January 23, 2024
The terms of an employment contract will not override the reasonable expectations of a substantial shareholder under the oppression remedy.
THE CASE
The Plaintiff in Pereira v. TYLT Technologies Inc. (TYLTGO) was a co-founder of the corporation’s business. Though he and his co-shareholder had agreed to sell the business and remain as employees, they retained valuable stock options in the purchaser corporation. He was terminated. His employment agreement required him to give up future share options and sell back his issued options at a nominal price.
His evidence was that he was assured at the time he signed the employment agreement that it would have no impact on his rights. Imagine his surprise upon learning that the termination required him to give up his ownership interest at a fraction of its true value.
He sued under the oppression provisions of the Canada Business Corporation Act, which resemble the Ontario provisions we more typically encounter.
The key issue was what were the Plaintiff’s reasonable expectations, as the oppression remedy protects reasonable expectations. The trial judge found that it was not reasonable for him to expect not to be terminated given the terms of the stock restriction agreement. The Court of Appeal overruled that judgment.
The appeal decision emphasizes that an oppression remedy is an equitable remedy, which means that it requires a fact-specific examination of what is fair, considering “business realities”, not “narrow legalities”. Rather than a narrow focus on the agreements, the case depended on whether the Plaintiff’s expectations were objectively reasonable. The application judge did not ask himself the correct question. As a result, he improperly focused on what was lawful, not what was fair and reasonable.
The Court of Appeal considered the size and nature of the corporation, the relationship between the parties, including the Plaintiff’s role as a founder of the company, and whether Mr. Pereira’s termination and divestment were a fair resolution of the conflict between the parties.
Because the facts were in dispute, the appeal court directed a trial in Superior Court. They pointed out that though both the Canda and Ontario statutes permit an application for an oppression remedy, if the facts cannot be determined just by reading the materials, a trial is required. The most common example is where there are credibility disputes.
TAKEAWAYS
- Oppression remedies are equitable remedies.
- Where equity and law collide, equity takes precedence.
- “equity” means “what is fair and reasonable in the specific facts of the case”.
- What is fair and reasonable depends upon the objective reasonable expectation of the Plaintiff.
WHAT WEILERS LLP CAN DO TO HELP YOU
At Weilers LLP, our litigation team understands oppression remedies, the importance of reasonable expectations, and are literally well schooled in equity (our counsel, Brian Babcock has taught equity-based courses at the Bora Laskin Faculty of Law). We work closely with our experienced corporate lawyers to sort out the issues as early as possible, to save time and expense, and increase opportunities for recovery. If you find yourself on either end of a corporate dispute, we would be happy to discuss whether we are the right lawyers for you.