations to his former employer. 1. Constructive Dismissal [93] An employment contract can end through what is legally called a constructive dismissal: Farber v.

Royal Trust Co., (SCC), [1997] 1 S.C.R. 846 at paras. 33-36, 145 D.L.R. (4th) 1. [94] A constructive dismissal is a change in an employee’s contract that is “fundamental or substantial”: ... where an employer unilaterally makes a fundamental or substantial change to an employee’s contract of employment -- a change thatviolates the contract’s terms -- the employer is committing a fundamental breach of the contract that results in its termination and entitlesthe employee to consider himself or herself constructively dismissed.

The employee can then claim damages from the employer in lieuof reasonable notice. [Emphasis added.] This kind of change is a repudiation by the employer of the employment contract: Farber v. Royal Trust Co., at para. 34; Alberta PermitPro v. Booth, 2009 ABCA 146 at paras. 44-45, 3 Alta. L.R. (5th) 201. The threshold has been described by our Court of Appeal as a“substantial change to an essential term” of an employment contract: Pathak v. Jannock Steel Fabricating Co., 1999 ABCA 8 at para.18, 228 A.R. 312; Alguire v. Cash Canada Group Ltd., 2005 ABCA 387 at para. 7, 380 A.R. 227; Brown v.

Pronghorn Controls Ltd.,2011 ABCA 328 at para. 31. [95] The employee must prove constructive dismissal: Wells v. Toka Ltd., (NL SC), [1992] N.J. No. 1, 94Nfld. & P.E.I.R. 257 (N.L.S.C.T.D.). A court evaluates an alleged repudiation with the knowledge of the terminated employee(Bergmann v. CPT Canada Power Technology Ltd., (AB KB), [1997] A.J. No. 906 (QL), [1998] 1 W.W.R. 581.(Alta. Q.B.)) and from the perspective of a reasonable employee (Pathak v.

Jannock Steel Fabricating Co., at paras. 17-18), in a“somewhat more liberal” manner that is sensitive to the imbalance in authority between employer and employee, and taking into accountthe necessary flexibility of an employment relationship (Brown v. Pronghorn Controls Ltd., at para. 25). The employer’s intent isimmaterial: Vanderleest v. Regina (City), (SK KB), [1992] S.J. No. 252 (QL), 91 D.L.R. (4th) 538 (Sask. Q.B.). 2. Employee Compensation [96] Unsurprisingly, courts have concluded that a change in employee compensation is a change to an “essential term” of an

employment contract. That includes both a reduction in pay (Farber v. Royal Trust Co., at para. 36; Farquhar v. Butler BrothersSupplies Ltd. (1988), (BC CA), 23 B.C.L.R. (2d) 89, 8 A.C.W.S. (3d) 370 (B.C.C.A.)) and a failure to pay a bonus(Poole v. Tomenson Saunders Whitehead Ltd. (1987), (BC CA), 43 D.L.R. (4th) 56, 16 B.C.L.R. (2d) 349(B.C.C.A.)). [97] Courts have concluded that an employee’s contractual stock options are another form of compensation, for which a unilateralchange could potentially trigger a constructive dismissal: Cruickshank v.

Jordan Petroleum Ltd. (1999), 1999 ABQB 499 , 246A.R. 338 at para. 30, 89 A.C.W.S. (3d) 935 (Alta. Q.B.); Iliescu v. Voicegenie Technologies Inc., (ON SC), [2009]O.J. No. 85 (QL) at para. 44, 71 C.C.E.L. (3d) 123 (Ont. S.C.), affirmed 2010 ONCA 104, 79 C.C.E.L. (3d) 9. [98] My conclusion is that a contractual right by an employee to be given first right to purchase a business, subject to thenegotiation of economic terms, is no different. A right was given that was taken away. Mr. Young agreed to work for ADM because ofhis expectation that ADM would eventually be his own company.

The right to first purchase was without question a part of theemployment contract. Mr. McCullough’s decision to withdraw the right to purchase ADM was a substantial change to the Young/ADMcontract, and constructive dismissal. [99] Mr. Young was entitled to treat his employment contract as terminated by ADM when, through Mr. McCullough, ADM madea fundamental change to his employment contract and withdrew its offer of a right of first purchase in 2003, after the five year profitshare arrangement ended. Mr. Young refused to accept the change in his contract and treated that variation as a fundamental breach.

Thatwas his legal right. I therefore conclude that Mr. Young was dismissed as an employee without cause on September 18, 2000. That facthas a number of legal implications. 3. Alternative Bases for Termination [100] Mr. Young’s role in ADM was in limbo following the meeting. While I have concluded that Mr. Young was constructivelydismissed, objectively, it is difficult from the evidence to piece together an absolute determination of what consequences actually flowedfrom the September 18, 2000 meeting. [101] Some points are clear. In no sense did Mr. McCullough actually terminate the Bullet contract or fire Mr.

Young. I haveconcluded that Mr. Young’s contract or condition of employment changed to the extent that the right of purchase of ADM, conditional onsatisfactory terms being negotiated, was withdrawn. Further it was reasonable for Mr. Young to anticipate that the existing bonus profitshare arrangement, which was already significant by 2000 and was planned to undergo further increase, was not tenable with a newowner. Mr. Beaver could hardly be expected to honour that arrangement; it was simply too rich. As Poole v.

Tomenson SaundersWhitehead Ltd. makes clear, any substantial reduction in that contractual right to a bonus would also represent a basis for a constructivedismissal. [102] Had Mr. Young shown up for work the next day, after all parties’ emotions had cooled, he may have been able to clarifywhether he was going to continue to be the general manager, with Mr. Beaver simply replacing Mr. McCullough in the scheme. Thatstrikes me as highly unlikely and intuitively incorrect because Mr. Young had a profit agreement in place by which he or Bullet couldpotentially receive 80% of the company profits.

That could not have worked in a business sense with Mr. Beaver as owner. [103] It is inconceivable that Mr. Beaver would have paid Mr. Young that kind of money. More probably, Mr. Young would havebeen allowed to resume his electrician independent contractor duties and would have been paid 90% of his billings, at least until Mr.Beaver retracted that. However, that demotion too would be a constructive dismissal. [104] There is some evidence that even the role of ‘returning to the tools’ was unlikely. In questioning at Discovery Mr. McCulloughindicates: Q: ...

Now at that particular meeting then, you offered Greg to stay on with - I don’t know whether you did or Dean did, offeredGreg to stay on as electrical contractor is that correct?

A: No. Q: So you didn’t offer him to stay on? A: Not me. [Exhibit 11, page 71, lines 16-22, McCullough Questioning read-ins] 4. Conclusion [ 105 ] Common sense leads me to believe and to conclude factually that Mr. Young was constructively dismissed, and the Bullet management contract constructively terminated on September 18, 2000.

This dismissal or constructive termination flows from my finding that one term of the management contract, the future right to purchase the business subject to satisfactory terms being negotiated, was in fact withdrawn. [ 106 ] Expressing this legalistically, and as I concluded in 1159465 Alberta Ltd. v. Adwood Manufacturing Ltd. , 2010 ABQB 133 , 25 Alta.

L.R. (5th) 237, affirmed 2011 ABCA 259 [“ Adwood Lumber ”], there is a recognized benefit that flows from the chance to do something (in Adwood Lumber it was the chance to buy a business), and that the removal of this benefit is in fact a real loss of something that was integral to the contract between ADM and Mr. Young. Further, I am inescapably drawn to the conclusion that a real term of the arrangement, the profit share arrangement with bonus payments to Mr. Young, was also retracted on September 18, 2000. [ 107 ] On this basis I conclude that Mr.

Young (and his alter-ego Bullet) were constructively dismissed without cause during the September 18, 2000 meeting. Mr. Young accepted that dismissal. The contractual relationship between Mr. Young and ADM was ended by ADM on September 18-19, 2000. This termination of an employment contract was not made for cause, or with adequate notice, and therefore is a wrongful termination. VIII. Implications of the Wrongful Termination [ 108 ] I have concluded that Mr. Young’s contract with ADM did not restrict his post-contract activity, and that Mr. Young’s was not in a fiduciary relationship with ADM.

In the event I am incorrect on those points, I will continue to evaluate the effect of the constructive dismissal on any of Mr. Young’s obligations. A. Implied or Specific Contract Terms [ 109 ] In Travel Co. v. Keeling , 2009 ABQB 399 at para. 72 , 473 A.R. 336 I concluded that an employer’s wrongful termination of an employment contract ended any restriction on the ex-employee’s right to compete: ...

When an employer dismisses an employee wrongfully the employer is said to have repudiated the contract and can no longer enforce its benefits: Windship Aviation Ltd. v. deMeulles, 2002 ABQB 669 at para. 34 , 5 Alta. L.R. (4th) 133, affirmed 2005 ABCA 239 , 141 A.C.W.S. (3d) 527. This repudiation would apply both to the restrictive covenant and the non-solicitation elements unless an overarching common-law duty against non-solicitation applied. ... [ 110 ] Recently that approach has been confirmed by our Court of Appeal in Globex Foreign Exchange Corp. v. Kelcher , 2011

ABCA 240 at para. 72, 337 D.L.R. (4th) 207, where Justice Hunt concluded: An employer that wrongfully terminates a contract of employment should not be able to capitalize on its failure to give notice or damagesin lieu of notice by enforcing prospective obligations against an innocent employee. [111] I therefore conclude that even if I were to imply a restriction on competition in Mr. Young’s contract with ADM, that restrictionwas lifted following his constructive dismissal. B. Fiduciary Obligation [112] Any fiduciary obligation does not outlive the end of a fiduciary relationship: Mace v.

Dirk, 2006 ABCA 106 at para. 28, 412A.R. 207. [113] Justice Macklin in Windship Aviation Ltd. v. deMeulles, 2002 ABQB 669, 5 Alta.

L.R. (4th) 133 concludes that a wrongfuldismissal terminates any potential employee fiduciary obligation: 37 While in the appropriate circumstances, an employee can be considered to be in a fiduciary relationship with his or her employerthereby owing the consequent duties and responsibilities to the employer, I do not find it necessary to examine the facts of this case todetermine whether a fiduciary relationship actually did exist and, if so, whether the duties imposed by such a relationship have beenbreached. I am persuaded by the decisions of General Billposting Co. v.

Atkinson (supra), Zesta Engineering Ltd. v. Cloutier (supra),and Gestion Trans-Tek Inc. v. Lampel (supra) that whatever fiduciary obligations may be owed by an employee to an employer wouldnot survive a wrongful dismissal. ... [Emphasis added.] [114] One of the authorities cited by Macklin J., Zesta Engineering Ltd. v. Cloutier, (ON SC), [2001] O.T.C.118, 7 C.C.E.L. (3d) 53 (Ont. Sup. Ct. J.), new trial ordered due to admission of new evidence (2002), (ON CA),164 O.A.C. 234, 21 C.C.E.L. (3d) 164 (Ont. C.A.), deserves further comment.

At paras. 316-318 Wright J. specifically investigates andrejects the possibility that an employee’s fiduciary duty survives wrongful termination. He observes that academic commentators(Christie & England, Employment Law in Canada, 3rd ed. (Butterworths, (looseleaf)) at pp. 11.103 and 11.104; Peter Wardle in“Post-Employment Competition - Canaero Revisited”, (1990) 69 Can. Bar Rev. 233, at pp. 271-272) have observed the distinctionbetween contract and equity, and that a fiduciary relationship is a “creature of equity”.

Balancing the rights of a beneficiary employer anda fiduciary employee means an evaluation of who is the wrongdoer. Justice Wright quotes Wardle: ... Certainly the balancing of interests referred to earlier comes down more heavily in favour of the employee's right to unhamperedmobility of his labour in such a situation. In addition, it should be remembered that fiduciary obligations are imposed by equity, not bylaw, and are subject to the more general rule that a person who seeks an equitable remedy must come to the court with clean hands.

Itappears therefore unlikely, except in the rarest of circumstances, that an employer who dismisses a fiduciary without cause will have anyremedy if that person subsequently solicits his customers. [Emphasis added.] [115] At para. 318 Justice Wright concludes that means “... any fiduciary duties of the defendants did not survive their wrongfuldismissal.” This analysis was subsequently adopted and applied in Gestion Trans-Tek Inc. v. Lampel, [2001] O.J. No. 1206 (QL) atpara. 64, 104 A.C.W.S. (3d) 860 (Ont. Sup. Ct. J.) and Bonair Cargo Systems Inc. v.

Over, [2003] O.T.C. 547 at paras. 35-38, 123A.C.W.S. (3d) 845 (Ont. Sup. Ct. J.), and apparently accepted as valid law in Mick v. Boulder City Climbing School Inc., [2006] O.J.No. 2528 (QL) at para. 53, [2006] O.T.C. 548 (Ont. Sup. Ct. J.), affirmed 2007 ONCA 757, 161 A.C.W.S. (3d) 578, and HarrisScientific Products Ltd. v. Araujo, 2004 ABQB 704 at para. 12, 39 Alta. L.R. (4th) 214. [116] My conclusion is that the approach in Windship Aviation Ltd. v. deMeulles and Zesta Engineering Ltd. v. Cloutier is correct.

Ibelieve the revised Elder Advocates explanation for the scope of a fiduciary relationship and duty further explains why this principle iscorrect. A fiduciary is a person who undertakes to put the interests of another before their own; can one imagine that an employee whotakes that step goes further to agree that they will continue to prioritize the rights of the employer even when the employer treats theemployee in an inequitable manner? That is absurd. The fiduciary employee can only be expected to serve the interests of the employeras long as that beneficiary maintains clean hands.

[ 117 ] I therefore conclude that even if Mr. Young was a fiduciary of ADM that any fiduciary obligation would have ended on September 18, 2000, when Mr. Young was constructively dismissed without cause. IX. Post-September 19, 2000 Developments [ 118 ] After the unexpected development of September 18-19, 2000, Mr. Young and Mr. Warnock together began their new business, Bullet Energy. Bullet Electric appears to have slipped aside and no evidence was led about what, if anything, that Defendant did after the new company was formed. [ 119 ] Mr. Young’s departure from ADM was no secret.

Valleyview is a small community. Mr. Young was well known, having lived there since childhood. I suspect that, in the way that news travels in small communities, most of the town probably knew about the falling out between Mr. McCullough and Mr. Young before Mr. Young got back from Grande Prairie the next day. [ 120 ] I accept that Mr. Young contacted anybody and everybody in the area who he knew to try and get work. He had a wife and two children and no job. I also accept that a significant portion of Mr. Young’s work at Bullet Energy involved some of the oil industry businesses who had previously hired ADM.

The business circumstances conspired to m

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