Following the termination of a senior executive, a clause in a stock option plan is declared abusive and the behaviour of the employer deemed oppressive

March 1, 2014

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In Dollo v. Premier Tech Ltée,¹ the Superior Court of Québec declared a clause contained in the Stock Option Plan (the “Plan”) offered by Premier Tech Ltée (“Premier Tech”) to some of its employees to be abusive and also declared Premier Tech’s conduct towards a dismissed senior executive to be oppressive within the meaning of the Canada Business Corporations Act (“CBCA”).

THE FACTS
In May 1999, Premier Tech hired Christian Dollo (“Dollo”) as vice-president, finance. In 2001, Dollo was offered the opportunity to acquire stock options (hereinafter, the “Options”) of the corporation over time by participating in the Plan. Premier Tech’s shares then became publicly traded and Dollo acquired some of the shares in accordance with the Plan. In June 2004, he became president of Premier Horticulture, one of Premier Tech’s main subsidiaries.

Premier Tech once again became a private corporation in February 2007. At that time, some executives holding Options, including Dollo, were asked to acquire shares. As part of the privatization of Premier Tech, new Options were offered to Dollo.

During 2009, members of Premier Tech’s management team felt that Dollo’s performance fell short of the corporation’s expectations and that the relationship of trust was deteriorating. At the same time, Dollo became aware of clause 8.01.2 of the Plan, which stipulated that in the event of termination for any reason other than the death, retirement or disability of the participant, he or she would lose all of his or her Options which were vested but not yet exercised unless the Board of Directors decided otherwise. Worried about the existence of this clause, he requested information from the corporation’s management team and was reassured with respect to the possibility of losing his vested Options in the event of his termination.

In August 2010, Dollo was terminated. At the time, he held 71,100 shares of the corporation and 207,619 vested Options. During the months that followed, Premier Tech and Dollo settled their disputes, with the exception of Dollo’s Options. During the fall of 2010, Dollo requested that the Board of Directors exercise its discretion under clause 8.01.2 of the Plan in order to allow him to retain his vested Options. The Board of Directors refused.

In March 2011, Dollo instituted proceedings against Premier Tech and its majority shareholder. He asked the Court to declare clause 8.01.2 to be abusive and to recognize his right to exercise his vested Options (in order to collect the profits in the amount of $1,313,847). He added that Premier Tech was abusing its rights and was acting in an oppressive manner within the meaning of the CBCA. He further submitted that he had been illegally terminated and, accordingly, he claimed the value of the Options that he would have acquired and that he could have exercised during the twelve months following his termination.

THE DECISION OF THE SUPERIOR COURT OF QUÉBEC
WAS CLAUSE 8.01.2 OF THE PLAN ABUSIVE?
The Court first concluded that the Plan constituted an adhesion contract and that the context of the privatization of the corporation did not offer Dollo any real possibility to intervene with respect to the main provisions of the Plan.

With regards to clause 8.01.2, the Court ruled that it was abusive and void. Following an in-depth analysis of the expert testimony, it concluded that such a clause [TRANSLATION] “is not found in the rules generally governing this type of contract” and that [TRANSLATION] “this type of clause is a rarity in the context of commercial practice.” The Court added that Dollo’s vested Options in fact constituted significant long-term incentive compensation. Under the Plan, this long-term compensation was not linked to Dollo’s performance. Rather, the last Options which were granted to Dollo in 2007 were vesting at the end of each month, regardless of his performance. The Court deemed it to be unreasonable that the use of clause 8.01.2 would cause the loss of such vested compensation. The loss of compensation that was vested in Dollo for the previous years during which Premier Tech benefited from his dedication lead the Court to conclude that clause 8.01.2 was not only unreasonable but it was also excessive.

Finally, according to the Court, clause 8.01.2 was similar to a purely discretionary clause insofar as Premier Tech, in deciding to terminate Dollo, made a decision (namely, not to recognize that Dollo was entitled to exercise his vested Options) which depended entirely upon its discretion. Although the Court did not hold clause 8.01.2 to be truly purely discretionary, it was of the view that such a similarity supported it being qualified as abusive.

However, the Court dismissed Dollo’s request regarding the Options he would have acquired during the twelve-month period following his termination since it would be inappropriate to provide a Plan member with “long-term compensation” to retain and motivate him while his employment was already terminated. Contractual justice demanded that this request be denied.

WAS DOLLO TERMINATED WITHOUT CAUSE?
The Court noted that Dollo’s termination could only be qualified as an administrative dismissal. In this context, the following steps must be followed:

(1) The employee must be aware of the business’ policies and his employer’s expectations in his regard;
(2) He or she must have been notified of his or her shortcomings;
(3) He or she must have received the necessary support to correct him or herself and to reach his or her objectives;
(4) He or she must have been provided with reasonable time to adjust;
(5) He or she must have been warned about the risk of termination in the absence of improvement.

The Court found that Dollo was only informed of the reasons for his dismissal following the institution of the proceedings against Premier Tech, that he received no support which would have allowed him to improve and that he had received no warning as to the risk of termination. In light of these elements, the Court was of the opinion that Dollo had been terminated without cause.

WAS PREMIER TECH’S CONDUCT OPPRESSIVE WITHIN THE MEANING OF THE CBCA?
The Court last reviewed the issue of whether the conduct of Premier Tech and its majority shareholder justified recourse to the oppression remedy in accordance with section 241 of the CBCA. It first established that Dollo constituted a plaintiff under the CBCA since it is possible to attribute this status to a person who was promised a portion of the share capital of a corporation. In addition, when he petitioned the Board of Directors regarding the exercise of his vested Options, Dollo was still a shareholder of Premier Tech. Finally, Dollo was a “potential shareholder” who would have been entitled to additional shares were it not for (abusive) clause 8.01.2.

The Court mentioned that Dollo had legitimate expectations both of benefiting from the Plan, which constituted long-term compensation, and that his rights as an employee would be respected. According to the Court, Dollo had a right to expect that his termination be carried out in compliance with the steps provided for in the case law. Due to this non-compliance, Dollo was unable to exercise his options and protect himself from the brutal application of clause 8.01.2. The Court noted that simply declaring that clause 8.01.2 was void may not be enough to allow Dollo to benefit from the long-term compensation. In fact, [TRANSLATION] “legal and financial stumbling blocks [particularly the issue of financing the acquisition of the shares] will be found on the road to an easy resolution of this dispute.”²

The Court therefore allowed the oppression remedy, concluding that the conduct of Premier Tech and its majority shareholder was abusive, and applied some remedial measures explicitly provided for at section 241 CBCA by:

(1) Ordering the issuance of Premier Tech shares to Dollo;
(2) Modifying the clauses of a contract to which Premier Tech was a party to settle the financing problems for the issuance of the shares (forcing Premier Tech to finance the issuance of the shares to Dollo);
(3) Ordering Premier Tech’s majority shareholder to buy the shares so issued to Dollo, to reimburse Premier Tech for the financing of the issuance of the shares (that is, $612,857) and to pay the balance of the sale price to Dollo (that is, $1,313,847); and
(4) Modifying clauses in the unanimous shareholders’ agreement in order to enable Dollo to receive the balance of the sale price of his shares notwithstanding the existence of certain provisions in the agreement which could have been invoked against him.

For the full text of the decision (in French), click here.

This decision of the Superior Court is currently on appeal.
_________________________________________
^1. 2013 QCCS 6100.
^2. Paragraph 356 of the decision.

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Marie-Hélène Jolicoeur
Partner, Lawyer

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Employers’ Right to Require Medical Certificates: New Restrictions as of January 1, 2025

Quebec is currently facing a major shortage of physicians. To remedy the situation, several ministers in the CAQ government announced in early 2024 that significant changes would be implemented to reduce physicians’ administrative burden. In this context, on October 9, 2024, the National Assembly assented to Bill 68, An Act mainly to reduce the administrative burden of physicians.1 The provisions of the Act The new Act comprises 11 sections, many of which introduce amendments to the Act respecting labour standards2 (ALS) by restricting the right of employers to require documents attesting to the reasons for certain absences. Under the current legislation, an employer may be entitled to require a document from an employee who misses work owing to sickness in order to assess the reasons for the absence, its duration, or the employee’s ability to return to work. This is because, under the terms of a contract of employment,3every employer is entitled to expect their employee to fully perform the work agreed upon. Depending on the circumstances, the supporting document provided must in some instances indicate a specific medical diagnosis, an estimated duration of absence and other details relevant to handling the employee’s absence. 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Publication of Reports Entities must not only comply with the format, approval and attestation requirements for their report before submitting it to the Government but also make it available to the public by publishing it on a prominent place on their website. They can submit their report in one of the two official languages, although the Government recommends that reports be published in both English and French. In addition, the Act requires entities incorporated under the Canada Business Corporations Act or any other federal law to provide a copy of the report to each shareholder at the same time as their annual financial statements. 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Section 1 of the Act; see also the Worst Forms of Child Labour Convention, adopted in Geneva on June 17, 1999, article 3: Link Section 1 of the Act; see also the Forced Labour Convention, adopted in Geneva on June 28, 1930, article 2: Link Section 19 of the Act. Section 20 of the Act.

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July 18, 2024

Harassment and Violence in the Workplace: An Overview of Recent Legislative Changes Introduced by Bill 42

Introduction In 2020, faced with statistics showing that nearly one in two women and three in ten men believed they had suffered sexual harassment or assault in the workplace,1 the Minister of Labour expressed its intention to help prevent and address this issue. The government began by setting up a committee to examine cases of sexual harassment and assault (the “Committee”). Its mandate was to analyze how such cases are handled in workplaces across the province.2 The Committee made over 82 recommendations in its report titled Mettre fin au harcèlement sexuel dans le cadre du travail : Se donner les moyens d’agir [putting an end to sexual harassment in the workplace by developing the means to act], which was prepared in collaboration with law enforcement agencies and further to consultations with various stakeholders, including community groups, unions and employers , as well as groups of women workers. The government included a number of recommendations from the report into Bill 42.3 This Bill, which is aimed at preventing and fighting psychological harassment and sexual violence in the workplace, was assented to on March 27, 2024. It introduces major amendments to various labour laws, which are likely to change existing practices within organizations. The following is an overview of these amendments and their potential impact. A. Occupational health and safety The Act respecting occupational health and safety was first amended to introduce a definition of what constitutes“sexual violence,” whichcame into force on March 27, 2024, and reads as follows: Any form of violence targeting sexuality or any other misconduct, including unwanted gestures, practices, comments, behaviours or attitudes with sexual connotations, whether they occur once or repeatedly, including violence relating to sexual and gender diversity.4 This broad definition could very likely affect existing employer policies and give rise to a host of problems needing to be resolved by the courts to ensure proper application. Action programs and prevention programs [effective October 6, 2025]: When developing an action program (for businesses with 20 workers or less) or a prevention program (for businesses with 20 workers or more), employers will be required to identify and anticipate psychosocial risks and risks related to sexual violence that may affect workers in their establishments.5 B. Industrial accidents and occupational diseases New legal presumptions of employment injury [effective September 27, 2024]: The Bill introduces two new legal presumptions of employment injury to reduce the burden of proof for victims of sexual violence in the following situations: Where injuries and diseases are the result of sexual violence suffered by a worker and perpetrated by the worker’s employer, one of the employer’s executives in the case of a legal person or a worker whose services are used by such employer; and Where a disease occurs within three months after the worker has been the victim of sexual violence. The burden will then be on the employer contesting an injury of this nature to reverse the application of these presumptions. Handling employment injury claims will be even more difficult, as Bill 42 provides that employers will not have access to workers’ medical records prior to hearings before the Administrative Labour Tribunal. Employers prohibited from accessing medical records [effective September 27, 2024]: Bill 42 sets out stricter obligations for health professionals designated by employers. Only the health professional designated by an employer will have access to the medical record in the possession of the Commission des normes, de l’équité, de la santé et de la sécurité du travail concerning the worker’s employment injury.6 It will not be possible for the employer to obtain all information concerning a worker’s medical condition, because the health professional will be required to limit disclosure to only the information needed to provide the employer with a summary of the file and an opinion on how to handle the employment injury claim.7 The prohibition on access to medical records also carries important fines ranging from $1,000 to $5,000 for a natural person and from $2,000 to $10,0008 for a legal person. However, it does not preclude employers from obtaining medical records concerning the employment injury by way of an authorization or subpoena. Extension of time limit for filing a claim [effective September 27, 2024]: The new time limit for filing a claim for an injury or disease resulting from sexual violence is two years.9 In all other cases, the time limit for filing a claim is six months from the occurrence of the injury.10 Cost of benefits imputed to all employers [effective March 27, 2024]: As an exception to the principle that employers must cover the costs associated with employment injuries, where an employment injury is the result of sexual violence suffered by a worker, the Bill provides that the cost of benefits will automatically be imputed to the employers of all the units.11 However, we must bear in mind that the imputation of costs to all units will have repercussions as it will lead to an increase in the cost of compensation regime for all employers. C. Labour standards Bill 42 also introduces a number of amendments to the Act respecting labour standards, including the following. Adjustments to harassment prevention and complaint processing policies [effective September 27, 2024]: Such policies must now include: The methods and techniques used to identify, control and eliminate the risks of psychological harassment, including a section on behaviour that manifests itself in the form of verbal comments, actions or gestures of a sexual nature. The specific information and training programs on psychological harassment prevention that are offered to workers and the persons designated by the employer to handle complaints or reports. The recommendations on behaviour to adopt when participating in work-related social activities. The applicable procedures for making complaints or reports to an employer or providing an employer with information or documents; details about the person designated to handle complaints or reports; and information regarding the employer’s obligation to follow up. The measures to protect the persons concerned by a psychological harassment situation and those who cooperated in processing a complaint or report regarding such a situation. The process for managing psychological harassment situations, including the process applicable to inquiries conducted by employers. The measures to keep complaints, reports, information or documents received confidential and, for the documents made or obtained in the course of managing a psychological harassment situation, the measures necessary to retain them for at least two years.12 The policy must form an integral part of the prevention program or action program under the Act respecting occupational health and safety [as of the effective date to be set by the government, which will be no later than October 6, 2025]. Harassment by third-parties [effective September 27, 2024]: Employers are expressly obliged to prevent psychological harassment “from any person.” This includes any third parties they do business with, such as customers, subcontractors and suppliers.13 The passage of time does not clean the slate [effective March 27, 2024]: An amnesty clause contained in a collective agreement will have no effect on disciplinary measures resulting from behaviours relating to physical or psychological violence within the meaning of the law.14 This major amendment is aligned with developments in case law on applying amnesty clauses in psychological harassment situations. Confidentiality of the psychological harassment complaint resolution process [effective September 27, 2024]: Where the parties to a settlement of a psychological harassment complaint do not wish to undertake to keep the agreement confidential, they must expressly agree in writing to waive the confidentiality obligation in the agreement.15 Punitive damages even in cases involving employment injury [effective March 27, 2024]: Where a worker’s psychological harassment complaint is upheld and they have suffered an employment injury resulting from the psychological harassment, they may also be entitled to punitive damages.16 The Administrative Labour Tribunal was previously prohibited from ordering an employer to pay punitive damages to a worker having suffered an employment injury resulting from psychological harassment.17 Expanded prohibition against reprisals [effective March 27, 2024]: In addition to the cases already provided for in the ALS, an employer may not take reprisals against a worker on the ground that the worker has made a report involving psychological harassment or cooperated in the processing of such a report or a complaint.18 Pratical considerations Given the many amendments introduced by Bill 42, all employers should keep abreast of new developments and best practices in preventing and handling harassment and violence in the workplace. In the short term, we recommend that employers: Hire experts to review and update their prevention of harassment and violence in the workplace policies before September 27, 2024. Depending on each situation, retain the services of a health professional who will play a proactive role and liaise with the employer in the handling of an employment injury claim. Explicitly define the terms of the mandate given to such expert in order to pinpoint what information is required to handle the employment injury claim. Schedule training sessions for all staff, including managers and executives. These training sessions should cover not only the aforementioned amendments, but also the procedure for reporting a sexual harassment or violence situation, filing and handling a complaint and making sure the process remains confidential. Inform members of their organization of the new definition and the updated company policy and establish response guidelines for managers who will have to deal with the various situations that can arise. Designate a person who will be in charge of enforcing and applying the harassment prevention and complaint processing policies. Carefully and meticulously document all aspects of inquiries conducted further to sexual violence or sexual harassment situations. Enlist the help of specialists in the field to help them identify and analyze the psychosocial risks and risks related to sexual violence that may affect workers in their establishment. Lastly, as regards handling employment injury claims, despite the fact that employers will no longer have to cover associated costs all on their own, employers may still need to handle claims or contest them in some situations, and they will have the burden of reversing the application of the presumptions benefiting workers. Limited access to medical records means more grey areas and more complex claims management. Given these significant changes, we believe it will be all the more important for employers to turn to qualified experts. When they do so, they should carefully set out the mandate that they wish to entrust to the expert in question to make sure that the opinion they obtain is detailed enough to adequately manage the employment injury claim. The terms of the mandate will need be drafted such that the expert understands whether the information requested is relevant for the employer to properly handle the claim. Our team is available to help you assess the impact that these many changes may have on your business. Statistics Canada, “Gender Results Framework: A new data table on workplace harassment,” released on February 12, 2024, online: The Daily — Gender Results Framework: New and updated data tables (statcan.gc.ca). This initiative was prompted by recommendation 138 of the report titled Rebâtir la confiance : Rapport du comité d’experts sur l'accompagnement des victimes d’agressions sexuelles et de violence conjugale [rebuilding trust: report from the committee of experts on support for victims of sexual assault and domestic violence], released in 2020. An Act to prevent and fight psychological harassment and sexual violence in the workplace, Bill42 (assented to on March 21, 2024), 1st Sess., 43rd Legis. (Qc) (hereinafter “B. 42”). The Bill’s provisions will gradually align with other legislative changes introduced by other recent bills, such as An Act to modernize the occupational health and safety system[3] and An Act respecting the regulation of work by children. Section 33, B. 42; section 1, Act respecting occupational health and safety (“AOHS”). Sections 35 and 36, B. 42; sections 59 and 61.2, AOHS. Section 5, B. 42; section 38, Act respecting industrial accidents and occupational diseases (“AIAOD”). Section 7, B. 42; section 39, AIAOD. Section 16, B. 42; section 458.1, AIAOD. Section 16, B. 42; section 271 and 272, AIAOD. Section 10, B. 42; section 271, AIAOD. Section 12, B. 42; section 327, AIAOD. Section 18, B. 42; section 81.19 Act respecting labour standards (“ALS”). Section 18, B. 42; section 81.19, ALS. Section 20, B. 42; section 97.1, ALS. Section 25, B. 42; section 123.17, ALS. Section 24, B. 42; section 123.15(4.1), ALS. s. 123.15(4) and 123.16, ALS. Section 21, B. 42; section 122(2.1), ALS.

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