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Domestic Contracts:  Pre-nuptial, Cohabitation, Marriage and Separation Agreements – the Necessity of Full Disclosure:

A domestic contract may be defined as either a pre-nuptial, cohabitation, marriage and/or separation agreement drafted pursuant to the Family Law Act.  Parties generally enter into these agreements to limit, or opt out of, rights and entitlements under the statutory scheme with respect to property and/or support provisions.  In order to determine whether to opt out of the Family Law Act, an individual needs to understand what his or her entitlements and obligations are thereunder; once an individual understands his or her entitlements and obligations under the Family Law Act then a decision can be made about whether to enter into a domestic contract.

The Ontario Court of Appeal has stated the law clearly in the decision of LeVan v. Levan 2008 ONCA 388 (CANLII) with respect to an individual’s obligation to provide full financial disclosure of significant assets, debts and liabilities at the time of entering into a a marriage contract under the Family Law Act and of a lawyer’s obligation to counsel their client in this regard. 
In LeVan, the Ontario Court of Appeal upheld the finding of the trial judge that the marriage contract should be set aside because of misrepresentation and insufficient financial disclosure by the husband to the wife.
The parties in LeVan lived together for one year before marrying in 1996; they separated in 2003. There were two children of the marriage who lived primarily with the wife after separation. The wife was a teacher but did not work outside home after marriage; she was the primary caregiver to the children.
The husband and his family owned the majority of the shares in a large manufacturing company. At the time of marriage the husband worked for one of the family companies and earned an annual salary of approximately $52,000. The husband also had an interest in family companies and in a family trust that were worth approximately $30 million. The husband’s family insisted that before marriage the parties should enter into a marriage contract; the marriage contract excluded the husband’s business interests and significantly limited the wife’s claim to spousal support.  The marriage contract was executed the week of the wedding.
The Court of Appeal upheld the trial judge’s finding that the husband breached his statutory obligation to provide financial disclosure to the wife.  As a result, the marriage contract was set aside and the wife was awarded an equalization payment of $5.3 million.

Lessons from LeVan:

It is imperative that a party understand the rights, entitlements and obligations that he or she is giving up at the time of entering into an agreement.  In order to appreciate this, full financial disclosure by each individual is necessary.  A lack of disclosure of a party’s significant assets, debts and liabilities is a ground upon which a marriage contract may be set aside.

Lawyers and individuals involved in drafting marriage contracts are strongly cautioned by the Ontario Court of Appeal to provide full and honest financial disclosure of debts, assets and liabilities at the time of entering the marriage contract and to provide values thereof, where appropriate. 

While LeVan deals with marriage contracts, specifically, the same rationale may be applied to all domestic contracts, including, pre-nuptial agreements, cohabitation agreements and separation agreements.  LeVan is a caution to all involved in the drafting, negotiation and execution of an agreement to provide all information that is available otherwise the agreement may be set aside due to insufficient disclosure, in which case, entitlements under the Family Law Act will prevail. 

To read the full text of the LeVan decision please click here.

Long Term Disability & Frustration of Contract – When can an employer terminate an employee due to illness?

Frustration of contract occurs when an employee becomes ill to the point of being incapacitated and unable to return to work to perform their regular duties contemplated by the employment contract or that it would be unreasonable for the employer to wait any longer for the employee to recover and return to work. 

The employer bears the onus of proving that the employment contract has been frustrated.  If the contract is frustrated, then the employer is not liable to the employee either under statutory legislation or the common law.  If the contract is not frustrated then the employer may be liable to pay damages to the employee under the statutory regime and the common law.

It is imperative to review all of the circumstances and facts of each particular case in order to determine whether an employment contract has been frustrated due to an employee’s illness and absence from work.

Our firm acted as counsel for an employee, Dragone, in the recent Ontario case, Dragone v. Riva Plumbing Ltd. which was heard and argued on September 21, 2007.  Ms. Dragone was an office clerk who was on a medical leave of absence for approximately 14 months while undergoing treatment for metastasized breast cancer.  Riva Plumbing did not hire a replacement for Ms. Dragone during her 14 month absence.

Justice Perell held, after argument by our firm on Ms. Dragone’s behalf, that despite Ms. Dragone’s 14 month absence from work while undergoing treatment for metastasized breast cancer, this did not amount to frustration of contract because a “permanent incapacity to return to work” had not been established.  Further, the existence of long term disability benefits may postpone the time of frustration because it may be inferred that the contracting parties (the employer and employee) anticipated that the employee may require medical leave due to illness.  Justice Perell did note, however, that a temporary illness could constitute a frustrating event depending on the circumstances.

Various factors must be considered in determining whether a contract of employment has been frustrated due to an employee's illness or incapacity.  When an employer has long term disability benefits in place, the employer has anticipated the possibility that employees may take sick leave.  Therefore, these employers should be more tolerant when an employee is absent and a greater period of time should elapse before an employer takes the position that an employment contract has been frustrated.  Other important factors to consider are the seniority of the absent employee, how important that employee is to the success of the employer's business and whether a prolonged absence will be harmful to the employer; a short period of incapacity may frustrate a contract of employment if the absent employee is an executive, whereas a longer absence for an employee who does not occupy such a key role within the company may not. 

A contextual analysis must be undertaken to determine whether an ill employee’s absence from work constitutes frustration of contract.  While an employer is entitled to terminate an ill and incapacitated employee after a period of absence from work for frustration of contract, employers should carefully consider the above factors before taking action, including whether the termination violates the Human Rights Code.

Resignations by Employees

Our firm’s representation of Ms. Dragone in Dragone v. Riva Plumbing Ltd., also shed light on what “words” or “conduct” by an employee would amount to a resignation from employment.

In Dragone, we argued that for a resignation to be enforceable by an employer against an employee it must be “clear and unequivocal”.  We strongly argued before the Court that words said or acts of resignation while an employee is under emotional trauma – words said in anger or desperation – can be recanted when emotions have settled, unless an employer acted to its detriment.

The Court agreed with our submissions on behalf of our ill client and held that Ms. Dragone made statements while under emotional trauma due to her cancer and later recanted them.  On this basis, the Court ruled that Ms. Dragone did not resign from her employment – the resignation was not clear or unequivocal.

If you would like to read the case, in full text, please click on the link to Dragone v. Riva Plumbing Ltd..

Employer Injunctions against Employees:

With innovation, invention, competition and the need to be on the cutting edge of technology, it is necessary for employees in key positions (sometimes referred to as fiduciary employees) to safeguard company secrets and confidential information, and, to avoid misappropriating corporate opportunities for personal gain.  If and when this arises, employers are wise to retain able employment law counsel to obtain the necessary remedies to protect the employer’s legitimate business interests.

In Courier Complete v. Fraidakis (2005) O.J. No. 1106 (Ont. S.C.J.) a dispute arose between the employer, Courier Complete and, its employee, Fraidakis, a programmer, with respect to who owned software.  The employee developed the software using confidential company information and codes that otherwise would not have been available to him but for his employment.  The employee retained the only copy of the software on his home computer, refused to provide it to the employer and was terminated when he refused to hand it over.

Our firm acted for the employer and promptly brought an Application to Court to obtain an Order prohibiting the employee from copying, selling or distributing the software due to the irreparable harm that the employer would suffer if the software was disclosed, copied, sold or distributed (known as an injunction).  The motion for the injunction on behalf of the employer against the employee was successful and the employer’s business interests were protected in a quick, time and cost-effective manner.  To read the full text of the case, please click here.