In a landmark decision, an Ontario court has interpreted and applied the anti-reprisal provisions of the Ontario Securities Act (the “Act”) for the first time and ordered an employer to pay over $5.3 million in damages to a former employee. In McPherson v. Global Growth Assets Inc., the Ontario Superior Court of Justice found that the employer terminated a CEO’s employment because he engaged in protected activity under the Act by attempting to raise concerns about the employer violating Ontario securities laws. This decision is significant because the court articulated the legal test for determining whether an employer has violated the Act’s anti-reprisal provisions for the first time. This massive damages award also serves as a cautionary tale for employers that violating Ontario securities law can be extremely costly.
Background
In August 2018, Mr. McPherson was hired as the new CEO for Global Growth Assets Inc. and Global RESP Corporation (collectively, “Global”). Global was in the business of selling education savings plans, which was subject to the Act and regulated by the Ontario Securities Commission (the “Commission”).
Notably, the Commission had sanctioned Global and its owner—Mr. Bouji—several times before Mr. McPherson was hired. Mr. Bouji had previously served as Global’s CEO and its “ultimate designated person” (or “UDP”), the person at the corporation who is ultimately responsible for ensuring compliance with Ontario’s securities law. While Mr. Bouji was UDP, Global violated Ontario securities laws in numerous ways, such as lacking an adequate system of compliance controls/supervision, and training staff to use misleading, inaccurate, and high-pressure sales tactics.
In 2014, the Commission permanently suspended Mr. Bouji from acting as Global’s CEO. The company ordered Global to replace him as CEO and barred him from acting as a director or officer for nine years. The commission later permanently prohibited Mr. Bouji from acting as a director or officer for any company subject to the Act after he breached its prior order by continuing to act as a de facto officer/director for Global.
Global subsequently applied to have Mr. Bouji’s daughter (“Ms. Bouji”), who was an executive at Global and the chair of its board of directors, become UDP. The Commission did not approve Ms. Bouji because it found that she had proven herself unwilling or unable to take the steps necessary to limit her father’s involvement in Global as required by the Commission’s earlier orders. This was because it found she took no steps to stop her father from acting as an officer/director for Global in breach of the Commission’s orders while she was the chair of the board.
Ms. Bouji continued to serve as an executive and the chair of the board after Mr. McPherson became CEO, and she oversaw a number of Global’s operational departments with responsibility for compliance with Ontario securities laws. However, within months of Mr. McPherson becoming Global’s new UDP, Global’s board decided that Ms. Bouji would no longer report to the CEO, and that she would only report to the board. Mr. McPherson was extremely concerned about this decision because: (i) he believed that Ms. Bouji might allow her father to reinsert himself into Global’s business in violation of the Commission’s orders once again; and (ii) he believed that Ms. Bouji being removed from his oversight would prevent him from discharging his duties of UDP, given that the Commission had previously found deficiencies in the areas of Global’s business that Ms. Bouji supervised. As a result, Mr. McPherson repeatedly requested meetings with the other two “independent” directors on the board to raise concerns regarding this. However, rather than meeting with Mr. McPherson, the board terminated his employment in February 2019.
Following Mr. McPherson’s dismissal, Mr. Bouji promptly resumed providing directions to Global’s staff in contravention of the Commission’s orders. Mr. McPherson subsequently commenced an action against Global alleging that his dismissal was a reprisal contrary to Part XXI.2 of the Act.
The Court’s Decision
Ultimately, the court found that Global breached the Act by terminating Mr. McPherson’s employment because at least part of the reason it dismissed him was that he engaged in a protected activity under the Act by raising concerns regarding what he reasonably believed to be violations of Ontario’s securities law.
In reaching this conclusion, the court interpreted the anti-reprisal provision in the Act for the first time. Section 121.5 of the Act prohibits companies from taking a reprisal against an employee because the employee engaged in one of the protected activities enumerated in the Act, including where an employee has:
“…expressed an intention to provide information, or provided information … about an act of the person or company … that has occurred, is ongoing or is about to occur… that the employee reasonably believes is contrary to Ontario securities law….”
The Act further defines reprisal as including “any measure taken against an employee that adversely affects his or her employment”, which includes terminating their employment.
Crucially, the court held that s.121.5 of the Act prohibits reprisal against an employee “if any part of the motivation for reprisal was the fact that the employee engaged in protected activity”. In other words, the protected activity does not need to be the sole or predominant reason for the adverse treatment to constitute a reprisal contrary to the Act. Moreover, the court ruled that an employee must have a subjective belief that the person or company has or is about to violate Ontario securities laws, and this belief must be objectively reasonable in light of the information available at the time.
Applying this law, the court found that Global reprised against Mr. McPherson contrary to the Act by terminating his employment because: (i) Mr. McPherson provided information or expressed an intention to provide information to the board regarding alleged violations of Ontario securities law by attempting to set up a meeting with board members to discuss his concerns; (ii) Mr. McPherson subjectively believed that the board removing Ms. Bouji from his supervision prevented him from fulfilling his UDP obligations and violated Ontario securities laws, and that belief was objectively reasonable in the circumstances; and (iii) at least part of the reason that Global dismissed Mr. McPherson was because he provided information or expressed an intention to provide information to the board regarding how this violated Ontario securities laws.
As a result, the court awarded Mr. McPherson over $5.3 million in damages pursuant to subsection 121.5(6) of the Act, which empowers courts/arbitrators to award employees two times the amount of remuneration that they would have been paid by the employer between the date of the reprisal and the date of the order. Notably, this included all forms of remuneration, including salary and “discretionary” bonuses. Further, the court ruled that this award was not subject to mitigation, meaning that Mr. McPherson was entitled to the full amount even though he obtained new employment prior to the date of the award.
The Bottom Line
In this Decision, there is a relatively low bar for establishing that an employer reprised against an employee contrary to the Act, in that the employee’s engagement in protected activities only needs to be part of the reason they were treated adversely (rather than the sole or predominant reason). That said, employers will not be liable for reprisal where an employee’s belief that Ontario securities laws will be violated is “not reasonable in the circumstances” based on the information they had at the time (i.e., without hindsight). Finally, this case demonstrates that employers can face very expensive penalties if they dismiss an employee in reprisal under the Act.
If you require assistance with navigating a termination of employment in circumstances where it might be considered a reprisal under employment standards, occupational health and safety, securities, or other legislation, please do not hesitate to contact us for expert advice and representation.
