Freeman v PetroFrontier Corporation, 2017 ABQB 340

Court of Queen’s Bench of Alberta Citation: Freeman v PetroFrontier Corporation, 2017 ABQB 340 Date: 20170525 Docket: 1401 04242 Registry: Calgary Between: Annelise Freeman Plaintiff - and - PetroFrontier Corporation and Rodinia Oil Corporation Defendants _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice R.A. Neufeld _______________________________________________________ I. Introduction [ 1 ] In this proceeding Ms. Annelise Freeman (“Plaintiff” or “Ms.

Freeman”) sues her former employers, PetroFrontier Corporation (“PetroFrontier”) and Rodinia Oil Corporation (“Rodinia”) for wrongful termination. PetroFrontier is an operating entity, and defended the action. Rodinia has ceased operations, with its entire Board of Directors having resigned in March 2014. It did not file a Statement of Defence, and was noted in default. [ 2 ] The trial of the action took place over a two day period, during which testimony was received from Ms. Freeman, and on behalf of PetroFrontier, from its former Chief Financial Officer, Mr.

Shane Kozak, and its current Chairman of the Board of Directors (and founder), Mr. Robert Iverach.

[ 3 ] Two basic issues were litigated. First, the amount of notice of termination required in the circumstances, with the Plaintiff arguing that she ought to have received nine to twelve months’ notice (or pay in lieu thereof), and PetroFrontier arguing that four to six months was appropriate. Second, whether PetroFrontier should be held jointly and severally liable for the obligations of itself and Rodinia under the common employer doctrine.

Summary Answers 1. The appropriate notice period in the circumstances was nine months. 2. PetroFrontier is not jointly and severally liable for the obligations of Rodinia to Ms. Freeman, qua employer. II. Background A. History and Operations of Defendants [ 4 ] Rodinia was a junior energy exploration and development company, established in 2006. Its initial business plan was based on assembling and exploiting conventional oil and gas resources in the Officer Basin in South and Western Australia.

In 2007, it was introduced to a different play, in the Georgina Basin, in the Australian Northern Territory, some 800-1000 kilometers away. [ 5 ] In the summer of 2008, Rodinia attempted without success to go public in order to raise the equity capital needed to develop its assets. It decided to transfer its Georgina Basin assets to a new company, which eventually became PetroFrontier [ 6 ] Thereafter, both Rodinia and PetroFrontier were successful in going public. In 2010, Rodinia raised some $55 million on the Toronto Venture Exchange. PetroFrontier did likewise. [ 7 ] An experienced energy executive, Mr.

Paul Bennett, was hired as CEO of each company, under separate agreements. Mr. Shane Kozak was hired as CFO of both companies, also under separate agreements. [ 8 ] As publicly traded companies, PetroFrontier and Rodinia had wide, diverse, and different shareholders. Management held less than 5% of the outstanding share of PetroFrontier, and less than 10% of Rodinia. Some of the directors of PetroFrontier were also directors of Rodinia, and Mr. Iverach was the chair of each board. [ 9 ] However, PetroFrontier’s board was very independent.

It included a nominee of U.K. investors, which held 20% of PetroFrontier’s outstanding shares. [ 10 ] There was also overlap in officers of each company, notably Mr. Bennett (who was CEO of both until being replaced as CEO of PetroFrontier on November 1, 2013), and Mr. Kozak. [ 11 ] The two companies shared office space in Calgary and Adelaide Australia, with costs allocated under an administrative services agreement. B. Employment of Ms. Freeman [ 12 ] Ms. Freeman is an experienced and well qualified geologist.

She has worked in the oil patch for over thirty years, holding a variety of contract and employment positions with many companies. As is common place in the industry, her work tenure with many of these companies lasted only until the project she was hired to work on was finished or in some cases until her employer or its assets were sold to another company. [ 13 ] In 2008, Ms. Freeman was engaged on contract by PetroFrontier and Rodinia as a senior geologist. She was paid $100 per hour and worked four days per week.

She did work for both companies, and was paid by invoice to each for the hours worked. [ 14 ] On April 1, 2011, Mr. Paul Bennett (the CEO of each company) agreed to offer Ms. Freeman an employment position. She accepted. A letter containing the “Dual Offers of Employment”, as well separate Confidentiality Agreements pertaining to Rodinia and PetroFrontier respectively was provided, and executed by Mr. Bennett and Ms. Freeman.

The letter is reproduced in full below: March 31, 2011 Dual Offers of Employment Dear Annelise: Further to your recent discussions with Paul Bennett and Shane Kozak, we are please to offer you positions with each of Rodinia Oil Corp. and PetroFrontier Corp. The essential terms of employment offered are as follows: Note: all funds are in Canadian dollars Rodinia Oil Corp. ("Rodinia") Position: Senior Geologist

Rodinia Salary: $60,000 ("Annual Base Salary") PetroFrontier Corp. (''PFC'') Position: Senior Geologist GBE Salary: $60,000 ("Annual Base Salary") Note: the combined Annual Base Salary of both Corporations is $120,000. Mutual Terms of Employment with each of Rodinia and PFC (the "Corporations'') (

a) Benefits: Standard benefits package as well as a $2,000 health spending account paid by the Corporations (i.e. $1,000 per Corporation). (

b) Part-time: The position is a permanent part-time position and your standard hours will be the equivalent of four days per week. (

c) Professional Dues and Training: Professional dues and training will be paid for jointly by the Corporations up to a total of $1,500 per annum. (

d) Vacation: Five weeks vacation per annum (to be taken so as not to interfere with the due performance of your duties). (

e) Starting Date: Your starting date with each of the Corporations will be April 1, 2011. (

f) General: You will be required to carry out your duties faithfully, honestly, diligently and to the best of your abilities. You will be required to devote your full time efforts four days a week for and on behalf of the Corporations. [ 15 ] Although becoming an employee of each company, Ms. Freeman’s day-to-day duties, and authority remained the same, as did her salary. She was a technical expert in geology. She supervised the drilling of two PetroFrontier wells - one on-site in Australia and one remotely from Calgary.

She directed a consulting geophysicist and participated in the review of geophysical assessments. She mined data for both companies from Australian public data sources to improve their understanding of their Australian resources. C. Events Leading to Termination [ 16 ] Although successful in its $55 million 2010 public offering, Rodinia soon fell on troubled times. According to Mr. Iverach, the first well drilled by Rodinia cost $25 million. Not only was it a “dud”, but a 25% farm-out participant refused to pay its share of costs.

Its next well was also a failure. [ 17 ] By 2012, Rodinia was still solvent but it had no oilfield operations, having been unsuccessful in finding energy. It continued to pay Ms. Freeman, but its operations started to wind down and there was less work for Ms. Freeman to do. [ 18 ] PetroFrontier was apparently successful in finding commercially- productive energy resources. In mid-2013, however, it entered into discussions with Statoil to transfer operatorship of jointly held assests in the Georgina Basin.

On September 1, 2013 Statoil took over as operator, with the result that there was less work for PetroFrontier staff, including Ms. Freeman, to do. Ms. Freeman was advised informally of the transfer of operatorship. D. The Termination [ 19 ] Ms. Freeman was given formal notice of termination by PetroFrontier in a letter dated January 29, 2014.

It stated: Annelise, Re: Termination of Employment-PetroFrontier’s Portion of the March 31, 2011 PetroFrontier & Rodinia “Dual Offers of Employment” This letter provides you notice of termination of the PetroFrontier part of your dual employment agreement with PetroFrontier & Rodinia, effective March 31, 2014. This mutually agreed date provides sufficient time for you to complete any follow up work potentially generated from the Petrel G&G review. [ 20 ] She was therefore provided two months of working notice. She was also given an additional $5,000 (one month of pay by PetroFrontier) on March 31, 2014.

Thus she was provided the equivalent of three months notice by PetroFrontier. [ 21 ] Rodinia provided no notice of termination of any sort to Ms. Freeman. According to Mr. Kozak, he expected that Mr. Paul Bennett (who remained the titular CEO of Rodinia) would provide Ms. Freeman notice, but that did not happen. Rodinia did however, continue to pay Ms. Freeman’s salary until March 31, 2014, but stopped doing so thereafter. According to its former Chairman, Mr. Iverach, in March 2014 Rodinia ceased to exist when all of the Board of Directors resigned. [ 22 ] In the result, Ms.

Freeman received three months’ notice of termination from PetroFrontier, and no notice of termination from Rodinia. III. Reasonable Notice

[23] The leading case on Canada regarding reasonable notice of termination is Bardal v The Globe and Mail Ltd (1960), (ON SC), 24 DLR (2d) 140 (Ont H Ct J).

In Lederhouse v Vermilion Energy Inc, 2015 ABQB 387 at paras 15-17, JusticeYamauchi of this Court discussed how the Bardal decision has been utilized to guide the determination of reasonable notice: The parties agree that the factors that this Court must consider when it determines the appropriate length of notice (or pay in lieu ofnotice) are as follows: 1) The employee’s age at the time of termination; 2) Her length of service with the employer; 3) The employee’s responsibilities; 4) Her experience, status, training, and qualifications; and 5) The availability of equivalent alternate employment, having regard to the employee’s experience, qualifications, and training.

Bardal v. Globe & Mail Ltd. (1960), (ON SC), 24 DLR (2d) 140 at 145, [1960] OWN 253 (H Ct Jus) [Bardal]; Smith vTamblyn (Alberta) Ltd (1979, (AB KB), 9 Alta LR (2d) 274 at 280; Machtinger v HOJ Industries Ltd, (SCC), [1992] 1 SCR 986 at 998-99. In Nelson v Champion Feed Services Inc, 2010 ABQB 409 at para 87, 30 Alta LR (5th) 162 [Nelson], Graesser J described the Bardalfactors as follows: 1. The nature of the employment - the more senior the position, the longer it is likely to take to find a replacement position. There arefewer senior management jobs around. 2.

The length of service - the longer an employee has worked for one employer, the more difficult it may be to find an alternate job.Either because the employee has narrowed his or her skills by working for one employer for a long time, or the employee has been paidmore than the job is worth because of long service. 3. The age of the employee - the older the employee is, the less likely he or she is to find a suitable position, or the longer it is likely totake. Older employees are sometimes perceived as less worthwhile to invest in. 4.

The availability of suitable similar employment having regard to the employee's experience, training and qualifications together withsurrounding economic circumstances - what is the realistic prospect of this employee getting a similar replacement job? What is the jobmarket like? In good economic times, jobs may be plentiful and the employee may have little difficulty finding a good replacement job;in poorer times, there may be few jobs around. The foregoing cases, along with others, emphasize that each case must be decided on its own facts, with no one factor beingdeterminative. See e.g.

Honda Canada Inc v Keays, 2008 SCC 39 at paras 28-32. The parties discussed the so-called “rule of thumb” ofone month per year of service, as a “measuring stick.” This principle has been rejected by some courts. See e.g. Crisall v Western PontiacBuick GMC

(1999) Ltd, 2003 ABQB 255 at para 42, 13 Alta LR (4th) 104. This Court agrees that this rule is neither “warranted inprinciple, nor … supported by authority”: Minott v O’Shanter Development (1999), (ON CA), 117 OAC 1. This Courtis of the view that the better approach is to examine the factors to which it refers in the immediately preceding paragraphs and arrive atan appropriate length of notice, from a principled perspective. [24] While the factors to be considered in determining reasonable notice are reasonably straightforward, the case law displays asignificant degree of variability in the results reached.

Some of that variability is a function of the factual differences in cases before theCourts. However, it is also reasonable to expect that the application of those facts is also influenced by different perceptions of the basicfairness (or unfairness) of the positions advanced at trial. [25] In this case, the Plaintiff was, at the time of termination, fifty seven years of age. Despite persistent and reasonable efforts, shewas not able to secure a similar job in the industry, due in large measure to the precipitous drop in energy prices that took placeapproximately eight months after her termination.

While not having had substantial managerial responsibility, Ms. Freeman wasnevertheless an experienced geologist, whose performance was never questioned.

In a better economy, she should readily have obtainednew work in either a contract or employment position. [26] All of these factors militate in favour of a notice period that is on the higher end of the ranges suggested by counsel (four tosix months proposed by the Defendant versus nine to twelve months proposed by the Plaintiff). [27] The length of service factor articulated in Bardal and Nelson v Champion Feed Services Inc, 2010 ABQB 409 is somewhatmore difficult to assess in this case.

The Plaintiff argued that for the purpose of determining notice, her length of service should includeher time as a permanent employee as well as the three preceding years spent working for Rodinia and PetroFrontier as a dependentcontractor. [28] PetroFrontier took issue with that approach, on procedural grounds. It argued that the Plaintiff had failed to plead theexistence of a dependent contractor relationship between 2008-2011 in her Statement of Claim, and should not be permitted to assert sucha relationship at trial. [29] In my view, the length of service, by Ms.

Freeman to PetroFrontier as both a contractor and an employee was placed into issueby the Plaintiff in her Statement of Claim and in any event was well known to the Defendants. Mr. Kozak testified that the decision tooffer Ms. Freeman employment was made by Mr. Bennett and the decision was communicated in advance to other executives in thecompany. There were no issues raised with Ms. Freeman’s work performance over her tenure with each company, or the efforts and

dedication expanded by her during her six years of service. I do not accept that inclusion of her years of service as a contractor in supportof her position regarding the amount of notice required constitutes any unfair surprise, ambush, or prejudice to either Defendant. [30] In any event, tenure of service is but one factor to be considered under Bardal. There is ample flexibility under those criteria toinclude previous day to day service under a contract in deciding what constitutes reasonable notice. This is one such case. A.

Economic Downturn [31] In Lederhouse, this Court posited the question of whether a depressed economy should result in a reduced notice period (asargued by the employer), rather than increased notice period (as argued by the employee). It quoted the observations of Justice Martin,as he then was, in Novak v Fintech Services Ltd, 2001 ABQB 1077 as follows (at para 12): The notion that the economic circumstances of an employer are to be taken into account was further confirmed in Heinz v. CanaConstruction Co. (1987), (AB KB), 55 Alta. L.R. (2d) 382 (Alta.

Q.B.), at 387: There is, however, judicial support for the proposition that an economic downturn in the fortunes of an employer which is not broughtabout by his own incompetence or mismanagement constitutes a legitimate factor to consider in determining the requisite notice.

Thesecases recognize that it seems unrealistic to force an employer to give the same notice period in a time of recession as he would in a timeof prosperity. [32] The Court went on to note that in the end, Justice Martin did not have to deal with the issue, and found that a depressedeconomy is a factor that can be considered, without stating whether it would militate for or against an extended notice period. [33] In my view this was an appropriate approach, because the state of the economy may in any given case militate either for oragainst an extended notice period.

In some cases, it may indeed be unrealistic (and unfair) to burden an employer with the same noticeperiod in a depressed economy as it would be in a time of prosperity. A company that is struggling to “keep the lights on” might well beable to argue that the reasonableness of it overarching duties to its shareholders, remaining employees and service suppliers is at least aone factor to be evaluated: see Garvin v Rockwell International of Canada Ltd (1993), 50 CCEL 295 (Ont Ct J (Gen Div)).

Conversely,a company that has chosen to divest itself of operations (and associated staff), in favour of a non-operator’s revenue stream can fairly beexpected, even in a depressed economy, to make provision for those who it is putting out of work. In this case, for example PetroFrontiercould have done so by providing Ms. Freeman with working notice as soon as it transferred its Georgina Basin operatorshipresponsibility to Statoil in September 2013. Alternatively, it could have done so by providing more reasonable working notice, orpayment in lieu of same, when it terminated her employment in January 2014. B.

Nature of the Industry [34] In argument, PetroFrontier took the position that in determining what constitutes reasonable notice the Court should considerwhether the industry involved is inherently volatile or cyclical. It says that where that is the case, a shorter notice period is appropriate asit lessens the adverse effect associated with age: Bellini v Ausenco Engineering Alberta Inc, 2016 NSSC 237 at para 51. [35] The nature of the industry also informs the Court’s decision on what a reasonable notice period would be by shedding light onthe reasonable expectations of the parties.

For example, where the nature of the business is that employers move from project to project,there is an implicit acceptance of the risk of the employment relationship being brought to an end: Slater v Sandwell Inc (1994), (ON SC), 5 CCEL (2d) 308 (Ont Ct J (Gen Div)). [36] I agree with PetroFrontier that the nature of the industry, and specifically its volatility, is a factor that can be considered indetermining the reasonableness of notice. However, like economic conditions generally, it is a factor that can cut both ways.

Where anemployee has accepted a lower paying, but more secure position to hedge against industry volatility, a longer than usual notice periodmight be warranted. [37] Conversely, where the industry involved is inherently project driven and there are no outside considerations such asinducement, inherent termination risk comes with the territory and militates in favour of a reduced notice period. C.

Assessment of Reasonable Notice [38] Having considered the factors discussed above, the question to be answered is what a reasonable notice period would havebeen. [39] At the outset it can be noted that the positions of the parties are not particularly far apart four to six months (Defendant)versus nine to twelve months (Plaintiff). [40] In my view, the appropriate notice period in these circumstances would have been nine months, having regard, in particular, tothe following factors: 1. Age of employee (56); 2.

Years of service (3 years as employee; 3 years as contract geologist working almost exclusively for PetroFrontier and Rodinia); 3. Experience and responsibility of employee, and focus on Australian resources as result of six years of service to PetroFrontier(potentially reducing Canadian employability); and 4. Economic conditions preventing re-employment, and options available to employee to provide longer working notice and/or

compensation following transfer of operatorship of Georgina Basin assets. [41] I have also considered the inherent volatility of the energy industry, and in this case find that it militates in favour of a reducednotice period due to the project driven nature of Ms. Freeman’s work. But for this factor, a somewhat longer notice period than ninemonths would have been appropriate. IV. Joint and Several Liability [42] Given the demise of Rodinia, the Plaintiff seeks to have PetroFrontier held jointly and severally liable for the obligations ofboth companies to her.

She relies on the common employer doctrine. [43] Under that doctrine, more than one company (or for that matter natural person) can be considered to be the employer of anemployee and each common employer can be held jointly and severally liable to the employee for wrongful termination. [44] In Sinclair v Dover Engineering Services Ltd (1987), (BC SC), 11 BCLR (2d) 176 (SC), aff’d (1988), (BC CA), 49 DLR (4th) 297 (CA) two companies were found to be a common employer. One was the company thatpaid the employee.

It was a management company effectively owned by the principal of the engineering company for whom the plaintiffworked on a day to day basis. At trial, it was argued by the defendants, that the only employer was the engineering company. Thisargument was rejected (at paras 16-18): I see no reason why such an inflexible notion of contract must necessarily be imposed upon the modern employment relationship.Recognizing the situation for what it was, I see no reason, in fact or in law, why both Dover and Cyril should not be regarded jointly asthe plaintiff’s employer.

The old-fashioned notion that no man can serve two masters fails to recognize the realities of modern-daybusiness, accounting and tax considerations. There is nothing sinister or irregular about the apparently complex intercorporate relationship existing between Cyril and Dover. It is, infact, a perfectly normal arrangement frequently encountered in the business world in one form or another. Similar arrangements mayresult from corporate take-overs, from tax planning considerations, or from other legitimate business motives too numerous to catalogue.

As long as there exists a sufficient degree of relationship between the different legal entities who apparently compete for the role ofemployer, there is no reason in law or in equity why they ought not all to be regarded as one for the purpose of determining liability forobligations owed to those employees who, in effect, have served all without regard for any precise notion of to whom they were bound incontract.

What will constitute a sufficient degree of relationship will depend, in each case, on the details of such relationship, includingsuch factors as individual shareholdings, corporate shareholdings and interlocking directorships. The essence of that relationship will bethe element of common control. [45] See also Bagby v Gustavson International Drilling Co Ltd, 1980 ABCA 227. [46] In Downtown Eatery

(1993) Ltd v Ontario (2001), (ON CA), 54 OR (3d) 161 (CA), leave to appeal toSCC refused, [2001] SCCA No 397, the common employer doctrine was used to affix liability, qua employer, on a group of companiesall of whom operated seamlessly to operate a nightclub business. The Court of Appeal held that in the circumstances, the absence of acontract between the employee and any of the defendant companies, other than an asset-less “paymaster”, did not defeat the claim.

Itstated as follows (at paras 34-37): In our view, in June 1993, when Alouche was dismissed, there was a highly integrated or seamless group of companies which togetheroperated all aspects of the For Your Eyes Only nightclub.

Twin Peaks owned the nightclub premises and leased them to The LandingStrip which owned the trademark for For Your Eyes Only and, significantly for a nightclub, held the liquor and entertainment licences.Downtown Eatery operated the nightclub under a licence from The Landing Strip and owned the chattels and equipment at the nightclub.Best Beaver served as paymaster for the nightclub employees. Controlling all of these corporations were Grad and Grosman and theirfamily holding companies, Harrad Corp. and Bengro Corp. Grad and Grosman could easily have operated the nightclub through a single company.

They chose not to. There is nothing unlawful orsuspicious about their choice. As Wood J. said in Sinclair, "it is a perfectly normal arrangement frequently encountered in the businessworld." However, although an employer is entitled to establish complex corporate structures and relationships, the law should be vigilant toensure that permissible complexity in corporate arrangements does not work an injustice in the realm of employment law. At the end ofthe day, Alouche's situation is a simple, common and important one -- he is a man who had a job, with a salary, benefits and duties. Hewas fired -- wrongfully.

His employer must meet its legal responsibility to compensate him for its unlawful conduct. The definition of"employer" in this simple and common scenario should be one that recognizes the complexity of modern corporate structures, but doesnot permit that complexity to defeat the legitimate entitlements of wrongfully dismissed employees. The trial judge focused on the absence of a contract between Alouche and any of the potential common employers. With respect, wethink this focus is too narrow. A contract is one factor to consider in the employer-employee relationship.

However, it cannot bedeterminative; if it were, it would be too easy for employers to evade their obligations to dismissed employees by imposing employmentcontracts with shell companies with no assets. [47] The Plaintiff contends that in the circumstances of this case, Rodinia and PetroFrontier were common employers due tofactors such as: a shared corporate history; shared office and equipment; similarity of directors; and shared executives and employees.

[ 48 ] PetroFrontier argues that the common employer doctrine does not apply in this case. While acknowledging the commonalities relied upon by the Plaintiff, it says that this is not a case in which the true employer of Ms. Freeman is in doubt. Nor is it a case in which a business entity has continued to shield itself from liability to employees through the use of an asset-less “paymaster” company.

Rather, it is a case where two separate companies have engaged in two separate businesses for the benefit of two distinct set of shareholders, and have entered into separate employment contracts. [ 49 ] I agree with PetroFrontier that the common employer doctrine does not apply in this case. There is no doubt as to who Ms. Freeman was employed by. Her employment contracts make it clear that she was employed by each company with separate terms of employment and separate confidentiality agreements executed for each.

There is no need to lift the corporate veil, because it has never been let down. [ 50 ] To use the common employer doctrine to impose joint and several liability would constitute re-writing a contract that is clear on its face and that was executed in good faith. Although sympathetic to Ms. Freeman’s plight, I am not prepared to take such step. V. Quantum [ 51 ] Ms. Freeman was provided two months working notice, and one month’s salary on termination ($5,000), but was entitled to nine month’s notice (or salary in lieu thereof). PetroFrontier is therefore obligated to pay Ms. Freeman $30,000.00.

It must also reimburse her for lost insurance benefits for a period of seven months, in the amount of $59.52/month. [ 52 ] Rodinia did not defend the claim. It did not provide any notice of termination to Ms. Freeman prior to going out of business in March 2014. The Plaintiff requested, and will be granted, judgment against Rodinia based upon the findings in this decision. Accordingly, Rodinia is found liable to pay Ms. Freeman $45,000.00, or nine months of salary in lieu of notice. [ 53 ] Ms. Freeman will be awarded costs of the action against each Defendant, on Column 2. Heard on the 11 th day of April, 2017.

Dated at the City of Calgary, Alberta this 25 th day of May, 2017. R.A. Neufeld J.C.Q.B.A. Appearances: Ashley Hahn for the Plaintiff Jennifer L. Smith for the Defendants