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Check your Employment Agreements: Ontario Courts bring Uncertainty to Termination Provisions

The enforceability of termination clauses within employment contracts is a matter that Ontario’s courts frequently adjudicate on. Lately, this has been an area filled with uncertainty, as courts vacillate between broad interpretations of contracts that favour employers and approaches that narrow the enforceability of termination clauses. The findings of the Ontario Court of Appeal in the 2020 case of Waksdale v. Swegon North America Inc (Waksdale) were far-reaching, with the potential to leave the termination provisions within many agreements unenforceable. Now, with the Supreme Court of Canada’s decision on January 14, 2021, denying leave to appeal, business owners and employers should be aware the Court of Appeal’s decision will remain binding across Ontario.

Importance of the Waksdale Decision

In Waksdale, the employee plaintiff was dismissed without cause and received severance in line with the termination without cause provisions in the employment agreement. Mr. Waksdale responded with an action alleging that the terms in the agreement concerning termination with cause were not enforceable on the basis that they violated Ontario’s Employment Standards Act (“ESA“). Importantly, Mr. Waksdale accepted that the “without cause” provisions which applied to his termination were lawful, with the employer admitting that the “termination for cause” clause challenged by Mr. Waksdale violated the ESA. Notably, the employment agreement also contained a severability clause which would normally sever unenforceable terms from the agreement leaving the remainder intact. The motions judge determined that although some of the termination clauses were unlawful, the “termination without cause” provisions were valid and could be enforced.

The Ontario Court of Appeal disagreed, overturning the original decision.

The principal question the Court of Appeal dealt with was whether a single unlawful termination clause could leave a separate and valid clause unenforceable, even in the presence of a severability clause in the agreement. There were two key findings in the Court’s analysis.

Employment agreements must be read as a whole.

Employment agreements and termination clauses are to be considered as a whole, not piecemeal, and without separating the “with cause” and “without cause” parts as the motions judge had done. The proper approach is to decide whether the termination provisions together violate legislation, and if they do, courts will not enforce them.

Severability clauses in employment contracts will not save unlawful provisions.

The employer hoped to use the severability clause to preserve the lawful terms, but the Court of Appeal refused to do so. A severability clause cannot have any effect on clauses made void by a statute. And since the termination clauses must be read together, it could not sever just the unlawful portion. Consequently, severability clauses in employment agreements confer much less protection.

Terminations in Ontario after Waksdale

The Waksdale decision is a reminder of how courts interpret contracts. When evaluating termination provisions, it does not matter whether they are found in one place in the agreement, separated, or in any way linked. Going forward, they will be read together. The Court of Appeal also noted the power imbalance in the employment relationship and the fact that the ESA is remedial legislation. Recognizing that employers may still gain a benefit even if they do not rely on an illegal termination clause may have coloured the analysis.

The significance of Waksdale is that if a termination provision is unenforceable the employment contract will not govern the termination, and without any contractual limits to termination benefits, employees will be entitled to common law reasonable notice if dismissed without cause. For employers, the risk is those benefits may be more generous than what they anticipated providing under the contract.

Rather than Waksdale being an isolated example, it is already being relied on in Ontario and was cited in Sewell v. Provincial Fruit Co. Limited to strike down another termination clause. Following the Waksdale precedent, the judge in Sewell looked at the entire employment agreement and found both the “with cause” and “without cause” provisions to violate the ESA. Instead of distinguishing Waksdale, the judge accepted that the illegality of one clause voids the entirety of the agreement.

Get Advice to Protect Yourself and Manage Business Risk

The course set by Waksdale may quickly become a trend within Ontario. Following the Court of Appeal’s decision, there was speculation that the unique facts in Waksdale could limit its future application. Now, as courts continue to outline the circumstances in which contractual termination clauses are found to violate the Employment Standards Act, it will be increasingly difficult to argue a disputed contract is valid. Employers should have their employment contracts reviewed to ensure they have mitigated their risk for litigation, and employees presented with a termination notice should seek legal advice.

Navigating the termination of an employee is more complicated than it appears. To manage risk and avoid costly litigation, contact GLG LLP in Toronto for experienced and strategic advice for your business planning and employment law solutions. During this period of economic uncertainty, it is crucial that employers are up to date on their obligations. Our lawyers can be reached at 416-272-7557 or contact us online to learn how we can help.

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glgllp · 4 years ago

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Will Ontario’s Cannabis Retail Market Hit a Saturation Point?

When the sale of recreational cannabis was legalized in Canada, Ontario was slow to launch brick-and-mortar retail locations. While the government-owned online-only Ontario Cannabis Store launched right away, it was difficult to find a store to shop in, particularly in areas not close to Toronto. As of April 2019, Ontario lagged far behind other provinces, such as Alberta, which had 449 in-person stores compared to fewer than five dozen in Ontario.

A lot has changed in less than two years.

Since then, Ontario has significantly upped its approvals and as of mid-February of this year, regulators are issuing approximately 30 new licences per week. As of the same point in time, there were 430 authorized cannabis retailers open in Ontario, with over 900 applications still awaiting processing. According to projections by CTV News, Ontario is in line to have nearly 1,400 operating shops across the province by the fall, or 1 for every 10,000 residents. This is double the number of LCBO locations, although it does not count other retailers permitted to sell alcohol, such as grocery stores.

The accelerated growth rate of legal cannabis retail shops naturally leads one to question how many businesses the industry can sustain over the long run. The key to long-term success for retailers is customer loyalty, however, some retailers say the rules make attaining this difficult.

Regulations Make Customer Loyalty Hard to Come By

Customer loyalty is an elusive concept that every retailer strives for, as this type of goodwill is what enables a business to endure over months and years. To develop this loyalty, retailers need to find a way to stand out from their competition and offer something unique that customers will come back for again and again. But when retailers are forced to follow rigid provincial and federal guidelines, distinguishing oneself from the competition can be a challenge, to say the least.

Wholesale Monopoly Limits Pricing and Stock Options

All authorized retailers in the province are required to obtain their stock of cannabis products from the same wholesaler, which is owned by the province itself. This means every store has access to the same products at the same prices, limiting their options to offer unique pricing or products to customers. By contrast, in Saskatchewan, for example, retailers are permitted to negotiate directly with producers, which allows them to keep costs down. Further, there still exists a black market in Canada where unauthorized retailers are selling huge varieties of products such as edibles that are not available through legal means. The lack of regulation means these retailers can offer products, packaging and pricing that licenced retailers just can’t access.

Federal Advertising Rules

Similar to alcohol and tobacco rules, there are strict limits on how cannabis retailers can advertise their products and services. For example, advertisements can not be made to appeal to anyone under the age of majority in a respective province (19, in Ontario). Further, retailers are not permitted to use testimonials, including the ever-growing influencer market, to speak to the quality of any cannabis product. Instead, testimonials are required to focus on the brand over the product. Cannabis can also not be made to be associated with an appealing lifestyle or any medical benefits as part of any advertising campaign. While these rules are in place to protect young people and others, they do place quite a few restrictions on how business owners can get their brand into the collective consciousness.

COVID Protocols Create More Strain

COVID restrictions on all retail have made the in-person cannabis retail situation considerably more difficult as well. While most stores offer customers options to shop online and pick up purchases curbside, the legal cannabis business is relatively new and some customers need much more guidance through a transaction than other retail industries. A spokesperson for one Toronto retailer, speaking to CTV News, put it this way:

With a cannabis store, the products aren’t on display, it’s a relatively new product, so people need to spend the time on education. They don’t know the difference between a vape and an edible or a topical. There are so many different products. It’s a much longer transaction.

With some stores forced to close other than for online or phone orders, some customers may simply opt to purchase directly from the province’s online-only retailer, the Ontario Cannabis Store, or wait until stores reopen when they can get more information before purchasing.

Rules Force Shops to Get Creative

Some shops are looking to create unique services or offerings however they can. One store has purchased a press that allows them to press fresh cannabis flower into a concentrate on the premises, to order. They also will roll fresh flower to order for customers, and offer a price-matching option. However, due to advertising restrictions, they cannot communicate these services on their windows. And what’s the point of offering services to distinguish your store, if nobody knows about them?

For Skilled Guidance Through Ontario’s Cannabis Retail Industry, Contact GLG LLP in Toronto

At GLG LLP, our business lawyers provide a full range of services to Ontario’s growing cannabis industry. We advise clients with respect to licencing, regulation and operations for new and existing cannabis retailers and cultivators. To speak with a lawyer, please contact the firm online or call 416-272-7557.

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glgllp · 4 years ago

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Toronto City Council Considers Increased ‘Luxury Home’ Tax

The Toronto City Council recently weighed the possibility of raising the city’s Municipal Land Transfer Tax (MLTT) on homes valued at $2 million or more, in an effort to increase the municipality’s annual revenue by up to $18 million. The proposal garnered divided reactions from various groups and organizations in the city.

Toronto’s Municipal Land Transfer Tax

The tax was introduced originally in 2008, as an additional tax to the province’s Land Transfer Tax on homes sold within Toronto city limits. The tax is payable at the time of registration of a transfer of ownership, and is calculated based on the value of the property as follows:

The first $55,000: 0.5%

$55,000.01 to $250,000: 1.0%

$250,000.01 to $400,000: 1.5%

$400,000.01 to $2 million: 2.0%

Over $2 million: 2.5%

The provincial Land Transfer Tax (LTT) is calculated with the same rates. Based on the current rates, a person purchasing a home valued at $2 million in Toronto would pay $36,475.00 in MLTT as well as LTT, for a total of $72,950 in tax. As part of the final municipal budget approval meeting for 2021, the city sought input on what an increase of 1%, from 2.5% to 3.5%, on properties valued at over $2 million would mean in terms of revenue.

Affordable Housing Advocates Encouraged by Proposal

While most people have struggled to some degree over the past year given business closures and layoffs due to COVID-19, the financial impact will obviously be felt more by lower-income families, who have fewer funds and resources to help them cope with a dip in income. In a piece written for Now Magazine by the heads of the Daily Bread Food Bank and Social Planning Toronto, the authors point out that many families in Toronto are facing eviction from rental properties due to inability to pay, and Toronto shelters are at or near capacity. Conversely, the luxury home market has seen little impact, with a 30% increase in sales during the past year.

Reports by city staff showed a possible increase in revenue amounting from $18 million to $26 million annually if the luxury real estate tax were to be imposed. With those funds, the city could afford to build hundreds of affordable homes per year, helping to provide much-needed stable housing for lower-income families.

Real Estate Industry Says Tax Would Have a Cooling Effect

In contrast to the position above, the Toronto Region Real Estate Board (TRREB) expressed concerns over the potential fallout if the tax increase were to be implemented, not just on luxury homes but modest ones as well. The president of TRREB, Lisa Patel, listed two primary considerations to dissuade the new increase:

The average price of a detached home in Toronto in 2020 was just under $1.5 million. This included more average homes than the high-end homes the tax was intended to target. When the tax rates were set, a $2 million price tag would have been reserved for the luxury market, but the gap is becoming increasingly small.

By imposing the tax, it could discourage those who may be looking to sell their more modest homes to invest in something larger. A family who may have been considering a new home over $2 million might instead choose to stay where they are and renovate instead, therefore limiting the number of more modest homes on the market. Given that the primary reason for Toronto’s housing shortage is an inadequate supply of affordable homes, this would put even more strain on a limited market.

City Opts to Table Measure for Now

The City Council held the vote on Thursday, February 18th, and the budget passed without the increase in MLTT for high-end homes. Instead, the City has commissioned a further study into potential revenue streams to make up for shortfalls during COVID-19. Lisa Patel of TRREB applauded the move:

TRREB understands and appreciates the budgetary challenges faced by the City of Toronto, but addressing those challenges in a way that would have made housing even less affordable would have been the wrong path forward. In fact, it would have been a step backward. We applaud Mayor John Tory and City Council for not moving ahead with the proposed MLTT increase and instead focusing on a more comprehensive discussion on revenue options, which TRREB looks forward to participating in. We believe that City Council took the right approach by directing staff to study all revenue options, instead of narrowly focusing on the MLTT.

The real estate lawyers at GLG LLP in Toronto assist clients with a full range of residential real estate services, including purchases and sales, financing and even litigation if necessary. To learn more about how our team can help you with your real estate transaction, call 416-272-7557 or complete the online form to arrange a consultation.

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glgllp · 4 years ago

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Canada’s Top Court Clarifies ‘Good Faith’ Requirement for Parties Under Contract

In 2014, the Supreme Court of Canada imposed a duty of good faith on parties to contract, in the case Bhasin v. Hrynew. In that decision, the Court moved towards establishing clarity around the duty of honest performance and good faith in contractual relationships. The Court noted that the law had developed piecemeal prior to this decision, and the ruling was meant to “recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.”

In the past several months, the Supreme Court has both expanded upon and placed limitations on this principle, in two significant decisions. Below, we will review the decisions and how they have each affected the doctrine of good faith and its applicability to contract law in Canada.

Expanding the Duty of Good Faith Under Contract

Under Bhasin, the SCC imposed a general duty of good faith and honesty upon those carrying out duties under a contract. In 2020, a new case placed an additional obligation to the notion of good faith and honesty: correcting false presumptions. In a case called C.M. Callow Inc. v. Zollinger, a group of condominium corporations had a multi-year contract with a service provider for winter maintenance including snow removal, as well as for summer maintenance duties. The contract covered the years 2012 and 2013, but contained a clause whereby the condominium group had the option to terminate the contract early by providing ten days’ notice.

In the spring of 2013, the condominium group made the decision to terminate the contract early but had not yet informed the service provider. Further, a representative of the group had a conversation with a representative of the service provider that led the provider to believe the contract would be renewed beyond the existing term. The service provider went on to provide additional services free of charge throughout the summer of 2013. The condominium group was aware there was a false belief the contract would be renewed but said nothing. At the end of the summer, the condominium group informed the provider that it would be cancelling the remainder of the contract.

The case eventually went before the Supreme Court of Canada, which ultimately found that the condominium group had knowingly misled the service provider for several months. While the group’s silence alone would not necessarily have amounted to a breach of contract, the fact was that the condominium group was aware that the provider had a false impression that the contract would be renewed. By failing to correct that misapprehension, the group had deceived the provider and breached the contract.

Contractual Discretion and The Good Faith Principle: Limitations

In a more recent decision, Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, the SCC took the opportunity to place limitations on the duty of good faith when it comes to exercising contractual discretion. In this case, a statutory corporation in charge of waste disposal for the Metro Vancouver Regional District (Metro) engaged Wastech, a waste transportation company to transport waste to several facilities. Wastech earned a different rate depending on the distance to the specific facility – the closer the facility, the less profit Wastech earned. The contract between the two parties gave Metro complete discretion to allocate waste to each disposal facility as it saw fit.

At one point during the contract, Metro reallocated waste away from the furthest facility to one that was closer. This caused Wastech’s profits to drop significantly below target. Wastech alleged breach of contract because Metro’s decision prevented Wastech from reaching its target profit for the year.

The SCC found that parties must exercise contractual discretion reasonably and in good faith, in accordance with the purposes for which the discretion was granted. For this reason, the parties to a contract must ensure that the purposes for discretion be clearly spelled out in the terms of a contract. In this case, the Court found that the discretion was granted to allow Metro to make decisions designed to “maximize efficiency and minimize costs of the operation”. The decision to reallocate the waste was in line with this purpose, and therefore the exercise of discretion was reasonable.

Contact GLG LLP for Experienced Contract Dispute Litigation Advocacy

Contact GLG LLP in downtown Toronto for assistance with litigation relating to breach of contract or other contract disputes. The firm’s litigators provide efficient and skilled trial advocacy for a range of legal issues and will look to settle your matter quickly and efficiently. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.

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glgllp · 4 years ago

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Real Estate Transaction Fees Expected to Increase After Software Acquisition

Competition is one of the key elements of a free market and keeping pricing fair for the end-users of a product or service. As we’ve seen in Canada in recent years, many people have raised concerns over the perceived monopoly many Canadian telecommunication companies seem to enjoy in Canada. Some feel that the ‘big 3’ telecom companies in Canada (Bell, Rogers and Telus) don’t have to worry about competition and therefore are free to set prices unreasonably high for internet, cable and mobile phone services. While this debate continues, the world of real estate transactions is facing a potential increase in transaction fees due to a reduction in the number of software providers for real estate technology across the country.

Major Real Estate Software Companies Consolidate

In December, legal software giant Dye & Durham announced that it had acquired another legal software company, DoProcess for $530 million from Teranet. With this acquisition, Dye & Durham now faces less competition in the market and as such has announced it will be increasing fees to law firms who use a program called The Conveyancer, which is estimated to have over a 90% market share in the province, by over 400%. A transaction that once cost $25.00 will now cost $129.00. These fees form part of the disbursements pass on to clients, as part of their overall transaction costs, as mandated by the Law Society of Ontario.

Given the increase, consumers who complete real estate transactions can expect to see a jump in costs in a year where housing prices have steadily increased while employment has been on a decline. While there are other options for similar services, there are concerns with moving to a smaller provider. Some, for example, don’t have in-house IT departments to troubleshoot if there’s an issue, which can be an extreme detriment when dealing with a time-sensitive transaction.

Further lawyers who have invested in building their business suing one particular provider may have issues retaining the data they have stored in one product if they decide to move to another. In other cases, it can be a painstakingly slow process to port the necessary data over from one product to another.

A representative of Dye & Durham provided a response to the complaints to the Globe and Mail:

The company believes that its software is priced appropriately to reflect the significant value that it provides to its customers.

Dye & Durham has had success growing its business through acquisitions and consolidations. Since acquiring D&D in 2016, the owners have since purchased 14 other legal software entities. The company went public in July of 2020, with share prices nearly doubling on the first day of trading.

Housing Prices Have Steadily Increased as Well

Given the fee increase, homebuyers can expect to see closing costs rise slightly at a time when housing prices are also at record highs. Perhaps owing to residual effects of the pandemic, home resales increased by 13% in 2020 over previous years and the average price of a property has increased by over 8%. Without the need to live close to the city, there has been a trend of families leaving heavily populated areas such as Toronto for more remote locations such as Oshawa, Barrie and Kitchener. Now that proximity to work is less of a concern, homebuyers, especially those looking to purchase their first home, are seeking out more affordable options.

Contact GLG LLP in Toronto for Residential Real Estate Transactions Throughout the Greater Toronto Area

At GLG LLP, we work with clients to ensure their residential real estate transactions run smoothly from start to finish, and as lawyers, we stay involved with a file all the way through rather than leaving the details to our admin staff. We work to ensure we provide top-level service to clients throughout Toronto and the surrounding areas including York, Markham, Mississauga, Etobicoke and beyond. We make use of simple-to-use technology to meet with clients ahead of closing and to sign all necessary paperwork, so our clients don’t have to make a trip downtown.

The real estate lawyers at GLG LLP in Toronto assist clients with a full range of residential real estate services, including purchases and sales, financing and even litigation if necessary. To learn more about how our team can help you with your real estate transaction, call 416-272-7557 or complete the online form to arrange a consultation.

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Workplace Harassment Goes Virtual During COVID-19

Since the start of the pandemic, several areas of law have seen notable changes, due to the fact that people have largely been staying at home for the past nine months. For example, family lawyers have noted an increase in separations and divorces, with many couples and families confined to close quarters. In addition, some crimes lessened, including assault and property crimes. This can likely be attributed to fewer social gatherings and the fact that homes are less commonly left empty these days.

On the employment side, there has been an interesting, and perhaps unexpected, change in workplace harassment claims. With workplaces across Ontario largely shifting to remote status across the province for the past nine months, one might have expected harassment to decrease significantly since coworkers are not interacting face-to-face like they used to. But in fact, some HR professionals have found that claims have actually increased this year.

In-Person and Online Workplace Harassment on the Rise

A recent article in The Walrus highlighted the fact that many professionals are reporting an increase in workplace harassment claims. These claims continue to stem from interactions happening in the physical workplace for those who are deemed essential and therefore still attending work in person. However, there is also a significant jump in the number of online harassment claims, given that most workplace communication has shifted from the boardroom or office lunchroom to online tools such as Zoom, Slack, and email.

One software developer in the United States noted that the online workplace has become more combative than the previous in-person environment due to a number of factors. Employees are often more overworked than they once were, given our inability to ‘leave’ work behind for the day. Now that many people are operating out of their homes, there is less structure and division each day, and as a result, people are often working more. In addition, a number of companies have been forced to cut back on staff in the past year, requiring those who are still employed to pick up the slack created by those absences.

With more work often being done by fewer people, there is a greater sense of urgency that sometimes results in a lack of proper recognition, as well as a more demanding culture. All of these factors are contributing to increased worker burnout and a more hostile work environment overall. A professor of management at Villanova University said that “[s]imply being drained and stressed or feeling depleted are strong predictors of aggressive behaviour”.

The online environment allows for new channels to bring negativity into the workplace. Zoom and Slack meetings mean coworkers are often texting or messaging one another in side conversations, perhaps expressing negative feelings about colleagues or the workplace overall. This can reduce morale and increase paranoia among staff.

Remote Work and Uncertain Employment May Mean a Decrease in Reporting

Not only is abusive or harassing behaviour increasing online, the current climate means that many employees may opt not to report the problems their facing. According to Tracy Porteous, executive director of the Ending Violence Association of BC, remote working “increases a worker’s vulnerability to sexual harassment and can decrease the chances of reporting”. While the work from home environment has many benefits, such as cutting the need to commute and saving employees time and expense on travel, food and clothing, employees are also feeling more isolated and vulnerable than ever before.

Experts say that employers should proactively work to address the situation to reduce the negative effects of working remotely on their staff. Actions should include openly encouraging employees to report incidences of abuse, harassment or other aggressive behaviours, and then take those reports seriously. Each claim should be properly investigated and dealt with accordingly. Before the pandemic started, the Ontario and federal governments addressed workplace harassment by creating additional responsibilities for employers to manage these types of situations. In Ontario, the Occupational Health and Saftey Act puts an onus on employers to develop and communicate a comprehensive harassment and violence policy, and follow through on the mandates within.

Contact GLG LLP in Toronto for Advice on Employment Litigation Matters

Contact GLG LLP in downtown Toronto for assistance with any employment litigation matter, including claims relating to harassment or violence in the workplace. The firm’s litigation lawyers represent both employees and employers in a range of employment issues. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.

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Misrepresentation Prompts Court to Rescind Real Estate Agreement

When parties enter into a contract, they generally do so in reliance on certain information. For example, if a business contracts a supplier to provide a certain number of widgets over a certain period of time, there is a representation on the part of the supplier that they have the ability to produce and distribute the widgets in accordance with the terms. If, partway through the term of the contract, the supplier became unable to keep up with demand, or if the quality of the widgets dropped dramatically, the business may have a valid claim against the supplier, who misrepresented their abilities.

Types of Misrepresentation in Ontario Contract Law

Misrepresentation refers to an untrue statement made by one party, which in turn induces another party to enter into a contract with them. It is important to remember that misrepresentation is not always intentional. There are three types of misrepresentation recognized by Ontario courts:

Fraudulent misrepresentation – Fraudulent misrepresentation occurs when a party deliberately misleads the other party about details pertaining to the contract.

Negligent misrepresentation – Negligent misrepresentation occurs when a party breaches the duty it owes to the other party to ensure its representations are accurate. Failure to perform due diligence or take reasonable care to ensure all representations are accurate could result in a finding of negligent misrepresentation.

Innocent misrepresentation – Innocent misrepresentation is any misrepresentation that does not fit within the above two categories.

The remedy for a finding of misrepresentation can vary depending on the circumstances and the type of misrepresentation. For the first two categories above, a claimant can seek damages, rescission of the contract, or both. For innocent misrepresentation, a court is more likely to award damages rather than recession.

Seller and Agent Provide Inaccurate Square Footage Data to Homebuyer

In a recent decision before the Ontario Court of Appeal, a homebuyer had brought a claim seeking recession of an agreement of purchase and sale after discovering a significant discrepancy in the square footage of the home from what had been presented initially. The buyer was relatively young and inexperienced in real estate, and this was the first time he had purchased a property. He was looking for a specific amount of space in order to accommodate himself, along with several members of his family.

His real estate agent showed him a home and told the buyer it was approximately 2100 square feet in size. The real estate had relied upon information provided in a previous listing of the property as well as details provided by the homeowner, however, the agent did not conduct a property measurement exercise. The agent agreed he had been negligent in failing to do this.

The buyer visited the property himself twice and inspected each room. On the second visit, he was accompanied by members of his family as well. He signed an agreement of purchase and sale to purchase the house. However, his financial institution required that he have an appraisal done on the home as a condition of the approval of his mortgage. When the appraisal was completed, the size of the home was assessed at 1450 square feet. Given the significance of the difference, the buyer withdrew from the transaction and brought a claim seeking rescission of the agreement and a return of his $50,000 deposit.

Buyer’s Inspection Did Not Override Representations of the Homeowner and the Agent

The lower court found in favour of the homebuyer and rejected the argument that the buyer’s personal inspection of the home should have been a better determination of his expectations regarding the size of the home than the representations made. The court took the buyer’s age, inexperience with square footage and first-time homebuyer status into account in determining that it was reasonable he had relied on the representations even after seeing the home himself.

The defendant real estate agent appealed the decision, claiming again that once a buyer has inspected a property, the inspection should displace any representations made regarding the size of the home. The Court of Appeal dismissed the appeal, holding that this argument might apply in some cases, whereas in others, such as the case at hand, the constellation of facts would render this finding unfair. The following facts were at the core of the Court’s decision:

The agent and the homeowner had each made explicit claims that the house was 2,000 square feet in size or more. Further, the agent admitted negligence in relying on other sources for this information rather than confirming it for himself.

The discrepancy between the stated and actual size of the home was substantial.

The buyer’s reliance on the claims of the agent and homeowner was confirmed by the fact that he had been ready to close the deal up until the moment he discovered the actual size through the appraisal of the property.

The trial judge was correct to take contextual matters, including the buyer’s age and lack of experience into account in determining the reasonableness of his reliance on the claims made to him.

Contact GLG LLP in downtown Toronto for assistance with litigation relating to breach of contract, real estate or other civil disputes. The firm’s real estate and litigation lawyers provide efficient and skilled trial advocacy for a range of legal issues and will look to settle your matter quickly and efficiently. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.

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Small Business Group Critical of Provincial Lockdown Measures

Earlier this week, Premier Doug Ford announced a new state of emergency for the province of Ontario in light of escalating COVID-19 infections that threaten to overrun the province’s medical resources. As part of the emergency measures, the province announced a new lockdown period across all of Ontario, referring to the matter as a ‘stay at home’ order. Under the new restrictions, non-essential retail stores are not permitted to open except for curbside pickup and must close by 8 pm. In addition, stores that sell essential goods such as groceries in addition to non-essential items (for example, Walmart and Costco) are permitted to remain open for in-person shopping but must close by 8 pm. Essential businesses, such as grocery stores, pharmacies and gas stations are permitted to operate as normal, although they must continue to place limits on the number of people inside at one time.

The new measures have come under fire from many sides, including business owners, customers and retail advocates. One argument is that the measures unfairly target small businesses, while ‘big box stores’ like Walmart can carry on business despite a good portion of their product falling into the ‘non-essential’ category, such as electronics and beauty supply items. We previously discussed these criticisms in a previous blog about the Hudson’s Bay Company bringing a claim against the provincial government in opposition to the measures.

Mixed Messaging Causes Confusion for Retailers and Customers

One of the most common critiques of the lockdown measures is the mixed messages many feel the restrictions convey. On the one hand, residents have been asked to remain in their homes unless they have an essential trip. The government has deemed certain activities essential, such as grocery shopping, exercise and medical appointments. However, non-essential retail stores are permitted to operate curbside pickup, meaning it’s feasible a person could leave their home to go pick up decorative items or a new video game system.

In addition, some have said the rules have been applied haphazardly. For example, government-run LCBO and Beer stores remain open for in-person shopping, yet privately-owned cannabis retail stores are only permitted to offer curbside pickup or delivery. Further, these curbside pickup transactions are limited to items purchased by the customer ahead of time online, limiting spontaneous shopping transactions.

Measures not Only Harm Businesses, But Place Residents at Risk: Critics

One major critic of the new measures is the Canadian Federation of Independent Businesses (CFIB), which sees the measures as unfairly punishing small businesses in favour of large corporations. CFIB’s president, Dan Kelly, said that the messaging about what is essential and what isn’t has created confusion among both retailers and their customers. Further, the organization claims the restrictions might actually do more harm than good from a health perspective.

By limiting the number of retailers consumers can visit and the opening hours, this means that there will be higher concentrations of people at fewer locations, increasing the risk of close contact. The organization’s belief is that allowing small businesses to continue to serve customers in person, would reduce pressure on big box stores, while also protecting small business owners during this extended period of financial hardship. The CFIB said it would like to see restrictions closer to what the province of British Columbia has enacted, where small retailers are permitted to open, so long as they observe the following protocols:

Establish strict capacity limitations based on providing 5 square metres of unencumbered space per person

Post occupancy limits where they are clearly visible

Post directional signs to prevent people from passing each other in close quarters, where possible

Require face coverings at all times

Notably, the measures implemented by the government have received praise from other industries, which are allowed to continue operations with health protocols in place, such as manufacturing and construction.

Our business lawyers can advise on how best to protect your business and maintain staffing through this period of uncertainty. Contact GLG LLP in downtown Toronto for efficient and skilled advice on the management of your business. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.

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Ontario Cannabis Retailers Worry Province is Undermining Profits

Since legal recreational cannabis was first introduced in Ontario in 2018, the industry has been booming. The brick and mortar aspect of the business was slow to get off the ground, with limited retail licences available for a handful of shops. However, in the past two years, the number of physical cannabis shops in the province has increased significantly. In late 2019, there were approximately 50 stores in the province, which grew to around 200 by late 2020. That number is expected to increase to 700 by the end of 2021.

The ongoing pandemic may have been a boon to business as well, with sales increasing by 30% between May and September of 2021. In September 2020, the province vowed to double the approval rate, issuing an average of 10 licences per week instead of the usual 5.

Excess Supply Leads Some Major Players to Reduce Operations

Despite the increase in sales, many of Canada’s cannabis producers are sitting on unused product, and some have even been forced to shutter facilities and lay off staff. According to a recent CBC article, cannabis production was in overdrive prior to the legalization of recreational marijuana. As a result, the industry overall has about seven months’ worth of inventory just sitting around, when a typical supply chain only requires two months’ worth of inventory in reserve.

This has led to some of Canada’s larger producers cutting back on facilities and staff in order to boost profitability. One of those is Canopy Growth, a company we previously wrote about in September 2020. At the time, Canopy was facing a lawsuit over its refusal of a significant delivery of product from a greenhouse it had partnered with. Canopy refused the delivery citing a drop in wholesale prices, which were far below the price originally negotiated in the production contract.

Recently, Canopy, which is based in Smith Falls, Ontario, has opted to close operations in five different provinces and let go of 220 employees. The company’s chief executive officer David Klein said the moves are expected to save the company $150 to $200 million, and that the closures won’t affect Canopy’s ability to meet demand in the marketplace. This would seem in line with reports that overall, some of the country’s largest producers are finding they are producing product at too quick a pace.

Ontario’s Retail Cannabis Model: A Brief Overview

While retail shops in the province are privately owned, the Ontario government is deeply entrenched in the retail model. Not only are licencing fees paid to the province, but the Ontario government also acts as a wholesaler for all legally-sold cannabis. The province buys the product directly from producers like Canopy, and then sells it to private retailers. This gives significant control over pricing to the government, ensuring that the prices in the private shops remain in line with the prices on the government-run online retail shop, the Ontario Cannabis Store.

Retailers Would Like to Cut Out the Middle Man

While the existing model worked well when the industry was burgeoning, some private retailers have expressed a desire for a change. One retailer said that the original model was helpful in enabling new retailers to purchase cannabis legally, now that the industry is more entrenched, it’s no longer necessary. In fact, having to buy from the Ontario government, also a direct competitor when it comes to sales, is counterintuitive.

Daffyd Roderick, senior director of communications and social responsibility at OCS said that the current wholesale model benefits both parties, and ultimately, the consumer:

Stores are our partners in growing the size of the legal market, not our competition. Our pricing model is designed to not undercut stores. All stores buy cannabis from us at a fixed markdown from OCS.ca prices. Our customer journey data indicates that OCS.ca and the retail stores actually complement each other, as many consumers read our [educational] articles and browse our products before going to a retail store to purchase the product.

Given that the province is earning income from the licensing fees for new and established retail outlets as well as from the wholesale of cannabis products to those same retailers, things are unlikely to change anytime soon. However, we will continue to monitor significant updates in Ontario’s cannabis retail sector and report them here.

For Skilled Guidance Through Ontario’s Cannabis Retail Industry, Contact GLG LLP in Toronto

At GLG LLP, our business lawyers provide a full range of services to Ontario’s growing cannabis industry. They advise clients with respect to licencing, regulation and operations for new and existing cannabis retailers and cultivators. To speak with a lawyer, please contact the firm online or call 416-272-7557.

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Hudson’s Bay Files Lockdown Lawsuit Against Ontario Government

As the pandemic numbers began to increase in March 2020, the Ontario government reacted by closing or pausing many services and businesses that were deemed ‘non-essential’. At the time, this included most retail stores, some of which continued limited operations by offering curbside pickup, while others were forced to close entirely. This resulted in significant losses for many businesses, causing layoffs and closures across the province. The federal government implemented a new subsidy program intended to assist business owners experiencing a reduction in profits with employee wages during the pandemic, called the Canada Emergency Wage Subsidy. When lockdown restrictions eased, retailers and other non-essential businesses were able to resume business as usual, however, with many Canadians experiencing financial insecurity due to the pandemic, it’s safe to say that retailers continued to be hard hit financially throughout 2020.

When the government announced new province-wide lockdown measures in late December aimed at curbing the rapid increase in new COVID-19 cases, the protocols once again called for a closure of all non-essential retail stores for a period of one month, from December 26th (typically one of the busiest and most profitable shopping days of the year) to at least January 23rd, 2021. With Ontario continuing to see record infection rates, it’s unclear whether this lockdown period will be extended further, particularly in areas with a high concentration of infection rates throughout the Golden Horseshoe region.

Prior to the provincial order, Toronto and Peel Region had been under these lockdown rules for several weeks already, with non-essential stores, services and malls shuttered since November. In response, a coalition of Ontario retailers, including the Hudson’s Bay Company, wrote a letter to the Ford Government arguing against the measures and saying that the move allows big box stores such as Walmart and Costco to thrive, while smaller businesses were suffering.

Which Retailers are Deemed “Essential” in Ontario?

In order to meet the criteria to be considered essential, and therefore remain open during the lockdown, a retailer must fit within one or more of the following categories:

Businesses that primarily sell food, beverages and consumer products necessary to maintain households and businesses including:

Supermarkets and grocery stores

Convenience stores

Discount and big box retailers selling groceries

Beer and wine and liquor stores

Pharmacies

Gas stations and other fuel suppliers

Vehicle retail, including auto

Hardware

Safety Supply Stores

Garden Centres

These essential businesses are allowed to continue to keep their doors open to the public, even under the province’s most strict lockdown rules. These businesses may continue to sell non-essential products (such as electronics and home decor items) as well as essential products.

When the November and December lockdown measures were announced, HBC filed an application for judicial review of the province’s decision, saying it was unfair and arbitrary and would punish retailers at the most profitable time of year. According to the court filing:

Ontario offered no explanation or justification for this about-face, which excluded HBC while allowing other big-box retailers like Walmart, Costco, and Canadian Tire to remain open and to sell all of their non-essential goods including those sold by HBC and many other closed retailers, large and small.

In a statement, the company said:

On behalf of thousands of large and small retailers in Toronto and Peel, we have been left with no choice but to ask the court to recognize the unfairness of the current situation. The situation is dire and untenable for thousands of retailers, but it’s not too late for the government to make a better decision for Ontario.

Superior Court Dismisses Application While Leaving ‘Wisdom and Efficacy’ of Province’s Decision Open to Question

On December 23, the Superior Court of Justice issued a decision on HBC’s application, ultimately dismissing it. However, the court did side with the retailer on the issue of big box stores being permitted to sell non-essential items to shoppers in addition to essential items such as groceries. The Court noted that it was required only to determine whether the lockdown policies were consistent with the Reopening Ontario Act, which they were. However, the Court did question whether the policies allowing shoppers to access even non-essential items were consistent with the purposes of the lockdown, pointing out that Quebec had limited the scope of these essential businesses to only the essential items, blocking customers from accessing other areas of the stores.

Our business lawyers can advise on how best to protect your business and maintain staffing through this period of uncertainty. Contact GLG LLP in downtown Toronto for efficient and skilled advice on the management of your business. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.

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Ontario Court Holds Party to Buy/Sell Clause Despite Pandemic Challenges

The economic downturn caused by the ongoing COVID-19 pandemic has created a number of financial difficulties for businesses across Canada. However, an Ontario court refused to allow a party to escape its obligations under a shotgun buy/sell clause despite the party’s claims that the pandemic was to blame.

What is a Shotgun Buy/Sell Clause?

Shotgun buy/sell clauses are commonly used in business contracts such as shareholder agreements and partnership agreements. When multiple parties will be working together, there is a risk of disagreement on how to proceed which can result in project/business stagnation. If two parties with equal power are unable to agree on how to proceed with a major project or decision, it can be catastrophic for the business itself. Shotgun buy/sell clauses are intended as a means to solve this problem and allow the business to move forward by having one party buy out the other.

The clauses typically operate as follows:

One party (Party A) will trigger the clause by making an offer to buy out the other party (Party B) at a specific price.

Upon receiving the offer, Party B can either accept the terms presented or buy out Party A at the same price. This ensures that Party A will set a price that it would be willing to accept as well.

While the process is intended to create a fair deal for both parties, the financial positions of each party may create an imbalance, since one party may have considerably more means than the other.

Development Deal Sours

The case at hand involved two companies that had entered into a limited partnership agreement to rezone a property in Toronto and redevelop it as a luxury condominium. The parties had difficulty working together, and eventually, one party (FSC) opted to invoke the buy/sell clause in the partnership agreement. FSC triggered the clause by proposing a purchase of the other entity (ADI) for a set price. Two weeks later, ADI agreed to purchase FSC’s interest for $12,733,289, with the deal set to close three months later on April 8, 2020.

A few weeks ahead of the scheduled closing, ADI informed FSC it would not be closing as planned, due to the ‘unforeseeable delay’ caused by the COVID-19 pandemic. In response, FSC brought an application seeking the remedy of specific performance, which would require ADI to go through with the agreed-upon purchase under the buy/sell clause.

Court Rejects Claim of Frustration

ADI claimed it had not breached the buy/sell clause, as the contract to purchase FSC’s interest in the project had been frustrated due to the unforeseen problems created by the pandemic. ADI claimed that the market had taken a significant downturn and as a result, ADI was unable to secure the financing necessary to complete the purchase. However, the court rejected this claim.

The court found that while the pandemic was unprecedented, sharp economic declines are common. There are myriad issues that could affect the price of real property, and it is not unrealistic to expect extreme fluctuations in property values over even relatively short periods of time. Although in this case the uncertainty was largely tied to the pandemic, the cause could have been any number of reasons, which is a risk a developer takes when undertaking such projects.

Secondly, the court found that ADI had been lax in its pursuit of funding. The company had approached only a handful of lenders and had requested much more capital than what was required to complete the purchase from FSC. The court found that ADI could have opted to allow FSC to purchase ADI’s interest, and instead chose to buy out FSC. As a result, the court held ADI to its obligations and ordered specific performance of the contract.

Businesses should exercise due caution when presented with a buy/sell option and undertake due diligence to secure funding prior to agreeing to buy out a former parter’s share of a contract. As demonstrated by the case above, courts are unsympathetic to a business that fails to do so, even in the face of an extraordinary circumstance such as COVID-19.

Our business and commercial real estate lawyers can advise on how best to protect your business and mitigate risk in the challenging financial landscape created by the pandemic. Contact GLG LLP in downtown Toronto for efficient and skilled advice on the management of your business. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.

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Ontario Opens Incorporation to Foreign-Owned Entities

Bill 213, Ontario’s Better for People, Smarter for Business Act, was introduced in October as a means to make incorporating in Ontario simpler and more accessible for companies with foreign ownership. The Bill proposes several amendments to various pieces of legislation, but for the purposes of this post, we will focus on the changes to the Business Corporations Act.

Current Residency Requirements for Directors of Ontario Corporations

Under the Business Corporations Act, s. 118 (3) currently requires that a percentage of a corporation’s directors must be resident in Canada:

(3) At least 25 per cent of the directors of a corporation other than a non-resident corporation shall be resident Canadians, but where a corporation has less than four directors, at least one director shall be a resident Canadian.

Bill 213 will repeal this section, removing the requirement for a Canadian director. The change brings Ontario in step with other provinces, such as Alberta, British Columbia and Nova Scotia, that had already done away with the residency requirements for directors. The purpose of the change is to encourage more foreign-owned or run corporations to bring their businesses to the province instead of bypassing Ontario in favour of more advantageous rules elsewhere in the country. The change will apply to both publicly and privately held corporations.

Changes to the Resolution Approval Process for Private Corporations

Under the Business Corporations Act, s. 104(1) currently states that a privately-held corporation may approve a resolution in writing so long as the shareholders unanimously agree, and each sign the written resolution:

104 (1) Except where a written statement is submitted by a director under subsection 123 (2) or where representations in writing are submitted by an auditor under subsection 149 (6),

(a) a resolution in writing signed by all the shareholders or their attorney authorized in writing entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders; and

(b) a resolution in writing dealing with all matters required by this Act to be dealt with at a meeting of shareholders, and signed by all the shareholders or their attorney authorized in writing entitled to vote at that meeting, satisfies all the requirements of this Act relating to that meeting of shareholders.

The purpose of the existing legislation is to allow the passing of resolutions without the need or expense of a shareholder’s meeting. However, the requirement for a unanimous agreement has proven to be onerous. If just one shareholder objects and refuses to sign, the corporation would be required to hold a meeting to vote in person, creating an undue delay in the process.

Bill 213 will amend the Business Corporations Act by removing the necessity for unanimous agreement among the shareholders in order to approve a resolution in writing. Instead, private corporations will now have the ability to approve an ordinary resolution in writing so long as the majority of shareholders agree to sign.

In addition to making the process to pass an ordinary resolution more convenient, this new process will allow corporations to move ahead with business decisions in the face of the COVID-19 pandemic when in-person shareholder meetings are inadvisable.

Exceptions to the Rule – Special Resolutions

The new rule allowing a majority of voting shareholders to sign off on a written resolution will only apply to ordinary resolutions. Special resolutions making significant changes such as a sale of assets, mergers, acquisitions or changes to the Articles of Incorporation will still be carried out as before. Further, a corporation is also free to enact more stringent requirements for the passing of written resolutions in its own Articles of Incorporation to require more than a simple majority of shareholder signatures.

Our business lawyers can advise on how best to protect your business and adapt your policies to reflect these new legislative changes. We will ensure you are aware of all updates to the law affecting your business operations so you can be sure you are compliant. Contact GLG LLP in downtown Toronto for efficient and skilled advice on the management of your business. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.

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Toronto City Council Considers Increased ‘Luxury Home’ Tax

The Toronto City Council recently weighed the possibility of raising the city’s Municipal Land Transfer Tax (MLTT) on homes valued at $2 million or more, in an effort to increase the municipality’s annual revenue by up to $18 million. The proposal garnered divided reactions from various groups and organizations in the city.

Toronto’s Municipal Land Transfer Tax

The tax was introduced originally in 2008, as an additional tax to the province’s Land Transfer Tax on homes sold within Toronto city limits. The tax is payable at the time of registration of a transfer of ownership, and is calculated based on the value of the property as follows:

The first $55,000: 0.5%

$55,000.01 to $250,000: 1.0%

$250,000.01 to $400,000: 1.5%

$400,000.01 to $2 million: 2.0%

Over $2 million: 2.5%

The provincial Land Transfer Tax (LTT) is calculated with the same rates. Based on the current rates, a person purchasing a home valued at $2 million in Toronto would pay $36,475.00 in MLTT as well as LTT, for a total of $72,950 in tax. As part of the final municipal budget approval meeting for 2021, the city sought input on what an increase of 1%, from 2.5% to 3.5%, on properties valued at over $2 million would mean in terms of revenue.

Affordable Housing Advocates Encouraged by Proposal

While most people have struggled to some degree over the past year given business closures and layoffs due to COVID-19, the financial impact will obviously be felt more by lower-income families, who have fewer funds and resources to help them cope with a dip in income. In a piece written for Now Magazine by the heads of the Daily Bread Food Bank and Social Planning Toronto, the authors point out that many families in Toronto are facing eviction from rental properties due to inability to pay, and Toronto shelters are at or near capacity. Conversely, the luxury home market has seen little impact, with a 30% increase in sales during the past year.

Reports by city staff showed a possible increase in revenue amounting from $18 million to $26 million annually if the luxury real estate tax were to be imposed. With those funds, the city could afford to build hundreds of affordable homes per year, helping to provide much-needed stable housing for lower-income families.

Real Estate Industry Says Tax Would Have a Cooling Effect

In contrast to the position above, the Toronto Region Real Estate Board (TRREB) expressed concerns over the potential fallout if the tax increase were to be implemented, not just on luxury homes but modest ones as well. The president of TRREB, Lisa Patel, listed two primary considerations to dissuade the new increase:

The average price of a detached home in Toronto in 2020 was just under $1.5 million. This included more average homes than the high-end homes the tax was intended to target. When the tax rates were set, a $2 million price tag would have been reserved for the luxury market, but the gap is becoming increasingly small.

By imposing the tax, it could discourage those who may be looking to sell their more modest homes to invest in something larger. A family who may have been considering a new home over $2 million might instead choose to stay where they are and renovate instead, therefore limiting the number of more modest homes on the market. Given that the primary reason for Toronto’s housing shortage is an inadequate supply of affordable homes, this would put even more strain on a limited market.

City Opts to Table Measure for Now

The City Council held the vote on Thursday, February 18th, and the budget passed without the increase in MLTT for high-end homes. Instead, the City has commissioned a further study into potential revenue streams to make up for shortfalls during COVID-19. Lisa Patel of TRREB applauded the move:

TRREB understands and appreciates the budgetary challenges faced by the City of Toronto, but addressing those challenges in a way that would have made housing even less affordable would have been the wrong path forward. In fact, it would have been a step backward. We applaud Mayor John Tory and City Council for not moving ahead with the proposed MLTT increase and instead focusing on a more comprehensive discussion on revenue options, which TRREB looks forward to participating in. We believe that City Council took the right approach by directing staff to study all revenue options, instead of narrowly focusing on the MLTT.

The real estate lawyers at GLG LLP in Toronto assist clients with a full range of residential real estate services, including purchases and sales, financing and even litigation if necessary. To learn more about how our team can help you with your real estate transaction, call 416-272-7557 or complete the online form to arrange a consultation.

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