Brackstone v. The Queen, 80 DTC 6060, [1980] CTC 89 (FCTD)

Mahoney, J:—The only issue is whether an amount received by the plaintiff in connection with the termination of his employment was income from an office or employment as determined by the Minister of National Revenue. If so, it was properly included in his taxable income for 1976; if not, the appeal against the reassessment must succeed.

The plaintiff was employed, under a written contract, as vice president of marketing and trust services of United Trusts. The employment, for an indefinite period, commenced June 1, 1976. The agreement stipulated a $35,000 annual salary and provided for the use of a company car and, while employed, a first mortgage on his residence on very favourable terms.

Soon after June 1, 1976, The Royal Trust Company, hereafter “Royal Trust”, acquired control of United Trust with the intention of obtaining 100% ownership. Early in the summer, while minority shareholders were dealt with and necessary regulatory approvals were obtained, officials of Royal Trust moved in to observe and monitor operations. As the summer progressed, the intergration of the companies began. The object was a complete absorption of United Trust into Royal Trust. Several senior employees of United Trust became redundant and left or were fired.

A senior vice president of Royal Trust, Keith Pilley was designated the executive head of United Trust during the transition. All officers of United Trust reported to him. At the same time, the plaintiff, in respect of his particular functions, reported to his counterpart with Royal Trust, Claude Root.

Acting on Root’s orders, the plaintiff assumed responsibility for the actual merger of United Trust’s marketing department into Royal Trust’s and for the overt steps necessary to give public effect to the transaction, eg, notification of United Trust’s customers, replacement of signs on branch offices and an advertising campaign. To that end, he met Root and a representative of the advertising agency in Montreal. When he returned a few days later to review what the agency proposed, Root told the plaintiff that he was not to pursue the previous assignments, that there was no place for him in the ongoing marketing department and that he should see Pilley in Toronto about other employment with Royal Trust.

He met Pilley on the morning of September 7.

Q. So you went to see Mr Pilley?

A. I met with Pilley and that was the time that I was fired.

Q. In the sense that there was nothing for you in the company at all?

A. In the absolute sense that there was no position for me at the Royal Trust Company and that as a young man, while it might be a blow now, followed by a conciliatory conversation and very paternal conversation wherein he commented on the rapid rise of my career to date and how further continuance at Royal Trust would only grind my career to a halt and then in the long run, “It’s going to be to your advantage and don’t feel so badly about it right now.”

Q. Did Mr Pilley discuss with you the actual terms that you would be leaving under?

A. No, he did not. He went on to say, “As far as the actual terms of your departure, I would like to leave that to our vice-president of personnel who is waiting for you in the next office. Would you please go into the next office and meet with him?”, which I did and he certainly was waiting for me.

Q. Did he make an offer to you at that time?

A. Yes, he did, He offered, to which I did not comment—to which I made no comment whatsoever—he offered me a salary of three months definite. In the event I had not found suitable employment at an equivalent within that period, they would pay me for an additional—up to an additional three months, that they would absorb the cost of a de-hiring consultant. I don’t think that’s the exact way that these people are described, but for lack of a better term, that’s how they colloquially—

Q. People that find other people jobs?

A. That’s right.

Q. Yes.

A. During my job search, I would have access to an office and a company telephone, if I wished it.

Q. Did you accept the offer?

A. No, I didn’t. I didn’t reject it, either. I told Mr Milligan I was neither going to accept nor reject it but I intended to review his comments with a lawyer and that I planned to retain a lawyer to advise me on this matter to which he countered—he said, “Well, you do whatever you feel is best and we shall meet again.” . . .

It was left that the plaintiff and Milligan would meet again September 15, when Milligan would next be in Toronto.

They met as planned and the plaintiff communicated to Milligan the gist of his lawyer’s advice which was rejected as absurd. The meeting became acrimonious and the plaintiff became very upset. He left and went to the office of Ed Doughney, president of United Trust, who had personally hired him. Doughney intervened and it was arranged for the plaintiff to meet Pilley in Montreal. At an hour and a half meeting the following Monday, which must have been September 20, a settlement was reached. It is reflected in a written agreement dated September 28.

The agreement recites that the plaintiff’s employment with United Trust “was terminated on September 16, 1976”. It made provision for the mortgage and the car, the value of which were not taken into account by the Minister in his reassessment. It provided for his salary to continue to September 30, that to include any vacation entitlement, and for a lump sum payment of $17,500, the equivalent of six month’s salary, “in recognition of Brackstone’s loss of office and termination of employment”.

It is trite law that every contract of employment that does not contain an express provision for its termination is subject of an implied condition that it may be terminated on reasonable notice. The plaintiff relies on The Queen v R B Atkins, [1975] CTC 377; [1976] CTC 497; 75 DTC 5263; 76 DTC 6258.

In that case, Atkins was called into his superior’s office a few days before October 13,1970, and handed a letter terminating his employment effective that date. The letter stipulated that his automobile allowance and group insurance would continue to November 30 but that his salary would terminate with his employment and that a “severance allowance of $18,000” would be paid him. The letter further stipulated that if he did not agree to its terms, his employment was, nevertheless, terminated October 13. Atkin’s was flabbergasted, which the plaintiff does not, and cannot, claim to have been. In this case, the plaintiff must have been aware, by September 7, that his continued employment was by no means certain.

The defendant distinguishes this case from The Queen v Atkins on the basis that there, counsel says, Her Majesty admitted that the dismissal had been wrongful. That would appear to be an inference drawn from the opening words of the following passage in the Court of Appeal judgment:

Once it is conceded, as the appellant does, that the respondent was dismissed “without notice”, monies paid to him (pursuant to a subsequent agreement) “in lieu of notice of dismissal” cannot be regarded as “salary”, “wages” or “remuneration” or as a benefit “received or enjoyed by him . . . in respect of, in the course of, or by virtue of the office or employment”.* Monies so paid (ie, “in lieu of notice of dismissal’’) are paid in respect of the “breach” of the contract of employment and are not paid as a benefit under the contract or in respect of the relationship that existed under the contract before that relationship was wrongfully terminated. The situation is not altered by the fact that such a payment is frequently referred to as so many months’ “salary” in lieu of notice. Damages for breach of contract do not become “salary” because they are measured by reference to the salary that would have been payable if the relationship had not been terminated or because they are colloquially called “salary”. The situation might well be different if an employee was dismissed by a proper notice and paid “salary” for the period of the notice even if the dismissed employee was not required to perform the normal duties of his position during that period. Having regard to what I have said, it is clear, in my view, that the learned Trial Judge was correct in holding that the payment in question did not fall within section 5 of the Income Tax Act as applicable to the taxation year in question.

I have no way of knowing what was “conceded” by counsel in argument before the Court of Appeal. The reasons of the trial judge in the Atkins case do not indicate that there was any admission by Her Majesty that his dismissal was wrongful. Rather it would appear, from those reasons, to have been a finding of fact, established by the evidence, which Her Majesty did not dispute.

The defendant’s position is that the company, on October 13, 1970, was in breach of the contract of employment. It had purported to dismiss him without giving reasonable notice. I agree with that contention. Counsel for the plaintiff did not disagree.

The only significant distinguishing fact appears to me to be that while Atkin’s dismissal was a complete surprise to him, the plaintiff’s was not. An apprehension that one may be dismissed, however well founded, is not to be equated with notice of termination of the employment contract.

The plaintiff’s employment was terminated by Pilley on Setember 7. It was terminated without notice. What ensued was negotiation of the settlement to be made because no notice had been given. I see no material fact to distinguish this case from The Queen v Atkins. It follows that the plaintiff’s action succeeds. He is entitled to costs.