Home Employment Contracts Former PearTree president wins wrongful dismissal case, awarded $10K in punitive damages

Former PearTree president wins wrongful dismissal case, awarded $10K in punitive damages

by HR Law Canada

The former president of PearTree Securities has won a wrongful dismissal claim, including punitive damages of $10,000, following a 10-day trial at the Ontario Superior Court of Justice.

DD, an experienced and accomplished investment banker with a specialization in the mining sector, was recruited by PearTree in 2016 to serve as president and co-head of banking. In January 2018, PearTree terminated his employment without cause.

He filed a lawsuit against PearTree, seeking compensation for wrongful dismissal and the amounts he claimed the company owed him. The disputed amount ranged between $3.2 million and $3.9 million, depending on the methodology employed and the establishment of certain facts, he said.

PearTree countered that DD was owed a far lower amount — between $240,000 and $627,516 — again subject to the methodology used and factual findings. Additionally, PearTree counterclaimed, alleging DD had breached restrictive covenants in his employment agreement by joining a competitor nine months after his termination.

Employment contract and consideration

The judge determined that DD and PearTree had entered into a binding employment contract on April 11, 2016. The court rejected PearTree’s argument that the initial employment contract was merely an agreement to agree or a non-binding term sheet.

Subsequently, the parties negotiated and agreed upon a second employment contract in July 2016, which governed DD’s entitlements upon termination. On that front, the judge refuted DD’s claim that there was no consideration for the second employment contract.

He received two additional weeks of paid vacation and a $40,000 payment related to the second employment contract as consideration, it said. Alternatively, the judge found PearTree had repudiated the first employment contract and offered new terms of employment, which DD accepted after extensive negotiations and with the assistance of legal counsel.

Calculating compensation

The court ruled that DD is entitled to compensation for the first year of his employment contract, commencing on July 11, 2016. The compensation should be calculated based on transactions in which the issuer signed a term sheet with PearTree after that date, and where PearTree earned income from the transaction., it said.

From Jan. 1, 2017, onwards, his compensation should be calculated using a variable payout rate of 1.125%, it said. The judge also awarded DD a $50,000 bonus for the 2016-2017 compensation year.

Regarding the 2017-2018 year, the judge ruled that DD’s compensation would be determined according to the terms outlined in the second employment contract. The termination provision in this contract was deemed enforceable.

The calculations around DD’s compensation, and what was to be deducted, are complicated. See the full court decision for details.

Punitive damages

The court rejected a claim by DD that the company breached its duties of honest performance and good faith and fair dealing.

It also rejected the notion that the counterclaim filed by PearTree justified punitive damages. While the court said the claim had no merit, it was not a “strategic and abusive tactic” to induce DD to drop his claim.

But one aspect of the company’s conduct did attract the court’s ire: The failure to pay out the amounts owing to him after termination. On that front, PearTree abused its power, it said.

The judge awarded DD $10,000 in punitive damages due to PearTree’s actions, including suspending his salary continuation payments, offsetting owed amounts against payments already made, and attempting to persuade him to waive further owed amounts by accepting money PearTree acknowledged it owed him.

Employer’s counterclaim dismissed

On the counterclaim filed by PearTree, the judge dismissed it entirely. The non-solicitation covenant in the second employment agreement was deemed unenforceable since PearTree did not have a legitimate proprietary interest to protect.

The judge concluded that PearTree’s objective was simply to limit competition rather than safeguarding trade secrets or customer data. It was determined that mining issuers were not exclusive customers of PearTree or its competitors.

Furthermore, the judge found no evidence to support PearTree’s claim that DD had breached the non-solicitation covenant or any fiduciary duties owed to the company during his work as a back-end investment banker in his new role.

Court rejects employer’s ‘remarkable submission’

Midway through the trial, PearTree abandoned the claims for damages arising from DD’s alleged breaches of the restrictive covenants and breach of fiduciary duty. Instead, PearTree asked that DD be required to “disgorge to PearTree all of the employment income he earned at (his new job) for the two years after PearTree terminated his employment without notice,” the court said.

It rejected this “remarkable submission.”

Even if it had ruled that DD has breached any of those duties, PearTree did not prove they suffered “one penny of loss” after his employment was terminated.

If DD has breached the non-competition and non-solicitation clauses, or his fiduciary duties, the court said it would have awarded PearTree $1 in damages.

The award

The court did not set the damages for wrongful dismissal. Instead, the compensation owed to DD was to “be determined and adjusted in accordance” with its ruling.

It said the parties and experts should work together over the next 30 days to see if they can agree on the amount owing in light of the court’s findings. If no consensus could be reached, the court said it would settle the issues for them.

It also made the same comment on costs. If the parties were unable to resolve the amount, it would set a timetable for costs submissions once the amounts owing to DD had been determined.

For more information see Giacomodonato v PearTree Securities Inc., 2023 ONSC 3197 (CanLII)

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