As more people enter into nonstandard employment relationships, creative counsel have been seeking to expand the scope of liability for employment-related losses to third parties. A recent Ontario Court of Appeal decision offered guidance on the tortuous conduct of third parties in the employment context.
It has long been recognized that it is tortious to intentionally induce a party to a contract to breach that contract. This tort was founded long ago on the rationale that interference with the relationship of master and servant was wrong, in that it was tortious against proprietary interests. Although the rationale of this tort in the modern era has significantly changed, the general purpose remains: to hold a party liable for wrongful interference with the trade, business, or other economic interests.
In Drouillard v. Cogeco Cable Canada Inc.,  O.J. No. 1664, the Court of Appeal overturned the trial judge's decision, which had held Cogeco, a third party who had no contractual relationship with the plaintiff employee, liable of intentional interference with economic relations for the manner in which it caused Drouillard's employment contract with Mastec (the employer) to be rescinded.
Drouillard had previously worked for 15 years with Cogeco before leaving to pursue opportunities in another city. Two years later, he returned to the Windsor area and entered into an employment agreement with Mastec as a network installer for its primary customer, Cogeco. However, Cogeco did not want Drouillard to work on any of its property or equipment. Drouillard was subsequently terminated by Mastec at Cogeco's insistence. The trial judge found that Cogeco committed the tort of unlawful interference of Drouillard's contractual and economic relationship with Mastec. However, the Court of Appeal disagreed.
For liability to arise for interference with economic relations, three elements need to be met: (1) the existence of a valid, enforceable contract between the plaintiff and a third party; (2) unlawful interference or procuring a breach of contract by the tortfeasor; and of course, (3) damages incurred by the plaintiff. There still remains some uncertainty about how broadly the expression "unlawful interference" should be interpreted. The Court of Appeal found that Drouillard did not prove the second element in this case. Drouillard had relied on an internal Cogeco document stating that if it wanted to prevent a contractor from using a certain individual on a Cogeco project, it could so instruct the contractor if there was "reasonable cause" to do so.
The Court of Appeal concluded that a breach of this policy was not an "illegal or unlawful" act, stating, "Although the limits of this tort have yet to be set, it would be inappropriate, in my view, to extend the application of this tort to breaches of a corporation"s internal policies in circumstances such as those found in this case."
It concluded "nothing in the record suggests that either Cogeco or its employees were "not at liberty" to act contrary to the company's internal policy or that Mastec or Drouillard had relied on this policy such that they could require that Cogeco respect it" (emphasis added).
Rather, the Court of Appeal found that Cogeco committed the tort of inducing a breach of contract. To succeed on this tort, one must prove: (1) the existence of a valid and enforceable contract between the plaintiff and a third party; (2) the tortfeasor had knowledge of the existence of that contract; (3) the tortfeasor intended and did procure the breach of the contract, and finally (4) as a result of the breach, the plaintiff suffered damages.
The most important difference between the torts is the absence of the requirement to prove an "unlawful act."
The Court found Cogeco liable even though Mastec could have complied with its employment contract with Drouillard by providing reasonable notice of his termination. The Court of Appeal specifically refused to answer the question of whether in order to succeed the plaintiff must show an unequivocal breach of the contract or whether something short of this will suffice.
Finally, the Court of Appeal discussed the way to assess damages. They agreed with the trial judge that damages are "at large". The trial judge had awarded $137,535 for lost income and then another $62,465 "at large" damages – or $200,000 in total.
However, the trial judge failed to consider the $92,455.23 that Drouillard earned between 2001 and 2004 (the date at which the trial judge stopped calculating future income loss, stating that Drouillard had become fully re-trained). Therefore, the Court of Appeal reduced the damages award accordingly for mitigation.
Since the creation of these torts, not only has the nature of the torts evolved far beyond what the courts had in mind, but a much wider form of liability has emerged that arises when one party interferes with the performance of a contract. It will be interesting to see in the next few years, how and if the scope of liability will expand even further, and how far the courts will go in order to dissuade wrongful conduct in a global competitive market where traditional employment relationships are becoming less of the norm.
It is now up to employment lawyers to begin establishing the parameters within which third parties can be held liable for interfering with employment relationships. When handling wrongful dismissal cases, counsel will need to examine matters carefully to ensure that they are not overlooking possible claims against third parties who may have been involved in the employee's termination, particularly when the employment relationship involved outsourcing or contracting initiatives between multiple entities.
Steve Levitt practises employment law with Nelligan O'Brien Payne LLP, a full service law firm, in Ottawa.
[This article is reprinted with permission and first appeared in the July 2007 issue of The Lawyers Weekly.]