Can independent contractors claim damages for constructive dismissal? In a decision released March 7, 2018 by the Ontario Superior Court of Justice, Barresi v Jones Lang LaSalle Real Estate Services, Inc., 2018 ONSC 837, the answer to that question was essentially yes.
Facts
The case concerned a commercial real estate broker, Barresi, who was retained as an independent contractor by the defendant Jones Lang LaSalle Real Estate Services, Inc. (“JLL”). There was no debate as between the parties that Barresi was to be an independent contractor to JLL, notwithstanding the facts that Barresi was expressly authorized to hold himself out as a Vice President of JLL and the Local Practice Lead in the Ottawa area.
Barresi was an experienced and accomplished real estate broker, having practised for over 25 years in the area of commercial and residential real estate. For most of his career, Barresi has been associated with the commercial real estate brokerage firm Cushman & Wakefield, a competitor of JLL.
In approximately 2011, JLL had approached a colleague of Barresi, DrCar, who was responsible for commercial leasing at Cushman & Wakefield. DrCar brought Barresi into the discussions. Neither man was impressed with what ILL was offering at the time. Both decided to remain with Cushman & Wakefield. In 2013, ILL initiated further overtures to both DrCar and Barresi. Both decided to take the leap from Cushman & Wakefield to ILL after both were told they could be the Ottawa Practice Lead in their respective domains. Barresi and DrCar had two meetings with Miller before signing their respective independent contractor agreements in March 2013.
Terms of the Agreement
In March 2013, Barresi was being retained by JLL to provide real estate and related advisory services to JLL including, but not limited to providing leadership of the Ottawa investment team including team management, recruiting, expense control and revenue generation such subject to meeting all the criteria to be a Practice Lead as per the Company's Practice Lead Compensation Plan.
Of critical importance to the case was section E of the agreement, which provided as follows:
1. The Contractor acknowledges the importance of the Company referral system and will make best commercial efforts to refer each request for real estate services in another city to a Jones Lang LaSalle broker or agent. Such referral is to be in writing and processed through the Managing Broker of each applicable Jones Lang LaSalle office.
2. The Company will promote the services of the Contractor throughout the Jones Lang LaSalle network and do whatever is reasonably necessary to assist the Contractor to develop business opportunities.
In consideration of his execution of the agreement, Barresi received a forgivable loan from JLL in the amount of $225,000 pursuant to the terms of a promissory note.
The terms of the agreement and the promissory note provided, in essence, that if JLL terminated the contract without cause, then Barresi would be entitled to retain the $225,000; if Barresi terminated the agreement, then he had to repay the $225,000, less any amount earned by him while at JLL, thereby reducing the obligation.
In May 2013, the parties signed a further agreement, further entrenching Barresi’s position as local practice lead.
Material Change in Terms
Barresi did not provide services to JLL until August 2013.
At a new employee orientation meeting in Toronto on October 1, 2013, Barresi learned in greater detail about the existence of the National Retail Investment Group (''NRIG") of JLL. The NRIG consisted primarily of two very experienced and successful commercial real estate brokers, Matthew Smith and Hugh O'Connell ("O'Connell"), who, since 2002, had specialized in the sale of major commercial real estate properties across Ontario and, in more recent years, throughout Canada. Matthew Smith and O'Connell joined JLL in January 2013 with a view to expanding their national practice, though their arrival at JLL was not officially announced until later in the year.
In late 2013, during a monthly update call with the Ottawa office, the president of JLL, Brett Miller learned from Barresi that Barresi would be submitting an offer to a significant real estate investor in the Ottawa area, (“Toth”) in regard to one of their Ottawa shopping plazas, the Towne and Country Village. The offer was from an out-of-country client of Barresi and, according to Barresi, he was authorized to submit the offer in the name of Barresi’s company because the client was unavailable to sign any paperwork. The offer was for $13,175,000. Miller told Barresi that he should contact NRIG to get their help on the file. Barresi was non-committal in this regard. Miller also advised Barresi that he was not in favour of Barresi engaging in off-market sales, where he took an offer to the vendor without first getting a listing agreement with the vendor. Barresi had operated on this basis many times in the past and wanted to continue doing so.
At some later date, Miller learned from NRIG that they would be listing two Toth shopping plazas in Ottawa - the Towne and Country Village (for $16 million) and the Towngate Shopping Centre (for $35 million). At that point, Barresi had not contacted NRIG in regard to the Toth properties, and neither Matthew Smith nor O'Connell had contacted Barresi to advise him of their activities in Ottawa.
In early April 2014, NRIG prepared postcard advertisements for the two Toth properties. Neither Barresi's name nor his contact information was provided on those postcard advertisements. Neither NRIG nor Miller advised Barresi that JLL (through NRIG) was marketing these two properties. Barresi found out about the listings when his clients called to inquire why his name did not appear on the advertisements.
On April 9, 2014, Barresi emailed Miller to raise his concerns about NRIG's move into the Ottawa market. When he did not hear from Miller, he sent him a follow-up email on April 23, 2014. In that email, he stated that he had been hired to lead the investment practice in Ottawa and to participate in all investment transactions in the Ottawa market. He bemoaned the fact that his brand and JLL's brand in the Ottawa market had been diluted by his not being included in the listing. He also stated that the NRIG platform did not comply with JLL's cross-selling guidelines and he expected to receive 60% of any fees generated from the NRIG sale of the properties in question.
On April 24, 2014, Miller responded via email with an apology. Miller further suggested that the two men have a conference call to discuss how they would move forward.
When Barresi responded that he did not want to have a conference call until Miller responded in writing to the concerns Barresi had raised about NRIG, Miller offered to come to Ottawa early the following week for a face-to-face meeting. That meeting occurred at the airport on the morning of April 29, 2014. According to Barresi, Miller was firm that there was a $10 million cap on the value of properties he could market in Ottawa and that, if he wished to market a retail property with a higher value, he was obliged to involve NRIG. NRIG would then determine whether they would handle the transaction on their own or include Barresi on the marketing team. Miller also told Barresi that JLL was forming other national groups for industrial and multi-residential properties. Like NRIG, those groups would be free to market properties across Canada with a value in excess of $10 million without necessarily involving the local practice leads. Miller instructed Barresi to focus on transactions in the $1 to $10 million dollar range.
Justice Aitken made a finding of fact that, at the April 29, 2014 meeting, Miller made it clear to Barresi that NRIG was entitled to pursue all retail investment opportunities in Ottawa of a value in excess of $10 million with no obligation on NRIG's part to advise Barresi of their activities, to partner with Barresi, or to include him in some fashion in the project.
Justice Aitken further found that, in an effort to be conciliatory, and as a good-will gesture only, Miller offered to share with Barresi some of the company's portion of any commission earned by JLL on the Toth deals. This was a one-off offer and would not involve any reduction in the commissions earned by members of NRIG. There was no acknowledgement that Barresi was entitled to any portion of the commissions earned from the sale of the Toth properties or that he would be entitled to any such sharing in the future. According to Miller, no resolution was arrived at during the meeting, but he hoped that Barresi would consider both his offer and how Barresi could improve his performance.
Barresi Balks and Walks
Barresi's Statement of Claim in this action was issued on May 9, 2014
In that claim, Barresi and his numbered company, sought the court’s declaration that the Independent Contractor Agreement made between the parties had been terminated by JLL for a reason other than an “Event of Default” on the part of Barresi, thus rendering the debt otherwise owing by the Plaintiffs to JLL under the agreement automatically forgiven. The Plaintiffs also sought general damages for negligent misrepresentation in the amount of $500,000.
Decision
In finding that JLL had terminated the agreement by its conduct, the Honourable Justice Catherine D. Aitken issued the following reasons for her decision:
[108] Cromwell J. in Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, [2015] 1 S.C.R. 500, at paras. 144-149, again reviewed the meaning of "repudiation" in contract law. "Repudiation" refers to the conduct of a breaching party in committing a breach of contract that is sufficiently serious to give the non-breaching party the right to treat the contract as over -in other words, to accept the repudiation and consider the contract at an end. “Anticipatory breach” occurs when one patty manifests, through words or actions, an intention not to perform or not to be bound by provisions in the contract that require performance in the future.
When the anticipated future non-observance relates to important terms of the contract or shows an intention not to be bound in the future, the anticipatory breach gives rise to anticipatory repudiation. The focus in such cases is on what the party's words and/or conduct say about future performance of the contract. For example, there will be an anticipatory repudiation if the words and conduct evince an intention to breach a term of the contract which, if actually breached, would constitute repudiation of the contract.[109] I find that JLL did not repudiate the May Agreement when it let NRIG come into Ottawa and list the Toth properties, without notifying Barresi or negotiating with him to determine whether he could play a role in the listing of these properties. I find that this incident amounted to a breach of the May Agreement because two important provisions in the May Agreement were ignored. First, Barresi's role as Ottawa Practice Lead for investments was not respected. Second, JLL did not promote the services of Barresi throughout the JLL network and did not do whatever was reasonably necessary to assist Barresi to develop business opportunities (as per section E.2. of the May Agreement).
[110] The evidence of Nathan Smith, Managing Director of the Ottawa office of Cushman and Wakefield, and Barresi left no doubt that the omission of Barresi's name on the advertisements NRIG distributed in regard to the Toth properties undermined Barresi's reputation in the property investment milieu in Ottawa and undermined his position as JLL's Ottawa Practice Lead for investments. It hurt Barresi in two ways. The omission of Barresi’s name on the listing advertisements gave the message that Barresi was not considered part of the JLL team in marketing retail plazas even though, in the past, Barresi had actively sought this business. Private investors in Ottawa, with whom Barresi had interacted in the past, might bypass him in the future when seeking an opinion from a JLL representative. As well, by undermining Barresi's status in the Ottawa prope1ty investment community, JLL was making it harder for Barresi to attract work in the mid-market range.
[111] Although the way in which JLL handled the listing of the Toth properties amounted to a breach of contract, the breach was not so fundamental as to amount to a repudiation because: (1) the breach related to the handling of only two listings from one client; (2) Miller apologized for not having spoken to Barresi in advance, and he assumed responsibility for the oversight; (3) Miller promised that that would not happen again; (4) Miller offered to meet with Barresi in an effort to come to a resolution about the breach; and (5) at the April 29, 2014 meeting, Miller offered to compensate Barresi in regard to any lost commissions from the sale of the Toth properties from the company's portion of commission.
[112] That, however, is not where the matter ended. At the April 29, 2014 meeting, Miller specifically told Barresi that there was a $10 million ceiling on properties he could market on his own, without bringing in other experts from JLL, such as NRIG. NRIG got to determine whether or not it would involve Barresi in any Ottawa retail investment transaction over $10 million which Barresi brought to NRIG's attention. As well, NRIG was entitled to come into the Ottawa market and pursue retail investment transactions of a value in excess of $10 million, without notifying Barresi in advance, without discussing with him any potential collaboration, and without sharing any earned commissions with him even if Barresi could have brought some local expertise into the equation. In essence, NRIG would be given exclusivity in the Ottawa market in regard to larger retail investment transactions. These statements on the part of Miller amounted to anticipatory breaches of the May Agreement which, considered collectively, were significant enough to be an anticipatory repudiation of the May Agreement. (See Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576, 337 O.A.C. 257, at paras. 43-46.)
[113] Miller knew perfectly well that the reason why Barresi was moving from Cushman & Wakefield to JLL was to become the "go to" person in JLL 's Ottawa office in regard to investment prope1ty transactions. Miller knew that it was of paramount importance to Barresi that JLL give him the title of Ottawa Practice Lead for investments and that he be able to promote himself in this fashion in Ottawa. Miller knew that Barresi would not have left Cushman & Wakefield for JLL if he was not given this title and position. The importance of this position to Barresi was brought home further to Miller when Barresi sought amendments to the March Agreement to add provisions relating to his status as Ottawa Practice Lead for investments. This was the main reason why the March Agreement was replaced with the May Agreement.
[114] Miller also knew that Barresi was seeking increased scope at JLL from what he had at Cushman & Wakefield, not only in terms of increased autonomy in regard to the mid-range transactions, but also in terms of the nature and size of real estate transactions that he would handle. Miller wooed Barresi to come to JLL with a commitment that JLL would assist Barresi in this regard. This commitment was reduced into writing in section E.2. of the May Agreement to the effect that: “The Company will promote the services of the Contractor throughout the Jones Lang LaSalle network and do whatever is reasonably necessary to assist the Contractor to develop business opportunities”. This is one of the few clauses in the May Agreement which places a positive onus on JLL to provide something of value to Barresi.
[115] Nathan Smith was clear that it would have been untenable for Barresi to stay at JLL, as the supposed Ottawa Practice Lead for investments, when JLL allowed brokers from outside Ottawa to list Ottawa retail properties, such as the two Toth properties, without any reference to Barresi in the advertisements. This policy was very damaging to Barresi's career.
[116] Although the evidence was that only 4% of Ottawa investment property transactions were of a value in excess of $10 million, the commissions that could be earned from such transactions over time were significant. These transactions comprised a significant business opportunity for Barresi if he had the support from JLL that he reasonably counted on having.
[117] The anticipatory repudiation of the May Agreement by JLL was accepted by Barresi. He considered the May Agreement at an end. He was free to leave JLL and return to Cushman & Wakefield. The anticipatory repudiation of the May Agreement by JLL amounted to an "Event of Default" on the part of JLL under paragraph l(c) of the Promissory Note attached to the May Agreement. The situation is also covered by paragraph l(d) of the Promissory Note to the effect that "the balance of the Debt shall be forgiven immediately in the event that the Agreement is terminated by [JLL] for any reason other than the occurrence of an Event of Default on the part of [Barresi]."
[118] Although Miller may not have been happy with Barresi's performance at JLL, at no time up until Barresi's departure and return to Cushman & Wakefield did Miller ever claim that Barresi was in default under the May Agreement. As well, despite JLL placing reliance on its ability, at any time, to remove Barresi as the Ottawa Practice Lead for investments, at no time prior to Barresi's return to Cushman & Wakefield had Miller ever removed Barresi from this position. In fact, at the end of the April 29, 2014 meeting, Miller hoped that Barresi would be satisfied with the compensation arrangement he was proposing regarding the Toth transactions, and that life would canyon with no interruption in Barresi' s activities as Ottawa Practice Lead for investments, albeit a more strictly defined role than had previously been jointly understood by the parties.
The result was that Justice Aitken found that the balance owing on the promissory note in the original amount of $225,000 from Barresi to JLL was forgiven.
For reasons not material to this post, Justice Aitken found that Barresi’s claim of negligent misrepresentation failed. In short, Her Honour found that Miller had not misrepresented the nature of the position at the time of contract formation; he materially changed it in April 2014.
Commentary
This case involves two complex legal theories: independent contractors versus employees, and constructive dismissal. Fortunately, the parties to this case were agreed that Barresi was an independent contractor. No legal analysis was undertaken to confirm whether that characterization was appropriate.
As to the issue of “constructive dismissal”, it is important to note that Justice Aitken did not find that Barresi had been “constructively dismissed”, rather she found that there had been an “anticipatory repudiation” of the May Agreement. The authority relied upon by Justice Aitken for such finding was that of Potter, about which I blogged in the post Supreme Court of Canada Confirms that There are Two Paths to Constructive Dismissal.
What the Barresi case demonstrates is that, like others that have somewhat blurred the lines between employees and truly independent contractors, see e.g. my post The Not-So-Independent Contractor, the “bright line” between the categories of employees and independent contractors is getting considerably more dim. More to the point, what the case shows is that the court will be prepared to afford meaningful remedies to people, regardless of how they are categorized or what they are called.
--As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
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