Stolte v. R., [1996] 2 CTC 2421 (Informal Procedure)

Bowman J.T.C.C.: — The issue in this appeal, from the appellant’s 1993 taxation year, is whether the sum of $5,941 is income of the appellant as a retiring allowance as defined in section 248 of the Income Tax Act. Originally the appellant took the position that the entire $9,368.50 received by her from her former employer, Dominion Directory Company (“DDC”) was not a retiring allowance and therefore not taxable under subparagraph 56( 1 )(a)(ii). At trial however her counsel conceded that of that amount $3,427.50 was a retiring allowance.

Mrs. Stolte’s position is that the balance of $5,941 was not received “lin respect of a loss of an office or employment...” but was paid and received to compensate her for the physical and mental damages which she suffered from the ill-treatment to which she was subjected at the hands of managers and supervisors of DDC during approximately one and one-half years prior to her ceasing to be employed by that company.

The appellant began to work for DDC in 1987 under a written contract of employment. Clause 17 of the agreement read:

17. TERMINATION: This employment contract may be terminated at any time without cause by either party. In the event of termination by Dominion Directory without cause, you will be entitled to reasonable notice, or salary in lieu of reasonable notice, at the option of Dominion Directory, as set out below.

Up to three months’ service with Dominion Directory:

This length of service is a probationary period and the employee is not entitled to any notice or salary in lieu of notice, if Dominion Directory decides, in its own discretion, that your performance and suitability are unsatisfactory to it or that you are unwilling or unable to properly carry out any of your duties. Dominion Directory may extend your probationary period an additional three months, in its own discretion, and if it does so and you are terminated during the extension of your probationary period, you will not be entitled to any notice, or salary in lieu of notice.

Between three months’ (or six months’ if the probationary period is extended) and two years’ service with Dominion Directory:

Two weeks’ notice.

Three years’ service or more:

One week’s notice for each year of employment to a maximum of 8 weeks’ notice.

You shall give Dominion Directory a minimum of 14 days’ notice if you terminate this employment contract without cause.

Initially she worked as a sales representative, selling notices and advertising in the yellow pages of the telephone book. In April 1990 she was transferred to the customer service department where she worked with four other customer service employees under a manager and a supervisor. Her supervisor was one Gale Embleton. Her relations with Gale Embleton at that time were good and her annual appraisals indicated that her work was fully satisfactory. In a conversation with Ms. Embleton, on the occasion of the resignation of another employee, Ms. Embleton stated to the appellant, “If I want to get rid of someone I make it so unbearable that they want to resign.” This statement of Ms. Embleton’s management philosophy proved to be prophetic.

In 1991 the manager, Ms. Sheila Watrick, moved on to another position and Ms. Embleton was made manager. She brought in one Ms. Maureen Evans as supervisor, although, at least in the appellant’s opinion, Ms. Evans was incompetent, unqualified and inexperienced.

From that point on matters deteriorated. The appellant received no help from either Ms. Embleton or Ms. Evans and did the work of at least three other employees. Her work increased significantly and she was overburdened. Her complaints to Ms. Evans were brushed aside and treated with disdain. This affected her health and she suffered from stress and insomnia. She was obliged to take a month off because of the stress.

On April 16, 1992 she was involved in an automobile accident and was away from work for three months. She went back to work in August 1992 although she was in extreme pain. Notwithstanding the pain she was suffering she was assigned clerical work doing data entry on computers, moving boxes and filing. Ms. Embleton refused to pay attention to her complaints. The appellant described Ms. Embleton’s attitude as cruel and vindictive. Based on the appellant’s uncontradicted evidence alone — Ms. Embleton did not testify — I accept this as a fair description.

In 1992 she was recommended by her fellow employees for a quality award. Ms. Embleton when presented with the recommendation refused to accept it or to pass it on to the quality committee. Her complaints about her treatment to Ms. Embleton’s superior, Mr. Doug Gavin, were treated with indifference and contempt.

Her annual rating, which in prior years had been favourable, was highly critical of her in many respects. Her attempts to obtain any explanation of this change were completely unsuccessful and she received no support from Mr. Gavin. She developed a duodenal ulcer and required medical and psychiatric treatment.

She wrote a long letter to Mr. Gavin on March 31, 1993 asking for specific information about the highly unfavourable comments about her in her appraisal report but he refused to answer her. The unfavourable report given to her without warning or prior consultation was contrary to DDC’s own management guidelines and contrary to the most fundamental precepts of effective and fair management. Mr. John Allen Jones, the Human Resources Manager of DDC, testified but he was unable to offer any reason for Mr. Gavin’s failure to respond to the appellant’s letter.

The appellant’s husband, Mr. Cory Stolte, wrote to Mr. Gavin on April 8, 1993 requesting a response to his wife’s letter and was told that DDC had no intention of providing any of the information requested.

The appellant consulted with senior counsel, Mr. S.R. Chamberlain, Q.C., who wrote to DDC on April 22, 1993 and stated:

We write to advise that we have been retained as solicitors to act on behalf of Alexandra Stolte who has been, as you are aware, away from her employment due to illness that have been caused by high handed conduct on your part and on the part of a supervisor by the name of Maureen Evans.

Mr. Gavin’s letter to the appellant of April 29, 1993 indicated that she was still employed by the company. Further negotiations ensued between Mr. Chamberlain and Mr. Tim Charron of Clark, Wilson, who represented DDC. Medical reports were provided. On June 4, 1993, Mr. Charron wrote to Mr. Chamberlain and stated:

I am writing further to our discussions as to a potential resolution of Ms. Stolte’s claims against Dominion. In return for her resignation from employment and a release of all claims against Dominion, our client is prepared to pay to Ms. Stolte two months’ salary in addition to the five weeks’ severance pay to which she is entitled pursuant to the provisions of her employment agreement.

Prior to that DDC had been adamant that it was prepared to pay only the five weeks severance pay provided for in the contract of employment, based upon an unreported decision of the British Columbia Supreme Court, Knox v. Dominion Directory Co., dated November 14, 1986, Vancouver Registry, No. C852049.

On June 14, 1993 Mr. Chamberlain wrote to Mr. Charron of Clark, Wilson and stated:

Further to your letter of June 4, 1993, our client is prepared to accept the five weeks’ severance pay which she is entitled to pursuant to the provisions of her employment agreement plus two months’ salary which is $2,970.50 per month x 2 which equals $5,941 as compensation for pain, suffering and stress sustained as a consequence of the loss of Mrs. Stolte’s employment.

Mrs. Stolte testified, and I accept her testimony, that the final words in that paragraph “sustained as a consequence of the loss of Mrs. Stolte’s employment” were not in accordance with her instructions.

Mr. Charron replied on June 16, 1993 and stated in part:

I can advise you now that Dominion will not be party to a document confirming that she has received compensation for “stress for the termination of her employment’’.

On July 14, 1993 Mr. Chamberlain wrote to Mr. Charron and stated:

Further to our letter of July 9, 1993, apparently our client wishes to have paragraph D to read as follows:

(d) any pain, suffering, and stress sustained as a consequence of any

conduct on the part of the Release during the term of her employment.

The release was signed incorporating the amended clause (d) and Mrs. Stolte was paid $9,368.50. This amount comprised two amounts, $3,427.50, being the five weeks salary as severance pay under clause 17 of the employment contract, and the balance equal to two months salary for the other items.

What was the $5,941 for? It was based on two months salary, but I do not regard the yardstick used as evidence of the nature of the payment. On the evidence I find as a fact that this amount was for damages, not for the loss of Mrs. Stolte’s employment, but as damages for the mental and physical injuries she sustained by reason of the insensitive, arrogant and wholly unacceptable treatment that she suffered at the hands of her employer prior to the termination of her employment. No other conclusion is consistent with the evidence. It cannot reasonably be regarded as representing damages or compensation for the loss of her employment, or as damages for the stress, medical or psychological injuries she sustained as the result of the termination of her employment. Not all amounts received on the termination of employment are retiring allowances [1] , and, notwithstanding Ms. Ball’s able presentation of the Crown’s case, I am satisfied that the sum of $5,941 represented damages for the injuries the appellant sustained by reason of the conduct of DDC’s employees while she was an employee.

The appeal is allowed with costs and the assessment for 1993 is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the sum of $5,941 received by the appellant is not income within the meaning of the Income Tax Act.

Appeal allowed.