Gerling v Camrose Regional Exhibition & Agricultural Society, 2021 ABQB 257

Court of Queen’s Bench of Alberta Citation: Gerling v Camrose Regional Exhibition & Agricultural Society, 2021 ABQB 257 Date: 20210406 Docket: 1812 00022 Registry: Wetaskiwin Between: Thomas Gerling and Papa-T Productions Ltd. Plaintiffs - and - Camrose Regional Exhibition and Agricultural Society Defendant Corrected judgment: A corrigendum was issued on April 19, 2021; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice S. Leonard _______________________________________________________ Introduction

[ 1 ] This litigation results from the efforts of the well-meaning and dedicated people of the Camrose Regional Exhibition and Agricultural Society (the CRE), all of whom, including both the Plaintiffs and the representatives of the Defendant, have a strong and sincere desire to protect and grow the CRE and promote its marquis event, the Big Valley Jamboree (the Festival). [ 2 ] On January 4, 2018, the CRE terminated its Management Services Agreement (MSA) with Papa-T Productions Ltd. (Papa- T).

Pursuant to the terms of the MSA, Thomas Gerling, the president and sole director of Papa-T was appointed Chief Executive Officer (CEO) of the CRE. When the MSA was terminated, Mr. Gerling’s role as CEO was also terminated. [ 3 ] Papa-T and Mr. Gerling brought an action against the CRE for breach of contract. Their position is that the CRE did not have cause to terminate the contract. In the alternative, Mr. Gerling argues that he was an employee of the CRE and that it was an implied term of the contract that he could only be terminated without notice for just cause. [ 4 ] The termination of Mr.

Gerling and his company Papa-T centers on the circumstances surrounding the invitation, subsequent un-invitation and final re-invitation of an individual by the name of Larry Werner, to an event to celebrate the 25 th Anniversary of the Festival (the 25 th Anniversary Event). [ 5 ] The central question in this litigation is which party breached the agreement. The CRE’s position is that Mr. Gerling’s decisions and actions leading up to the 25 th Anniversary Event and the circumstances surrounding the invitation of Mr.

Werner amount to a failure to provide management services “in a first class and business-like manner” as required by the MSA. [ 6 ] Mr. Gerling’s position is that he was open and transparent with the Executive Board of the CRE with respect to the decision and reasons he had for not inviting Mr. Werner. His position is that these actions do not amount to a material breach of contract. The Plaintiffs argue that Mr. Gerling was an employee of the CRE and that he is entitled to damages for wrongful termination of the contract. [ 7 ] In the alternative, if Mr.

Gerling was a contractor and not an employee, the Plaintiffs argue that Mr. Gerling’s actions did not amount to a material breach of contract. The CRE’s termination of the MSA is a breach of contract and therefore, the plaintiffs are entitled to damages for wrongful termination of the contract. [ 8 ] For the reasons that follow, I find that Mr. Gerling was an employee of the CRE and that although his direction to rescind Mr. Werner’s invitation to the 25 th Anniversary Event is misconduct, it falls short of providing sufficient cause for termination. If my finding that Mr.

Gerling was an employee is wrong, I nonetheless find that the CRE’s termination of the MSA amounts to a breach of contract. The Plaintiffs are entitled to damages. Background Structure of the CRE [ 9 ] The CRE is a registered agricultural society. It provides facilities and services for events such as cattle sales, trade shows and weddings. The signature event for the CRE is the Festival, an annual four-day country music festival. [ 10 ] The Festival began over 25 years ago when Glen and Darryl Venet approached the CRE to put on a country music festival on CRE grounds.

The CRE and the Venet Brothers formed a partnership and created Panhandle Productions (Panhandle) which was owned equally by each party. Panhandle allowed the CRE to preserve its not for profit status and served an accounting function for the operation of the Festival. In 2008/2009, the CRE exercised a shotgun clause and became the 100% owner of Panhandle. [ 11 ] The CRE is managed by a Board of volunteers. These volunteers consist of local business people, lawyers, police officers, etc., all from the community of Camrose. The Board is a non-operational governance board.

The current president of the Board, Mark Schneider, confirmed that the day-to-day operations of the CRE are in the control of the CEO, a paid position. The CEO reports to the Board at Board Meetings and updates the president, as required, on various issues but there is no requirement that the CEO seek approval for day-to-day matters. Incidents in the spring of 2017 [ 12 ] In 2017, the CRE received complaints about Mr. Gerling from two community groups: the Camrose Friends of STARS (the Friends of STARS) and the Camrose Association for Community Living (the CAFCL).

A special in camera board meeting was convened on May 18, 2017, to discuss the complaints. Mr. Gerling was not present at the meeting. [ 13 ] The first incident was a letter of complaint dated May 8, 2017, from the Friends of STARS. The Friends of STARS is a community group that raises money for the STARS air ambulance. For the last 20-25 years, the Friends of STARS held an annual banquet at the CRE. However, in 2015 and 2016, they were not satisfied with the quality of the food provided at their event. On January 19, 2017, three representatives of the Friends of STARS met with Mr.

Gerling to discuss the food quality issues. [ 14 ] The comment cards gathered from the most recent event contained feedback about the quality of the food. Mr. Gerling noted that some of the comment cards appeared to have been written by two different people, with different handwriting on the top and bottom portions of the cards. [ 15 ] Robert Grant, a member of the Board of Friends of STARS, complained that Mr. Gerling slapped the cards down in front of the three representatives and accused them of altering the cards. Mr. Gerling disputes this and says that he asked whether the comment cards looked suspicious.

He acknowledged that the Friends of STARS representatives reacted negatively to his question. Mr. Grant contends that he and his fellow Board members were insulted.

[ 16 ] In the May 8, 2017 letter, the Friends of STARS outlined the circumstances of the meeting with Mr. Gerling, indicated that they were disappointed and insulted as a result of Mr. Gerling’s accusations, and advised the CRE Board that they were moving their event. [ 17 ] The second incident involved the CAFCL. The CAFCL previously hosted their annual fundraiser at the CRE. That year, the CAFCL notified the CRE that they would be moving their event because the price at the CRE was too high. [ 18 ] In response, Mr.

Gerling indicated that if the CAFCL moved their event, the CRE would no longer provide complimentary tickets to the Festival for the aids who accompany CAFCL clients. Mr. Gerling’s view was that it was not economical to lose the CAFCL business and also provide the organization with $12,000 worth of complimentary tickets. [ 19 ] Members of the CRE Board were concerned that this approach would cause a public relations fallout. Eventually, the CRE Board, along with Mr.

Gerling, came up with a solution to provide complimentary Festival tickets to the clients of the CAFCL rather than the support staff who accompanied the CAFCL clients. [ 20 ] Steven Hanson, a member of the CRE Board, testified that he felt the CRE Board was in damage control mode and, as he and Mr. Schneider were the new executive, it fell to them to deal with both the Friends of STARS and the CAFCL as soon as they came onboard. Mr. Hanson felt there was a common element in that both clients were offended by Mr. Gerling. Mr. Gerling and Mr. Werner [ 21 ] Mr. Gerling and Mr.

Werner had a lengthy history with one another. Mr. Werner was involved with the Festival for approximately 22 years. He was described as the face of the Festival. [ 22 ] Mr. Werner was hired by Panhandle, through his numbered company, to produce the Festival. In the early years, when Mr. Gerling was on the Board of the CRE, Mr. Werner had little direct involvement with him. When Mr. Gerling became a member of the Board of Panhandle, their interactions increased. [ 23 ] When the shotgun clause was exercised in 2008/2009 and the CRE took over Panhandle, Mr. Gerling became the CFO of Panhandle.

The president of the CRE Board approached Mr. Werner and asked him to stay on to continue producing the Festival. At that point, Mr. Gerling reported to Mr. Werner. [ 24 ] Mr. Gerling testified that he had concerns about Mr. Werner’s work with the CRE. Mr. Gerling felt that Mr. Werner did not always have the CRE’s best interests at heart. He cited two examples. The first involved an alleged theft of gas. In 2009, two employees approached Mr. Gerling and told him that Mr. Werner was taking diesel fuel from the CRE’s bulk containers without permission. Mr. Gerling felt this was problematic as Mr.

Werner took the diesel but still submitted claims for mileage. [ 25 ] According to Mr. Gerling, he confronted Mr. Werner on this issue when the two were travelling alone in a car from Edmonton to Wetaskiwin. [ 26 ] Following the next CRE Board meeting, Mr. Gerling asked the two employees that raised the fuel issue to stay behind. The allegations were again put to Mr. Werner. He explained that the Board of Panhandle gave him permission to use the diesel from time to time. Mr. Gerling testified that he sat on the Board of Panhandle for seven years and did not recall any such permission having been given. [ 27 ] Mr.

Werner testified that he did not recall Mr. Gerling raising the fuel issue with him. He did not recall the discussion in the vehicle, nor did he recall the meeting with the two employees. He denied stealing fuel from the CRE. [ 28 ] Following that Board meeting, Mr. Gerling reported the issue to the then-president of the Board of the CRE. To Mr. Gerling’s knowledge, no steps were taken by the Board in response to Mr. Gerling’s complaint. Despite this, Mr. Gerling testified that he did not consider the issue of the fuel to be resolved. He did not think it was right that Mr. Werner was taking fuel.

He gave evidence that in his view, the Board had a fiduciary responsibility to do something. Over the years, he raised the issue of the fuel with each successive president of the Board of the CRE. Again, to his knowledge, no steps were taken in response to his complaints. [ 29 ] Mr. Gerling also testified that there were issues with Mr. Werner’s use of complimentary festival tickets. Mr. Gerling discovered that Mr. Werner provided complimentary tickets to his personal gym in exchange for a membership and to a golf course in exchange for rounds of golf. Mr. Gerling felt that this was inappropriate. [ 30 ] Mr.

Werner testified on this point and explained that he used the tickets to promote the Festival. He acknowledged getting a gym membership one year when 500 complimentary tickets were given to the gym as part of a promotional initiative. He also acknowledged getting rounds of golf but explained that he used them to host Festival sponsors. [ 31 ] Again, Mr. Gerling alerted the president of the CRE Board to the issue. Mr. Gerling testified that he did not believe anything was done about the situation.

He did not consider the issue resolved but he did not think that, as a volunteer board, the CRE Board was interested in dealing with this kind of issue. [ 32 ] Mr. Werner’s role as producer of the Festival came to an end in the 24 th year of the Festival. Mr. Gerling testified that it was his decision to only renew Mr. Werner’s contract for one further year. The Board was aware of this decision but had no role in making it. As CEO of the CRE, Mr. Werner reported to Mr. Gerling and renewing contracts was within Mr. Gerling’s authority. Mr.

Werner’s contract was extended for one final year so that the new producer of the Festival, Trixtar Productions (i.e. Mike Anderson) could shadow Mr. Werner. [ 33 ] At the end of Mr. Werner’s contract, Mr. Gerling authorized spending for a retirement party. The CRE wanted to recognize

Mr. Werner’s contributions but also introduce the new team to the people that would be attending the party. The 25 th Anniversary Event [ 34 ] In 2017, the year after Mr. Werner’s retirement, the Festival celebrated its 25 th anniversary. An anniversary event was scheduled for November 2017. Mr. Gerling testified that his role was to control the budget, work with the team, and approve the final guest list. He wanted to use this event to recognize the “old” and celebrate the “new”. [ 35 ] Mr.

Gerling’s executive management team at the time consisted of Bill Anderson as the CFO of Panhandle, Chuck Erman as the General Manager of the CRE and Mike Anderson as the General Manager of the Festival. Mike Anderson held the position of General Manager of the Festival through his corporate entity, Trixtar Productions, which had a direct contractual relationship with Panhandle. Members of this group were also involved in planning the 25 th Anniversary Event. [ 36 ] Mr. Gerling testified that everyone contributed to the master guest list but that he and his executive team were to approve the final list.

The guest list was not subject to approval by the CRE Board and included industry people, sponsors, employees, and Board members. Mr. Werner was initially included on the master guest list but Mr. Gerling testified that he never intended to invite him. [ 37 ] Unfortunately, Mike Anderson went ahead and invited Mr. Werner prior to the final guest list being approved. During a meeting in which Mike Anderson, Bill Anderson and Chuck Erman were present, Mr. Gerling asked Mike Anderson to un-invite Mr. Werner. When Mike Anderson questioned why he had to be the one to do this, Mr. Gerling responded that Mr.

Anderson was the person that “jumped the gun” so he could be the person to uninvite him. [ 38 ] Mr. Gerling testified that he did not think Mr. Werner should be invited because they had just done a big send-off for him the year before and he wanted to showcase the new team. In Mr. Gerling’s view, this would not happen if Mr. Werner was there because people would flock to him rather than the new team. [ 39 ] Bill Anderson also testified that the 25 th Anniversary Event was intended to shift the face of the Festival from Panhandle to the CRE. He testified that Mr.

Werner’s presence would undermine this goal because “all the big players” would want to sit with him. Bill Anderson testified that this is ultimately what happened when Mr. Werner attended the event and it became “the Larry Werner Show.” [ 40 ] Mr. Gerling testified that he told Mike Anderson about his concerns about fuel theft and inappropriate use of concert tickets. Mr. Gerling felt he could share this information because Mike Anderson was part of his executive team. Mr. Gerling told Mike Anderson that he did not have to go into all of this detail – he just had to tell Mr.

Werner that he had jumped the gun and leave it at that. Mr. Gerling did not feel that there would be any consequences from uninviting Mr. Werner as Mr. Werner no longer worked for Panhandle or the CRE. Mike Anderson ultimately uninvited Mr. Werner. Executive Board’s response to the invitation issue [ 41 ] Mr. Hanson testified that Mr. Werner made an appointment to meet with him at his office. When Mr. Werner arrived to the meeting, on November 2, 2017, he was agitated and flustered. Mr. Werner said he was uninvited from the 25 th Anniversary Event. He also told Mr.

Hanson that Mike Anderson shared with him that the reason for being uninvited and the reason for the non-renewal of his contract was because of an allegation of past theft of fuel from the CRE. Mr. Hanson testified that Mr. Werner was most upset about the theft allegation. He seemed resigned to the fact that he might not be able to attend the 25 th Anniversary Event. [ 42 ] Mr. Hanson testified that he pointedly asked Mr. Werner whether he was considering suing the CRE. Mr. Werner indicated that he had reached out to legal counsel to discuss the possibility of a claim for defamation. Mr. Hanson asked Mr.

Werner to hold off and give him some time to speak with the Executive of the Board. [ 43 ] Following this meeting, Mr. Hanson told the president of the Board of the CRE, Mark Schneider, about his meeting with Mr. Werner. Mr. Schneider testified that he then invited Mr. Werner to a meeting. Mr. Schneider said that Mr. Werner was quite worked up and emotional. He was upset about the allegation that he stole fuel from the CRE and threatened legal action if it did not cease. [ 44 ] As a result of this meeting, Mr. Schneider convened a meeting of the members of the CRE Executive Board. Mr.

Hanson testified that this was a fact-finding meeting. The purpose was to raise the issues with Mr. Gerling and give him an opportunity to respond. According to Mr. Schneider, Mr. Gerling acknowledged directing Mike Anderson to uninvite Mr. Werner from the 25 th Anniversary Event. Mr. Gerling agreed that he told Mike Anderson that Mr. Werner was fired and that Mr. Werner had been stealing fuel. Mr. Hanson recalled Mr. Gerling referring to Mr. Werner as a thief. He recalls Mr. MacMillan admonishing Mr. Gerling for raising the fuel issue again, as the matter had been dealt with long before. [ 45 ] Mr.

Hanson’s recollection was that the Executive Board’s response, as a whole, was that the fuel issue was water under the bridge. Relying on the recollection of Mr. MacMillan, this matter had been dealt with. It was not a reason not to invite Mr. Werner. In Mr. Hanson’s view, Mr. Gerling did not want Mr. Werner at the event because people would continue to talk with Mr. Werner rather than meeting the new people. Mr. Werner’s presence would interfere with any meaningful relationship building. No decisions were ultimately made regarding Mr. Werner’s attendance at the 25 th Anniversary Event. [ 46 ] Mr.

MacMillan also testified as to the events of this meeting. Mr. MacMillan served on the Board of the CRE from 2008 to 2018. Although Mr. Hanson’s evidence was clear that, at the meeting, Mr. MacMillan had admonished Mr. Gerling for raising the fuel issue again, Mr. MacMillan denied knowing anything about the fuel issue until Mr. Werner came to his house in November 2017 to complain about the invitation issue and the theft allegations. I prefer the evidence of Mr. Hanson on this point over that of Mr.

MacMillan. Given Mr. Gerling’s assertion that he raised the fuel issue with successive presidents of the CRE and Mr. Hanson’s evidence, I find that Mr. MacMillan was aware of the fuel issue, going back a number of years. [ 47 ] It took a further week for the Executive Members of the CRE Board to decide whether to re-invite Mr. Werner or not. During this period, they continued to communicate with one another on this issue. Ultimately, on November 14, 2017, they unanimously agreed that Mr. Werner should be re-invited to the event. The evidence of the three Executive Board members who testified was consistent: Mr.

Werner was the face of the Festival, he devoted over 22 years to its success, people might notice if he was absent, and it could cause rumours. In short, it was in the best interests of the CRE and the Festival that Mr. Werner be invited to this event. In the words of Mr. Hanson, there was no down side to having Larry Werner re-invited and attend. [ 48 ] Mr. Gerling was in Montreal when this decision was made so Mr. Schneider called him to tell him. According to Mr. Schneider, Mr. Gerling said “that’s your call” and then “well I guess I have some decisions to make.” Mr.

Schneider did not ask him what he meant by this. [ 49 ] Mr. Schneider concluded the call by saying that he would see Mr. Gerling at the 25 th Anniversary Event. Mr. Gerling responded that he would not be there. Mr. Schneider told Mr. Gerling that he should be there but “ultimately it’s your call.” Mr. Gerling did not attend the event. Mr. Gerling’s termination [ 50 ] Following the 25 th Anniversary Event, Mr. Schneider and Mr. Gerling met on December 4, 2017 to discuss the way forward. According to Mr. Schneider, Mr. Gerling indicated that he was having health issues and that his plan was to resign.

He testified that Mr. Gerling said he would be providing a letter from his lawyer. [ 51 ] During his testimony, Mr. Gerling denied an intention to resign. He testified that he discussed the difficulties he faced when Board members stepped in to change decisions he made as CEO. In his view, this amounted to constructive dismissal. [ 52 ] The subsequent letter received by the CRE from Mr. Gerling’s lawyer was a request for a payout. This came as a surprise to Mr. Schneider.

According to him, it was not consistent with the conversation they had on December 4 th . [ 53 ] The Board Meeting Minutes dated January 2, 2018, indicate that the Board unanimously agreed to terminate the MSA with Papa-T. On January 4, 2018, Mr. Schneider and Mr. Hanson met with Mr. Gerling in his office and gave him a letter terminating the MSA, which enumerated seven items that constituted breaches of the MSA (the Termination Letter). They thanked Mr. Gerling for his service and escorted him out. [ 54 ] The seven breaches of the MSA listed in the Termination Letter are as follows:

a) Mr. Gerling provided false information to Trixtar that Mr. Werner’s contract was not renewed because Mr. Werner was stealing from the CRE. Not only is this information false, but it has the potential to damage the reputation of Big Valley Jamboree and the CRE. In addition, Mr. Werner could sue the CRE in defamation.

b) Mr. Gerling also advised Trixtar that it was the Executive of the CRE that asked for Mr. Werner to be uninvited to the 25 Year Appreciation Night. Again, this was untrue.

c) The above statements were made by Mr. Gerling to Mike Anderson (the President of Trixtar), Chuck Erman (the GM of CRE) and Bill Anderson (the CFO of Panhandle Productions).

d) The act of uninviting Mr. Werner to the 25 Year Appreciation Night could have caused significant damage to the CRE. Questions would likely have been asked by those in attendance as to why Mr. Werner (the face of the BVJ for 23 years) was not present. Fortunately for the CRE, Mr. Werner was reinvited and did attend.

e) Mr. Gerling himself did not show up for the 25 Year Appreciation Night.

f) Mr. Gerling has let his previous relationship and dislike of Mr. Werner influence his decision making and conduct.

g) When Mr. Gerling was confronted by the Executive of the CRE, Mr. Gerling admitted that he asked Trixtar to uninvite Mr. Werner. The three Board Members that were present during this statement were Mark Schneider, Steven Hansen and Allister MacMillan. Master Service Agreement [ 55 ] The CRE and Papa-T entered the first MSA on September 19, 2012 for a period of one year. The parties entered subsequent MSAs in 2013, 2014, and 2016. With the exception of the provisions relating to insurance and bonuses (discussed below), the terms of each successive MSA are largely the same. [ 56 ] The MSA provides that Papa-T will provide management services to the CRE. Pursuant to

section 3.1 of the MSA, one of the duties and responsibilities of Papa-T is to provide management services “in a first class and business-like manner.” [ 57 ] The MSA provides that the CRE can terminate the agreement without compensation, on written notice, in the event of a breach by Papa-T. The MSA lists seven possible breaches, one of which is “a material significant breach or failure or a continual breaching or failing to observe any of the provisions herein.” [ 58 ] Curiously, the seventh enumerated potential breach, failure to provide satisfactory personnel, includes the provision that

appoints Mr. Gerling as CEO of the CRE. This provision provides as follows: [a breach includes] ...failure of the Consultant [i.e. Papa-T] to provide satisfactory personnel to perform the services of the Consultant as set out in this Agreement in the CRE’s sole discretion, provided however, that the CRE must have provided the Consultant with 90 days to remedy any such default before such notice shall be effective.

Without limiting the generality of the foregoing, the term “satisfactory personnel” shall require the Consultant, at a minimum, to provide the services of Tom Gerling as required in order to ensure that the services provided by the Consultant under the terms of the Agreement are provided in a satisfactory manner. Tom Gerling shall be designated as the Chief Executive Officer for the CRE . [emphasis added] [ 59 ] The provisions of the MSA related to confidentiality are relevant to this litigation.

Section 9.1 of the MSA provides as follows: The Consultant shall not, either during the Term of this Agreement or any time thereafter, except in the proper course of carrying out the Management Services and/or unless publication or disclosure would cause the Consultant to be in breach of a court order, divulge to any person whomsoever, and shall use the Consultant’s best efforts to prevent the publication or disclosure of 9.1.1.

Any information concerning the business or finances of the CRE... [ 60 ] Finally, as will be discussed further below, the MSA provides that the relationship between the parties is a contractual one and neither Papa-T nor its employees will be deemed to be employees or servants of the CRE. Analysis Was Mr. Gerling an employee of the CRE? [ 61 ] Mr. Gerling argues that he was an employee of the CRE. The CRE argues that Mr. Gerling was a contractor. For the reasons that follow, I conclude that Mr. Gerling was an employee. [ 62 ] Mr.

Gerling acknowledges that he wanted to structure his relationship with the CRE through the intermediary of his corporation, Papa-T. However, he now claims that he was an employee of the CRE. To determine whether Mr.

Gerling was an employee or a consultant, the “central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account”: 671122 Ontario Ltd v Sagaz Industries Canada Inc , 2001 SCC 59 , [2001] 2 SCR 983 at para 47 ( Sagaz) . [ 63 ] Numerous factors must be considered in determining the nature of the relationship between the parties.

These include: the level of control the employer has over the worker’s activities... whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks: Sagaz at para 47. [ 64 ] In addition to these factors, “substantial weight” is given to the stated intention of the parties: 1392644 Ontario Inc o/a Connor Homes v Minister of National Revenue , 2013 FCA 85 at para 30 ( Connor Homes ). [ 65 ] However, the intention of the parties is not considered in isolation nor is it determinative: ...if it is established that the terms of the contract, considered in the appropriate factual context, do not reflect the legal relationship that the parties profess to have intended, then their stated intention will be disregarded: Royal Winnipeg Ballet v Minister of National Revenue , 2006 FCA 87 at para 61 . [ 66 ] The proper approach is to first consider the intention of the parties regarding their relationship.

The Court must then consider the relevant factors in light of the stated intention of the parties to determine “if, on balance, the relevant factors support and are consistent with the common intent”: Connor Homes at para 33 . [ 67 ] I find that the parties did not intend for Mr. Gerling to be an employee of the CRE. Mr. Gerling testified that he created Papa- T around the time that he became the CFO of Panhandle. The primary purpose of Papa-T was to keep his work with Panhandle separate from his other company.

He acknowledged that there were also some tax savings from structuring the relationship this way. [ 68 ] Pursuant to a series of Management Services Agreements spanning a period of six years, the CRE retained Papa-T to provide management services. The first Management Service Agreement came into effect on September 19, 2012, for a period of one year. Four subsequent MSAs followed. The final MSA began on December 1, 2016, for a period of two years. Mr.

Gerling served as the CEO of the CRE from 2012 until his contract was terminated on January 4, 2018. [ 69 ] A term of each of the MSAs was that Papa-T would provide the services of Mr. Gerling and that Mr. Gerling would be designated as the CEO of the CRE. [ 70 ] Each version of the MSA stipulated that Papa-T was an independent contractor and that no master and servant relationship existed between the CRE and Papa-T or Papa-T’s employees.

Further, each MSA contained the following sentence: “The Consultant and any of its employees are not and shall not be deemed to be employees and servants of the CRE.” [ 71 ] Although the common intention of the parties was that Mr. Gerling was not an employee of the CRE, this does not end the analysis. The Court must also consider the actual state of affairs between the parties and assess “whether an objective reality sustains the subjective intent of the parties”: Connor Homes at para 40 . I find that it does not. Mr. Gerling was an employee of the CRE.

[ 72 ] The Board of the CRE was not involved in Mr. Gerling’s day-to-day activities as CEO. Although a lower degree of control generally weighs in favour of a finding that the worker is a contractor, the control test is less applicable for expert workers, such as Mr. Gerling: Alberta Permit Pro v Booth , 2007 ABQB 562 at para 135 . The employer expects that senior workers will approach their duties with more independence. Mr. Gerling was accountable to the Board for his work. He reported to the Board at Board meetings and he updated the president of the Board on a regular basis.

It is evident that the Board had the ability to intervene in decisions made by Mr. Gerling. [ 73 ] As CEO, Mr. Gerling had office space provided free of charge at the offices of the CRE and Panhandle. He was also provided with administrative support and computer equipment by the CRE. He used his own phone but the CRE paid for the phone plan. Mr. Gerling was given a vehicle allowance that was paid directly to him rather than Papa-T. [ 74 ] Mr. Gerling was paid the same annual salary regardless of the number of hours he worked. His pay was not adjusted in any way to reflect vacation or overtime. Mr.

Gerling was included on the CRE’s extended health and dental plan as part of his compensation. [ 75 ] Employees of the CRE reported to Mr. Gerling and he was responsible for performance and discipline. Papa-T did not have any employees or contractors other than Mr. Gerling. Mr. Gerling did not provide services to any other organization. He worked solely for the CRE. [ 76 ] Mr. Gerling’s relationship with the CRE was not static. The bonus and insurance provisions changed over time. These changes made Mr.

Gerling’s relationship with the CRE more akin to an employment relationship. [ 77 ] The 2012 MSA did not include a bonus provision but the 2013 MSA contained a bonus component wherein Papa-T would be paid a bonus of 3% of the net profit of the CRE. The bonus provision was removed from the 2016 MSA at Mr. Gerling’s request. He wanted to focus on long term goals rather than year-to-year goals. He therefore asked for an increase that reflected his performance without a bonus component. Mr. Gerling testified, “I had to put my money where my mouth was.” The effect of this change was to remove Mr.

Gerling’s risk of loss or possibility of profit. This change weighs in favour of an employment relationship. [ 78 ] As with the bonus provisions, the handling of insurance policies, over time, also weighs in favour of an employment relationship. The 2012 MSA required Papa-T to obtain and maintain liability insurance. At that time, the cost of the insurance was paid for equally between the CRE and Papa-T. The 2013 and 2016 MSAs provided that the CRE would obtain, maintain and pay for liability insurance. The 2014 MSA was not provided to the Court. According to Mr.

Gerling, he was told that it was in the best interests of the CRE if Papa-T was named as an additional insured in the CRE’s policy. This would prevent conflicts between insurance companies in the event of an insurable claim. This change again made Mr. Gerling’s relationship with the CRE more akin to an employment relationship. [ 79 ] The mutual intention of the parties was for Mr. Gerling to be an employee of Papa-T and not the CRE. However, despite this stated intention, the structure of the relationship between the CRE and Mr. Gerling was more consistent with an employment relationship. I find that Mr.

Gerling was an employee of the CRE. Is there misconduct that warrants termination? [ 80 ] The CRE bears the burden of establishing on a balance of probabilities that there was just cause for Mr. Gerling’s termination: McKinley v BC Tel , 2001 SCC 38 , [2001] 2 SCR 161 at para 36 ( McKinley ). [ 81 ] Whether misconduct amounts to just cause is a question of fact. The Court must consider the context of the misconduct and determine whether the misconduct “was such that the employment relationship could no longer viably subsist”: McKinley at para 29 .

Where there is only a single act of misconduct, dismissal is only warranted if “...it demonstrated that the servant had repudiated the contract or one of its essential conditions”: McKinley at para 31 . Further, where the employee is senior or has made contributions to the company over longer periods of time, the misconduct “must be more serious in order to justify ... termination”: McKinley at para 33 . [ 82 ] The assessment of cause consists of three steps: (

i) Determine the nature and extent of the alleged misconduct; (ii) Consider the surrounding circumstances, including employment history, the employee’s roles and responsibilities, the type of business activity, policies and practices and the level of trust reposed in the employee; and (iii) Consider proportionality by deciding whether the misconduct is so incompatible with the fundamental terms of the employment relationship that it warrants dismissal. Winfield v Pattison Sign Group , 2013 ABQB 595 at paras 57-58 . See also Molloy v EPCOR Utilities Inc , 2015 ABQB 356 at para 142 . The nature and extent of the alleged misconduct

a) Do the Friends of STARS and CAFCL incidents amount to misconduct? [ 83 ] This Court must first consider whether the incidents with the Friends of STARS and the CAFCL issues were grounds to terminate the MSA. The Defendant argues that there were a series of escalating events that undermined the Board’s confidence in Mr. Gerling, specifically with his judgment. The Defendant contends that Mr. Gerling put the CRE’s reputation in jeopardy through his dealings with the Friends of STARS and the CAFCL. His subsequent conduct with respect to Mr. Werner also had the potential to undermine the reputation of the CRE. Mr.

Gerling’s failure to acknowledge his mistake in this regard was the final straw. The Board was justified in terminating Mr. Gerling’s contract.

[ 84 ] The Plaintiffs argue that the Friends of STARS and the CAFCL issues are irrelevant to Mr. Gerling’s termination. Mr. Gerling was the CEO of the CRE. His job was to make the CRE a viable business. There was a sound business rationale behind the decisions Mr. Gerling made with respect to each of these events. He dealt with issues like this on a regular basis and he acknowledged that from time to time the decisions he made were not universally appreciated. [ 85 ] The Friends of STARS issue was discussed at the CRE Board meeting held on May 30, 2017. Mr. Gerling was present at this meeting.

The take away points from the meeting were that issues like this should be brought to the attention of the CRE Board members and that Mr. Gerling wanted to hear from the Board members if they received complaints from guests. [ 86 ] The CAFCL issue was discussed at the June 27, 2017 meeting of the CRE Board. Mr. Gerling attended this meeting. The minutes of this meeting reflect that the issue of pricing was discussed and that Mr. Gerling had indicated that the CRE could not provide complimentary tickets to the aids of the clients of the CAFCL if they moved their event.

The minutes reflect that a decision was made to provide complimentary tickets to the clients of the CAFCL but not their aids. [ 87 ] Following the Board meetings in May and June of 2017, Mr. Gerling testified that he does not recall any member of the Board discussing the Friends of STARS issue or the CAFCL issue with him again. Mr. Schneider testified that he met with Mr. Gerling on May 23, 2017, to discuss the issues with the Friends of STARS and the CAFCL. According to Mr. Schneider, they discussed the circumstances leading up to both incidents and what they could do about it. He told Mr.

Gerling to dial it down. Mr. Gerling testified that he did not recall meeting separately with Mr. Schneider. There are no records of this meeting. I am unable to resolve the inconsistencies on this point; however, I do find that at some point Mr. Gerling was told to “dial it down.” Regardless, the evidence of the witnesses is consistent with Mr. Gerling’s statement that he was not disciplined in any way and no one alleged that he breached the terms of the MSA. [ 88 ] Neither the Friends of STARS issue nor the CAFCL issue were referred to in the Termination Letter. Although Mr.

Hanson testified that the Friends of STARS issue and the CAFCL issue contributed to the gradual erosion of confidence that the CRE Board had in Mr. Gerling, he confirmed that the only breaches of the MSA that the Board relied on in making its decision to terminate Mr. Gerling are contained in the Termination Letter. [ 89 ] It is also noteworthy that neither of these issues were pled in the Statement of Defence. While the Board may have been losing confidence in Mr. Gerling throughout the spring of 2017, inclusion of these events at this stage of the proceedings is an attempt to bolster the reasons for Mr.

Gerling’s termination after the fact. I find that Mr. Gerling’s conduct with respect to the Friends of STARS and CAFCL did not breach the terms of the MSA and were not relied upon by the Board in their decision to terminate Mr. Gerling. They cannot be used at this stage to bolster that decision.

b) Is failing to attend the 25 th Anniversary Event misconduct? [ 90 ] Mr. Gerling’s failure to attend the 25 th Anniversary Event is not misconduct. Mr. Gerling thought it would be best if he stayed away from the 25 th Anniversary Event. He was concerned that there could be a conflict between Mr. Werner and himself. [ 91 ] Mr. Schneider testified that when Mr. Gerling told him he would not be at the 25 th Anniversary Event, Mr. Schneider said that it was Mr. Gerling’s decision. This was not challenged. There was no requirement that Mr. Gerling attend the event. Mr. Gerling’s non-attendance at the event is not misconduct.

c) Did Mr. Gerling tell Trixtar that it was the Executive of the CRE that asked for Mr. Werner to be uninvited from the 25th Anniversary Event? [ 92 ] Contrary to the assertion in the Termination Letter, I find that Mr. Gerling did not tell Trixtar (i.e. Mike Anderson) that it was the Executive of the CRE that asked for Mr. Werner’s invitation to be rescinded. There is no dispute that the Executive Board of the CRE did not direct Mr. Gerling to uninvite Mr. Werner from the 25 th Anniversary Event. However, if Mr.

Gerling told Mike Anderson this false information, it might well serve as grounds for termination. [ 93 ] In his testimony, Mr. Gerling was clear that it was his decision to uninvite Mr. Werner from the event. According to him, he told Mr. Anderson that the Board was aware of the issue, not that they were directing it. [ 94 ] Mr. Schneider testified that his information about what was said to Mike Anderson by Mr. Gerling comes from Mr. Anderson. Mr. Schneider’s recollection was that Mr. Anderson told him Mr. Gerling said that direction came from the Board. [ 95 ] Mike Anderson did not testify at trial.

Both parties asked the Court to draw an adverse inference because of the other party’s failure to call Mr. Anderson. [ 96 ] I agree that Mr. Anderson likely has relevant evidence about his meeting with Mr. Gerling and the steps he took to uninvite Mr. Werner. That being said, it is not necessary for the Court to draw an adverse inference regarding the testimony Mr. Anderson might have given. [ 97 ] The uncontroverted evidence of Mr. Gerling is that he did not tell Trixtar (i.e. Mr. Anderson) that the Executive Board or the Board of the CRE asked for Mr. Werner to be uninvited from the 25 th Anniversary Event.

The evidence of what Mr. Anderson told Mr. Schneider is hearsay. The Court cannot rely on this evidence for the truth of its contents. Had the Defendant wished to rely on what it says Mr. Gerling said to Mr. Anderson, Mr. Anderson should have been called to testify. [ 98 ] I find that Mr. Gerling did not tell Trixtar that the Executive Board or the Board directed Mr. Werner to be uninvited from the 25 th Anniversary Event. The assertion in the Termination Letter to this effect is false and is not grounds for termination.

d) Did Mr. Gerling provide false information to Trixtar that Mr. Werner’s contract was not renewed because Mr. Werner was stealing from the CRE? [ 99 ] Contrary to the assertion in the Termination Letter, I find that Mr. Werner’s contract was not renewed, in part, because of Mr. Gerling’s belief that Mr. Werner was stealing from the CRE. Mr. Gerling made the decision not to renew Mr. Werner’s contract. He did not consult with the Board on this issue, nor did he tell them his reasons for not renewing Mr. Werner’s contract. [ 100 ] In addition to the allegation of theft, Mr.

Gerling testified to a number of other reasons for not renewing Mr. Werner’s contract including his belief that it was time to move on with a new team to move the face of the Festival from Panhandle to the CRE, his belief that Mr. Werner was not a team player, Mr. Werner’s failure to follow a two-signature policy for contracts, and Mr. Werner’s use of automatic renewal clauses in contracts. [ 101 ] There is no dispute that at the November 7, 2017 meeting with the Executive Board of the CRE, Mr. Gerling was open and transparent about the reasons for not inviting Mr.

Werner to the 25 th Anniversary Event. [ 102 ] Similarly, there is no dispute that Mr. Gerling was open with Mike Anderson regarding the reasons Mr. Werner should not be invited to the 25 th Anniversary Event. Mr. Anderson was a member of Mr. Gerling’s executive team. According to Mr. Gerling, Mr. Anderson was aware of the reasons for not renewing Mr. Werner’s contract when Mr. Anderson was hired. It was not Mr. Gerling’s intention for this information to be made public. He shared it in confidence with his executive team. He trusted his team, including Mr. Anderson, to keep this information confidential.

I find that sharing this information with his team was not a breach of the MSA. [ 103 ] I find that Mr. Gerling did tell Trixtar (i.e. Mr. Anderson) that Mr. Werner’s contract was not renewed, in part, because Mr. Gerling believed he was stealing from the CRE. I also find that this information was not false in that it is one of the several reasons that Mr. Gerling did not renew Mr. Werner’s contract. This is not a ground for termination.

e) Is rescinding Mr. Werner’s invitation misconduct? [ 104 ] The Termination Letter alleges that the act of uninviting Mr. Werner from the 25 th Anniversary Event could have caused significant damage to the CRE. It also alleges that Mr. Gerling allowed his previous relationship and dislike of Mr. Werner to affect his decisions. Both of these are listed as breaches of the MSA that warranted termination. [ 105 ] For the reasons that follow, I am of the view that rescinding Mr. Werner’s invitation was

an act of misconduct. I agree that Mr. Gerling allowed his personal animus for Mr. Werner to influence his decision-making. [ 106 ] Mr. Gerling did not want Mr. Werner to attend the 25 th Anniversary Event. He testified that he felt that if Mr. Werner was present, it would detract from the efforts being made to showcase the new team. He did not want to keep bringing back the old. A large celebration of Mr. Werner’s retirement had occurred the year before. Mr. Werner’s attendance at the event was not necessary and would have been counterproductive to Mr.

Gerling’s goals. [ 107 ] The parties disagree with respect to the impact of not inviting Mr. Werner. The Defendant is of the view that Mr. Werner’s absence would have severely damaged the reputation of the CRE. Mr. Werner was the face of the Festival for 23 years. All of the witnesses testified to this fact. Even Mr. Gerling admitted that this was the case. The Defendant was concerned that Mr. Werner’s absence would have been noticed and that it would have caused speculation that might have been harmful. For his part, Mr.

Gerling is of the view that the impact would have been minimal. [ 108 ] It is not necessary to speculate as to what might have happened had Mr. Werner been absent from the event. He was ultimately invited and he attended the event. Further, I have no doubt that at any point in advance of the event, had someone pointed out that Mr. Werner was not invited, the Board would have taken steps to invite him. I acknowledge that the concerns of the Board relate primarily to the possibility that attendees might have found out Mr. Gerling’s accusations against Mr. Werner. [ 109 ] This fear was born out, in part, when Mr.

Werner became aware of the accusations against him. The consequences of rescinding Mr. Werner’s invitation are clear. Upon finding out that he was no longer invited to the event, Mr. Werner met with each of the Executive Board members and threatened legal action against the CRE and Mr. Gerling. He testified that his primary concern was that his reputation would be harmed as a result of the accusations that he stole fuel. [ 110 ] I am of the view that once invited, Mr. Gerling should not have directed Mr. Anderson to uninvite Mr. Werner. He should have accepted that Mr. Werner would be at the event and moved on.

The consequences of uninviting Mr. Werner were reasonably foreseeable. This is particularly so where Mr. Gerling relied on a third party (Mr. Anderson) to communicate the message to Mr. Werner. [ 111 ] Although Mr. Gerling testified that he directed Mr. Anderson not to tell Mr. Werner about the theft allegation, it is evident that Mr. Anderson did not follow Mr. Gerling’s instructions. Mr. Gerling lost control of the situation the moment he assigned this delicate task to Mr. Anderson. [ 112 ] The Termination Letter also alleges that Mr. Gerling allowed his previous relationship with Mr.

Werner to influence his decision-making and conduct. Mr. Gerling denied having any personal problems with Mr. Werner. Similarly, Mr. Werner denied having any problems with Mr. Gerling. In evidence he said words to the effect of “I wouldn’t say we didn’t get along. We worked together. I wouldn’t classify us as friends.” [ 113 ] I agree that Mr. Gerling allowed his personal beliefs regarding Mr. Werner’s integrity to govern his actions. Mr. Gerling maintains that rescinding Mr. Werner’s invitation was the right thing to do and that he himself was acting in the best interest of the CRE. [ 114 ] I accept Mr.

Gerling’s evidence that he advised previous presidents of the allegations against Mr. Werner. However, with the

exception of Mr. MacMillan, I accept that the current Board members were unaware of the allegations. I find that Mr. MacMillan was aware of the allegations and that these allegations had been brought to Mr. Werner’s attention previously. Despite Mr. Gerling’s efforts, nothing was done in response to his complaints. [ 115 ] I accept that Mr. Gerling had very strong feelings about the alleged theft of fuel and that he felt he was acting in the CRE’s best interests. I find that his strong feelings regarding what he perceived as unethical behaviour on the part of Mr.

Werner played a role in his decision to rescind Mr. Werner’s invitation. I also accept that Mr. Gerling was not trying to harm the CRE. [ 116 ] However, as hard as this may be for Mr. Gerling to accept, having raised the issue with the Board, his task was done. He should not have continued to pursue this issue through the avenue of Mr. Werner’s invitation to the 25 th Anniversary Event. [ 117 ] I find that Mr. Gerling’s direction to rescind Mr. Werner’s invitation was not in the best interests of the CRE and that it amounts to misconduct. However, this does not end the inquiry.

It is next necessary to consider the circumstances surrounding Mr. Gerling’s employment with the CRE and then consider whether termination was a proportionate response to the misconduct. Surrounding Circumstances [ 118 ] Mr. Gerling was involved with the CRE for approximately 25 years. Over time, he held increasingly important positions with more responsibility. He got his start as a volunteer. He worked at events selling programs and 50/50 tickets, and did clean-up after the events. Mr. Gerling volunteered for a few years before he was asked to join the Board of the CRE.

He served as president of the Board of the CRE for three years and was on the Panhandle Board for eight years. [ 119 ] In approximately 2008/2009, Mr. Gerling became the Chief Financial Officer of Panhandle. He worked for Panhandle during the day and ran his own private business at night. He did this for a year and then sold his business so that he could be the CFO full time. He was hired through his company, Papa-T, to be Panhandle CFO. [ 120 ] Mr. Gerling later took over as CFO for the CRE. He was then invited to become the Chief Operations Officer of the CRE. He did that until the incumbent CEO resigned.

At this point, the Board of the CRE invited Mr. Gerling to apply to become the CEO. For a while he performed his CFO, COO and acting CEO functions. He became the CEO of the CRE on a permanent basis in 2012 when he entered the first MSA. Although the MSA was between the CRE and Papa-T, the CRE wanted Mr. Gerling to be its CEO. [ 121 ] As CEO of the CRE, Mr. Gerling reported to the CRE Board of Directors. He was responsible for all the events hosted and put on by the CRE as well as the day-to-day operations of the CRE. He was not required to seek approval of the Board for day-to-day operations of the CRE.

As part of his day-to-day work, Mr. Gerling held weekly management meetings and assigned responsibilities to team members. The employees of the CRE reported to him and he was responsible for discipline and performance reviews. [ 122 ] The Board had trust and confidence in Mr. Gerling to execute his duties. It is clear the Board expected a high standard of conduct. The MSA required that he provide services in a “first class and business-like manner.” Uninviting Mr. Werner from the 25 th Anniversary Event fell short of this expectation. Proportionality [ 123 ] I find that Mr.

Gerling’s actions constituted an error of judgment but were not sufficient to terminate a long-term employee. Termination was not proportionate to the misconduct. According to the Supreme Court of Canada in McKinley at para 53 : ... An effective balance must be struck between the severity of an employee’s misconduct and the sanction imposed. The importance of this balance is better understood by considering the sense of identity and self-worth individuals frequently derive from their employment... [ 124 ] It is clear that the Board was of the view that there were subjective reasons to terminate Mr. Gerling.

However, the Court must assess cause objectively: The subjective reactions or honest intention of the company in terminating the employee are not the standards utilized by the Court. A company might believe that it has cause for the employee’s termination because management no longer has confidence in the employee’s ability to properly fulfil his functions. However, if cause objectively determined does not exist, the employee must be provided with reasonable notice.

Perewernycky v National-Oilwell Canada Ltd , 2007 ABQB 170 at para 51 ( Perewernycky ), citing from The Law of Dismissal in Canada , 2d ed (Aurora, Ont.: Canada Law Book, 1992) (Howard A. Levitt) (Levitt 2 nd Edition) at 122. [ 125 ] First, it is apparent that Mr. Gerling felt he was acting in the best interests of the CRE. Further, there is no evidence of dishonesty in this case. Contrary to the assertion in the Termination Letter, I have found that Mr. Gerling did not lay the blame for the un-invite at the feet of the Board.

Further, when confronted by the Board during the meeting on November 7, 2017, he was upfront and honest about the reasons he rescinded Mr. Werner’s invitation. According to Mr. Schneider, Mr. Gerling did not think that inviting Mr. Werner was in the best interest of the CRE. [ 126 ] Second, although it is not determinative, no damage was caused to the CRE or the Festival as a result of Mr. Gerling’s actions. While the potential for harm existed, this did not come to fruition because the Board intervened and ultimately invited Mr.

Werner. [ 127 ] Third, it is not insignificant the Board did not immediately decide to re-invite Mr. Werner. At the conclusion of the November 7, 2017 meeting, no decision had yet been made and Mr. Gerling was not directed to re-invite Mr. Werner. Further, there was no suggestion at the meeting that Mr. Gerling did not have authority to decide the guest list for the 25 th Anniversary Event. The Board

deliberated over the course of several days. It was not until November 14th, that a decision was made to re-invite Mr. Werner. [128] Fourth, although the Board ultimately decided on January 2, 2018, to terminate Papa-T and Mr. Gerling, I am not satisfied thatthe Board members initially felt the conduct warranted termination. In an email dated November 10, 2017, Mr. Hanson initiallydescribed re-inviting Mr. Werner as “a slap on the wrist to Tom G,” stating, “sometimes board governance involves pushing the CEO toreverse a decision to correct the course of the organization.” At this point, Mr.

Hanson was of the view that re-inviting Mr. Werner was asufficient consequence for Mr. Gerling’s conduct. It was not until an exchange of correspondence from Mr. Gerling’s lawyer to the Board, following a meeting between Mr. Gerling and Mr. Schneider on December 4th , in which Mr. Gerling requested a payout, that thedecision to terminate Mr. Gerling was made. [129] I find that Mr. Gerling’s actions are a single incident of bad judgment.

On the subject of bad judgment, the following passagefrom Hill v Dow Chemical Canada Inc, , 140 AR 394 (ABQB), at para 12, is instructive: I agree with the submission of the plaintiff that generally a single incident of bad judgment is not cause for dismissal where there is nointention to be dishonest, but that a single incident of dishonesty may be.

However, even in the absence of dishonesty, the whole of thecircumstances must be examined to determine whether the incident was so dreadful or damaging to the defendant, or whether the level ofresponsibility required such exceptional judgment, that it could be excused. [emphasis added] [130] See also Lau v Geo-X Systems Ltd, 1998 ABQB 1000 at para 47 and Perewernycky at para 49. [131] I accept that Mr. Gerling had articulable reasons for not inviting Mr. Werner to the 25th Anniversary Event. In saying this, Iemphasize that I am not making any finding regarding the allegations of theft of fuel.

I am simply noting that Mr. Gerling had articulablereasons. I acknowledge that the Board disagreed with these reasons. However, once Mr. Werner was invited, Mr. Gerling should nothave rescinded the invitation. This was bad judgment. While he subjectively believed it was a decision that was in the best interest of theCRE, objectively, it was not. [132] Terminating Mr. Gerling’s contract was not proportionate to the misconduct. Mr. Gerling was a longstanding employee andvolunteer with the CRE. His contributions were significant.

He was sought out to become the CFO of Panhandle and he was invited toapply to become the CEO. He was required to make numerous business decisions on a daily basis and he contributed significantly to thesuccess of the CRE’s events over a period of many years. [133] Even though Mr. Gerling still believes he did the right thing, his feelings for Mr. Werner do not detract from his overallcontributions to the CRE. While much was made of Mr. Werner being the “face” of the Festival, it is apparent that Mr. Gerling wasresponsible for managing things behind the scene. Mr.

Gerling was also instrumental in making the CRE successful. His contributionswere no less valuable than those of Mr. Werner. I find that Mr. Gerling’s conduct was not sufficient to warrant termination. Does the CRE’s termination amount to a breach of the MSA? [134] I have found that Mr. Gerling was an employee of the CRE. In the event this conclusion is wrong, it remains necessary toconsider whether the CRE was justified in terminating the MSA as a result of breaches by Papa-T and Papa-T’s employee (i.e. Mr.Gerling). The Plaintiffs argue that neither Mr. Gerling nor Papa-T breached the MSA. They argue that Mr.

Gerling was, at all times,acting in the best interests of the CRE. They point to the provisions of the MSA that deal with Termination and Default and argue thatthe Defendants could only terminate the Plaintiffs for cause. As such, the Plaintiffs argue that the CRE wrongfully terminated the MSA. [135] The relationship between the CRE and Papa-T (i.e. Mr. Gerling) is governed by the provisions of the MSA. One of the dutiesand responsibilities of Papa-T was to provide services “in a first class and business-like manner.” The Defendant argues that Mr.

Gerlingfailed to meet this standard and this is sufficient to terminate the MSA. [136] The Plaintiffs argue, in part, that the requirement to act in a “first class and business-like manner” is placed on Papa-T ratherthan Mr. Gerling. Although I acknowledge that the corporate structure in place is intended to protect Papa-T’s principal, I find that thisapproach ignores the nature of the relationship between the parties. Mr. Gerling was the only employee of Papa-T. A key provision ofthe MSA appoints Mr. Gerling as CEO of the CRE. This litigation is about Mr.

Gerling and whether his conduct warranted terminationof the agreement. [137] The Plaintiffs argue that a principle of contractual

interpretation requires the Court to consider the agreement as a whole. Theypoint to heading 6.1.1 entitled, “Termination for Cause on Written Notice by Corporation.” Under this heading, the MSA provides thatthe CRE may terminate the MSA if, inter alia, there is “a material significant breach or failure or a continual breaching...” They arguethat this requires termination for cause, a term that is used in the employment context. [138] Although the Defendant has focused on the requirement that services be provided in a “first class and business-like manner,” Iagree that this provision cannot be read in isolation.

The MSA also provides that the agreement can be terminated for cause where thereis a material breach. Placing preference or emphasis on

section 3.1 to the exclusion of the provisions dealing with termination, carrieswith it the risk of rendering the termination provisions meaningless. [139] For the reasons that follow, I agree that rescinding Mr. Werner’s invitation was not “first class” behaviour. However, I do notagree that it was a material breach that amounted to cause for termination of the MSA. [140]

Section 6 of the MSA is entitled, “Termination and Default.” There are two sub-clauses within this section.

Section 6.1.1 isentitled “Termination for Cause on Written Notice by Corporation” and

section 6.1.1 is entitled “Obligations on Termination.” There isnothing in the MSA that prevents reliance on headings. The phrase termination for cause, is generally used in an employment context. Itevokes a certain level of seriousness in the conduct of the breaching party.

[141] Under

section 6.1.1, the CRE can terminate the MSA if there is a “material significant breach” of the MSA. A breach ofcontract is material “when it is substantial or goes to the root of the contract”: Guarantee Co of North America v Gordon Capital Corp, (SCC), [1999] 3 SCR 423 at para 44. Further, to be material, “the breach must be substantial, serious and consequentialin nature”: Craig v CEO Global Network Inc, 2019 ONSC 3589 at para 77. [142] The CRE alleged a number of breaches in the Termination Letter. In addition, before this court, the Defendant relied heavily onMr.

Gerling’s conduct with respect to the Friends of STARS and the CAFCL. I adopt my reasoning above. The Friends of STARS andthe CAFCL issues are not breaches that warrant termination of the MSA. Similarly, the only breach or wrongdoing that can be attributed to Papa-T and/or Mr. Gerling is his conduct with respect to the invitation and un-invitation of Mr. Werner to the 25th Anniversary Event. [143] Although Mr. Gerling should not have rescinded Mr. Werner’s invitation, I am not satisfied that Mr. Gerling’s conduct was amaterial breach of the MSA that justified its termination.

It does not go to the root of the contract. Mr. Gerling was required to provideManagement Services to the CRE, which services included business planning, development, operations and marketing. Although Mr.Gerling’s actions were perhaps misguided, I accept that Mr. Gerling was not trying to harm the CRE. Further, no actual harm came as a result of Mr. Gerling’s actions. The Board of the CRE stepped in and took corrective action. The 25th Anniversary Event was held withMr. Werner in attendance.

Although the event did not serve the goals set by the CEO by focussing on the future of the CRE, by allaccounts, it was nonetheless a successful event. I therefore find that the CRE’s termination amounts to a breach of the MSA. Is Mr. Gerling entitled to aggravated damages? [144] The Plaintiffs allege that the manner of termination constitutes a breach of the CRE’s duty of good faith. [145] First, the Plaintiffs allege that there was no investigation of what transpired and Mr. Gerling was not given an opportunity torespond to the allegations.

The Defendant argues the investigation consisted of the Board members speaking to both Mr. Werner and Mr.Gerling. The evidence of what occurred came from Mr. Gerling himself. He rescinded Mr. Werner’s invitation for the reasons alreadydiscussed. [146] Had the Termination Letter been confined to points number 4 and 6, that “the act of inviting Mr. Werner to the 25th Anniversary Event could have caused significant damage to the CRE,” and that Mr. Gerling allowed his previous relationship with Mr.Werner to influence his decision making, I would have agreed that the investigation was sufficient.

However, the Termination Letteralleges the following additional breaches: (

a) That Mr. Gerling provided false information regarding the reasons for the non-renewal of Mr. Werner’s contract; (

b) That Mr. Gerling advised Trixtar that it was the Executive of the CRE that asked for the invite to be rescinded; (

c) That Mr. Gerling made the above two statements to his management team; and (

d) That Mr. Gerling did not attend the 25th Anniversary Event. [147] There is no evidence that any of these matters were properly investigated by the Board, nor is there any evidence that these issues were put to Mr. Gerling for response. Of particular concern is inclusion of the assertion that Mr. Gerling did not attend the 25th Anniversary Event as a ground for termination. The uncontroverted evidence is that Mr. Gerling was not required to attend the event.

Ifind that the Termination Letter exaggerated the grounds for terminating the MSA. [148] Further, the Statement of Defence makes a number of allegations for which no evidence was called. In particular, the Statementof Defence alleges: (

a) That Trixtar (i.e. Mr. Anderson) told Mr. Gerling that not inviting Mr. Werner was a terrible idea; (

b) That Mr. Gerling told Trixtar that the Board of the CRE did not want Mr. Werner to attend the 25th Anniversary Event; (

c) That Mr. Gerling acted insubordinately and failed to follow the instructions of the Board; (

d) That Mr. Gerling acted in a dishonest manner; (

e) That Mr. Gerling violated policies and procedures of the CRE; (

f) That Mr. Gerling failed to attend the 25th Anniversary Event, but was required to attend; and (

g) That Mr. Gerling breached fiduciary duties. [149] The Termination Letter was delivered to Mr. Gerling with care and attention. There is no doubt that Mr. Hanson and Mr.Schneider treated Mr. Gerling with respect when he was told that the MSA was terminated. [150] Despite the manner in which the Termination Letter was delivered, Mr. Gerling nonetheless suffered harm. He testified that thetermination ruined his life. He was in a public, high profile position. He was well known in the community and he had been a smallbusiness owner. He was unable to obtain employment in Camrose.

He testified that there were rumors circulating that he had stolenmoney from the CRE. He ultimately obtained work out of town, 13-14 months after the termination. [151] The unfounded allegations in the Termination Letter and the Statement of Defence contributed to the harm suffered by Mr.Gerling. Particularly troubling are the unfounded allegations of deceit. Employers have a duty of fair dealing and good faith in the

manner of dismissal, including “refraining from conduct that is untruthful, misleading or unduly insensitive”: Bailey v Service Corporation International (Canada) ULC , 2018 BCSC 235 at para 205 . [ 152 ] Aggravated damages are compensatory.

The Plaintiffs must show “some evidence that the manner of dismissal (as opposed to the mere fact of dismissal) is the cause of damaging effects on the dismissed employee, whether mental distress or intangible effects such as damage to reputation”: Bailey at para 205 . [ 153 ] While I do not believe the members of the Board intended to be malicious, they were careless and cavalier in their approach. The Termination Letter contained unsubstantiated claims that were inflammatory. The board of the CRE had an obligation to refrain from conduct that was unfair by advancing claims that were untruthful and misleading.

They failed to do so. The Court is aware that this is a volunteer Board consisting of people that are dedicated to their community. Although I am satisfied that Mr. Gerling is entitled to aggravated damages, it is appropriate to set the amount lower than what is being sought. What damages are owing to the Mr. Gerling [ 154 ] The MSA was a fixed term agreement for a period of two years starting on December 1, 2016. The MSA was terminated on January 4, 2018. Mr. Gerling is entitled to eleven months of unpaid amounts plus GST. [ 155 ] Mr. Gerling is also entitled to damages for lost benefits.

The total amount of benefits paid to Mr. Gerling annually was $4,400. Mr. Gerling is entitled to eleven months of benefits on a prorated basis. [ 156 ] Mr. Gerling is entitled to prejudgment interest pursuant to the Judgment Interest Act , RSA 2000, c J-1 . [ 157 ] Mr. Gerling is entitled to aggravated damages in the amount of $25,000. Conclusion [ 158 ] Mr.

Gerling has been successful and is entitled to costs. [ 159 ] If the parties are not able to agree on the quantum of costs or prejudgment interest, they are to contact my assistant within thirty days to arrange a time and manner in which that issue may be addressed. Heard from November 23-27 , 2020. Dated at the City of Wetaskiwin, Alberta this 6 th day of April, 2021. S. Leonard J.C.Q.B.A. Appearances: Robert O’Neill Ogilvie LLP for the Defendant Matthew Woodley Reynolds Mirth Richards & Farmer LLP for the Plaintiffs _______________________________________________________

Corrigendum of the Reasons for Judgment of The Honourable Madam Justice S. Leonard _______________________________________________________ Changed the date on this matter to reflect correct date that it was filed.