CITATION: Celestini v. Shoplogix Inc., 2021 ONSC 3539
COURT FILE NO.: CV-17-2452-00
DATE: 2021 05 31
RE:
Stefano Celestini, Plaintiff
AND:
Shoplogix Inc., Friedman Canada Inc. and Vela Software International Inc.,
Defendants
BEFORE:
Doi J.
COUNSEL: Christopher A. Sinal, for the moving Defendants
David Conn, for the responding Plaintiff
HEARD:
September 28, 2020 and January 28, 2021, additional written submissions
delivered on February 12, 2021
REASONS FOR DECISION
Overview
[1]
The Plaintiff, Stefano Celestini, was terminated without cause from his employment with
the Defendant Shoplogix Inc. (“Shoplogix”) after the company was acquired. The central issue in
dispute is whether the notice period in his employment contract should be upheld, or whether the
substratum of his contract disappeared or sufficiently eroded to render the contractual notice period
unenforceable.
[2]
The Defendants submit that Mr. Celestini is bound by the 12 month notice period in his
employment contract as his role at Shoplogix did not significantly change during his employment.
In contrast, Mr. Celestini claims that fundamental changes to his duties caused the substratum of
his employment to disappear which nullified the contractual notice period and entitled him to
reasonable notice at common law. Both sides seek summary judgment on this motion.
[3]
The parties agree that summary judgment under Rule 20.04(2)(b) would be an appropriate
process for determining this matter. After considering their initial materials and oral submissions,
I found a genuine issue requiring a trial in respect of whether Mr. Celestini’s employment changed
2021 ONSC 3539 (CanLII)
SUPERIOR COURT OF JUSTICE - ONTARIO
-2in a way that implicated the changed substratum doctrine. To address this issue, I conducted a
mini-trial and received further written submissions from the parties.
For the reasons that follow, I find that this is an appropriate case for granting summary
judgment to Mr. Celestini. From the evidence, I am satisfied that he was assigned significant
additional responsibilities that led the substratum of his written employment contract to disappear.
Accordingly, I find that the contractual notice period for the termination of his employment should
no longer be enforced. In my view, Mr. Celestini should have damages representing 18 months of
compensation in lieu of notice that incorporates his base salary, incentive bonus compensation and
other benefits over this period. I do not find that he failed to mitigate his damages, and accept that
Shoplogix paid his retention bonus less a required holdback for expenses awaiting determination.
The Parties
[5]
The Plaintiff, Mr. Celestini, co-founded Shoplogix in 2002 and served as the company’s
inaugural chief executive officer (“CEO”). On May 17, 2005, he stepped down as CEO to become
its chief technology officer (“CTO”). He continued as CTO until March 2, 2017 when Shoplogix
terminated his employment without cause after the company was acquired.
[6]
The Defendant employer, Shoplogix, is a technology company that markets production
management services to manufacturing clients around the world. The Defendant Friedman Canada
Inc. (“Friedman”) acquired a majority of Shoplogix’s shares in 2017. Thereafter, the Defendant
Vela Software International Inc. (“Vela”) amalgamated with Shoplogix in 2018.
Background
[7]
Mr. Celestini is a mechanical engineer with expertise in manufacturing automation and
production monitoring. He previously worked in the manufacturing sector and taught engineering
technology at Niagara College.
[8]
In 2002, Mr. Celestini and Randy Renwick co-founded Shoplogix as a technology start-up
company. Shoplogix’s main product was a data-collection device that gathered production output
data to help manufacturing clients, such as automakers, run production machines more efficiently.
Mr. Celestini initially conceived of the data-collection device while working with the automation
2021 ONSC 3539 (CanLII)
[4]
-3team at another technology company. When the team discontinued its operations, he obtained the
intellectual property rights for the device and co-founded Shoplogix to market the product.
After launching Shoplogix, Mr. Celestini focused primarily on building the company’s
sales while Mr. Renwick largely handled product development, technology and software matters.
Their financial partner, David Kiessling, handled the company’s finances. Lisa Brown joined
Shoplogix to help with sales before taking an ownership interest in the company. During this startup period, Mr. Celestini received a $75,000.00 annual salary.
[10]
In 2004, Mr. Celestini and his colleagues entered into funding discussions with Edgestone
Capital Venture Fund II GP, Inc. (“Edgestone”), a venture capital firm. After lengthy negotiations,
Edgestone agreed to finance Shoplogix by acquiring shares in the company from Mr. Celestini,
Mr. Renwick, Mr. Kiessling and Ms. Brown. The deal closed on May 17, 2005.
[11]
As part of the Edgestone deal, Mr. Celestini sold some of his Shoplogix shares to Edgestone
for $500,000.00. He also agreed to step down as Shoplogix’s CEO and serve as its CTO under an
employment agreement dated May 17, 2005 (the “Employment Agreement”). This arrangement
allowed Shoplogix to hire an experienced CEO, Kevin Dwyer, who promptly started working with
the company. As CTO, Mr. Celestini served as a member of Shoplogix’s senior management team.
Mr. Celestini and Mr. Kiessling also served on the board of directors for the company.
[12]
Under the Employment Agreement, Mr. Celestini had a $175,000.00 annual base salary
and a target bonus of up to $125,000.00 per year based on revenue and cash balance criteria set by
the board of directors. He was eligible for a higher bonus if targets were exceeded.
[13]
In the event that Shoplogix terminated his employment without cause, Mr. Celestine was
entitled under para 3.1 of the Employment Agreement to written notice and a continuance of his
base salary and benefits for 12 months from the date of termination plus his bonus from the prior
fiscal year pro-rated for the period in which he worked during the year of termination. To this end,
para 3.1 of the Employment Agreement provided as follows:
3.1 The Employer may, at any time and without Cause (as hereinafter defined)
whatsoever, terminate the employment of the Employee by giving one month’s
written notice to the Employee and by the payment to the Employee an amount
equal to the Employee’s then annual Base Salary being paid to the Employee
2021 ONSC 3539 (CanLII)
[9]
pursuant to paragraph 2.1 hereof in the employment year in which the
termination took place for a period of 12 months from the date of termination of
employment (including for greater certainty, the one month notice period) plus
an amount equal to the bonus paid to the Employee in the year immediately
preceding the date of termination, pro rated for the portion of the fiscal year in
which the termination took place from the commencement of such fiscal year to
the date of termination.1
The payment to the Employee pursuant to this Paragraph 3.1 shall be in lieu of
notice (other than the one month notice period), and such payment will be made
in equal monthly instalments commencing on the first day of the month following
the date of termination of employment. In addition, the Employer shall continue to
provide coverage for the Employee and any dependants under all Employer
group health benefit plans in which the Employee and any dependants were
entitled to participate immediately prior to the date of termination of employment
and such benefit coverage shall continue for the same period that the monthly
instalment payments are made hereunder. [Emphasis added]
[14]
Under para 3.9 of the Employment Agreement, the parties agreed that the above-mentioned
terms would fully satisfy Mr. Celestini’s claims for a termination of his employment:
3.9 The parties confirm that the provisions contained in this Article 3 are valid
and reasonable and are fair and equitable and that the parties agree that upon any
termination of the Employee’s employment by the Employer … the Employee
shall have no action, cause of action, claim or demand against the Employer …
as a consequence of such termination. The Employee further acknowledges and
agrees that the payments and/or notices required pursuant to this Article 3 shall
be in full satisfaction of all claims for termination of his employment, including
termination pay and/or severance pay pursuant to the Employment Standards Act
(Ontario) (as the same may be from time to time amended or replaced). Except
as otherwise provided in this Article 3, the Employee shall not be entitled to any
further termination payments, damages or other compensation whatsoever,
statutory or otherwise. [Emphasis added]
[15]
Just one day before the Edgestone transaction closed on May 17, 2005, Shoplogix gave
Mr. Celestini a draft of his employment agreement to review. He claims that Shoplogix gave him
late notice of its proposed terms for his employment as a pressure tactic to foreclose employment
negotiations. He states that Mr. Dwyer and an Edgestone representative, Derek Smyth, urged him
to accept the draft agreement without seeking changes to avoid collapsing the deal. Although he
now claims that he lacked sufficient time to obtain employment law advice before executing the
Employment Agreement, Mr. Celestini opted to sign it after his solicitor, Thomas Beynon Q.C.,
2021 ONSC 3539 (CanLII)
-4-
-5advised him on its terms and successfully negotiated greater termination entitlements by increasing
his base salary continuance from 6 to 12 months to match his post-employment restrictive covenant
[16]
On or about March 31, 2008, Mr. Celestini signed the Incentive Compensation Agreement
(the “ICA”). Under the ICA, Shoplogix offered him up to $175,000.00 in bonus compensation
based on business and individual performance criteria. Given its lucrative potential, Mr. Celestini
agreed to the ICA when it was introduced.
[17]
On or about February 15, 2012, Mr. Celestini became a participant under the Management
Incentive Plan (the “MIP”). The MIP offered participants a retention bonus based on shares in a
pooled fund valued at 10% of what Shoplogix or its shareholders would receive upon a triggering
“exit event,” that included a sale of all or substantially all of the company’s shares. His MIP bonus
was 33% of the fund, after applicable fees and expenses for the triggering event were deducted.
His MIP bonus matched the CEO’s bonus and surpassed the bonuses for other eligible participants. This
revealed the value and importance of his work to the company.
[18]
On March 2, 2017, Friedman acquired all of Shoplogix’s shares. The acquisition triggered
entitlements under the MIP, which is not disputed. That day, Shoplogix terminated Mr. Celestini’s
employment without cause. Consistent with the terms of para 3.1 to the Employment Agreement,
Shoplogix continued his base salary and benefits until March 2, 2018 and paid his pro-rated 2016
ICA bonus from January 1 to March 2, 2017. It also paid him $2,600.00 for his car allowances in
March and April 2017, and to date has paid him $84,387.37 towards his bonus under the MIP. He
is eligible for up to $49,500.00 in further MIP entitlements under a third holdback that is expected
to be released once deductible fees and expenses are determined. This tranche remains outstanding.
Positions of the Parties
[19]
On this motion, both sides agree that the issues in dispute may be determined by summary
judgment. The central issue is whether the substratum of Mr. Celestini’s contract of employment
with Shoplogix changed substantially after May 17, 2005 to cause the contractual notice terms in
the Employment Agreement to become unenforceable.
2021 ONSC 3539 (CanLII)
period under the agreement. He then started to work as Shoplogix’s CTO.
-6[20]
Mr. Celestini claims that his CTO role changed substantially after a new CEO tasked him
with new duties. Claiming that his new duties were significantly and fundamentally different from
the time Shoplogix terminated his employment in 2017. As such, he claims that the termination
provisions in his Employment Agreement are no longer enforceable, which leaves him entitled to
damages for reasonable notice at common law without any deductions for his alleged failure to
mitigate. He also claims that the Defendants owe him MIP bonus payments.
[21]
The Defendants submit that Mr. Celestini’s role at Shoplogix did not substantially change
over the course of his employment as his duties and compensation changed only incrementally.
They claim that these changes were not significant or fundamental, and did not alter the substratum of
his employment contract. Accordingly, they submit that he should be held to his termination
entitlements under the Employment Agreement, which have been provided, and that this action
should be dismissed. Alternatively, they submit that Mr. Celestini failed to mitigate his damages.
They disagree that his MIP entitlements have been withheld improperly.
Key Issues
[22]
The following key issues arise on this motion:
a. is this action suitable for summary judgment?
b. if so, then did the substratum of the Employment Agreement change sufficiently
to nullify its terms limiting the required notice upon termination of employment?
c. if so, then what is the period of reasonable notice and what are the appropriate
damages? and
d. did Mr. Celestini fail to mitigate his damages?
Analysis
a.
Summary Judgment
[23]
As set out below, I am satisfied that the subject claim for wrongful dismissal is well suited
for determination under the summary judgment process.
2021 ONSC 3539 (CanLII)
his duties in 2005, he claims that the substratum of his initial employment contract disappeared by
-7[24]
Pursuant to Rule 20.04(2)(b), the parties agree that this is an appropriate case for summary
judgment. Despite their agreement, however, it is incumbent on the court to determine whether it
ONCA 98 at para 26. The overarching goal is to ensure a fair decision-making process that leads
to a just adjudication of disputes.
[25]
There will be no genuine issue requiring a trial when the court is able to reach a fair and
just determination on the merits using the summary judgment process. This will be the case when
the process: (1) allows the court to make necessary findings of fact, (2) allows the court to apply
the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to
achieve a just result: Hryniak v. Mauldin, 2014 SCC 7 at para 49.
[26]
On a motion for summary judgment, the court must first decide whether there is a genuine
issue requiring a trial based only on the evidence before the court, without using its fact-finding
powers. If there seems to be a genuine issue that requires a trial, the court should then decide if the
need for a trial can be avoided by using its fact-finding powers under Rules 20.04(2.1) and (2.2):
Hryniak at para 66. The court should employ its fact-finding powers only if it would lead to a fair
and just result: Ibid; Mason v. Perras Mongenais, 2018 ONCA 978 at para 44.
[27]
The court may assume that the record on a summary judgment motion contains all of the
evidence that the parties would adduce if the matter went to trial: Sweda Farms Ltd. v. Egg
Farmers of Ontario, 2014 ONSC 1200 at paras 26-27, affirmed 2014 ONCA 878, leave to appeal
denied, [2015] SCCA No 97. It is well-established that parties to a summary judgment motion are
obliged to put their best foot forward: Mazza v. Ornge Corporate Services Inc., 2016 ONCA 753
at para 9. Pursuant to Rule 20.02(1), affidavits used on a summary judgment motion may be made
on information and belief, but the court may, if appropriate, draw an adverse inference from a
party’s failure to provide evidence of any person having personal knowledge of contested facts.
[28]
On a summary judgment motion, the court may grant judgment in favour of a responding
party even in the absence of a cross-motion for such relief: Meridian Credit Union Limited v. Baig,
2016 ONCA 150 at para 17, leave to appeal denied 2016 SCCA No 173.
[29]
After initially hearing submissions on the motion, I found a genuine issue for trial with
respect to whether any changes to Mr. Celestini’s employment implicated the changed substratum
2021 ONSC 3539 (CanLII)
is appropriate to grant summary judgment: Royal Bank of Canada v. 1643937 Ontario Inc., 2021
-8doctrine. This issue, in my view, required further evidence about his employment and any changes
to its terms over his tenure. Subsequently, I found that a trial could be avoided by conducting a
agreed to. Despite some conflicting evidence which was not material to the issues in dispute, I am
satisfied that this process allowed me to make necessary findings of fact and apply legal principles
to the facts in a proportionate, more expeditious and less costly fashion to achieve a fair result
without a trial: Hryniak at para 49; Mason at para 44. In my view, a trial would not provide any
further or better evidence on the issues in dispute. The parties agree that summary judgment is an
appropriate process. Claims for wrongful dismissal without cause, such as this one, generally are
amenable for determination by summary judgment: Arnone v. Best Theratronics Ltd., 2015 ONCA
63 at para 12. Given the amounts at stake and the moderate complexity of this matter, I am satisfied
that deciding this wrongful dismissal case by summary judgment is proportional and just: English
v. Manulife Financial Corporation, 2019 ONCA 612 at para 31. Although Mr. Celestini responded
to the Defendants’ motion for summary judgment without a cross-motion for such relief, summary
judgment may be granted in his favour: Meridian at para 17.
b.
Changed Substratum Doctrine
[30]
As set out below, I am satisfied that Mr. Celestini’s responsibilities changed substantially
over the course of his employment. After Mr. Dwyer left Shoplogix, Martin Ambrose became its
new CEO and instituted dramatic changes to revitalize the company and successfully launch a
strong turnaround. Importantly, Mr. Ambrose drastically reduced the senior management team and
restructured its remaining roles which caused Mr. Celestini’s duties as CTO to fundamentally
change. As such, the substratum of his initial contract of employment disappeared and implicated
the changed substratum doctrine which left the notice terms in his contract no longer enforceable.
[31]
Under the changed substratum doctrine, significant changes in employment may cause the
notice provisions in a contract of employment to become unenforceable at the time of termination.
Where the substratum of the employment contract at the time of hiring has disappeared or eroded
sufficiently, it may be implied under the doctrine that the contract could not have been intended to
apply to the position that the employee ultimately occupied at termination: Toronto-Dominion
Bank v. Wallace (1983), 41 OR (2d) 161 (CA) at p. 180, leave to appeal refused [1983] SCCA No
98; Sawko v. Foseco Canada Ltd., [1987] OJ No 2376 (Dist Ct) at paras 19-20; Irrcher v. MI
2021 ONSC 3539 (CanLII)
mini-trial on the substratum issue by way of affidavits and cross-examinations, which the parties
-9Developments Inc., [2002] OJ No 5960 (SCJ) at para 15, affirmed [2003] OJ No. 4087 (CA) at
para 2; Schmidt v. AMEC Earth & Environment, 2004 BCSC 1012 at para 10; McKee v. Reid’s
[32]
Justice Perell helpfully summarized the changed substratum doctrine in MacGregor v.
National Home Services, 2012 ONSC 2042 at paras 11 and 12:
The changed substratum doctrine is a part of employment law. The doctrine
provides that if an employee enters into an employment contract that specifies
the notice period for a dismissal, the contractual notice period is not enforceable
if over the course of employment, the important terms of the agreement
concerning the employee’s responsibilities and status has significantly changed.
See: Rasanen v. Lisle-Metrix Ltd. (2001), 2002 CanLII 49611 (ON SC), 17
C.C.E.L. (3d) 134 (S.C.J.), aff’d (2004), 2004 CanLII 16321 (ON CA), 33
C.C.E.L. (3d) 47; Toronto Dominion Bank v. Wallace (1983), 1998 CanLII
4150 (ON CA), 41 O.R. (3d) 161 (C.A.); Collins v. Kappele, Wright & MacLeod
Ltd. (1983) 3 C.C.E.L. 228 (Ont. Co. Ct.), aff’d (1983) 3 C.C.E.L. 240 (C.A.).
The idea behind the changed substratum doctrine is that with promotions and
greater attendant responsibilities, the substratum of the original employment
contract has changed, and the notice provisions in the original employment
contract should be nullified. In Rasanen v. Lisle-Metrix Ltd. (S.C.J.), supra, at
para. 41, Justice Dambrot approved the following description of the doctrine
from Ball, Canadian Employment Law:
Canadian jurists have recognized that contractual terms that are
fair in the early part of the employment relationship may be unfair
when the employee has developed new skills, has acquired a new
position, receives greater remuneration or has additional
responsibilities. When these circumstances exist, the Court may
hold that the "substratum" of a written contract of employment
has disappeared or eroded sufficiently so that, inter alia, terms
purporting to limit the amount of notice required for termination
of employment no longer have contractual force.
[Emphasis added]
[33]
The changed substratum doctrine applies to an employee whose responsibilities grew and
changed significantly during employment despite having maintained the same job title: Rasanen
at para 41; MacGregor at para 12; Krieser v. Active Chemicals Ltd., 2005 BCSC 130 at para 56.
2021 ONSC 3539 (CanLII)
Heritage Homes Ltd., [2008] OJ No 5877 (SCJ) at paras 76-80, affirmed 2009 ONCA 916.
- 10 [34]
Recently, Justice Elson of the Court of Queen’s Bench for Saskatchewan provided a helpful
review of jurisprudence for the changed substratum doctrine in McKercher v. Stantec Architecture
[35]
On May 17, 2005, Mr. Celestini started as Shoplogix’s CTO. As discussed below, the role
was created for him to focus on transferring product and corporate knowledge within Shoplogix
to best position the company to expand its business. For reasons that are unclear, Shoplogix did
not prepare a written job description for the CTO role.2 In addition, the Defendants did not call
any witnesses with first-hand knowledge of Mr. Celestini’s role when he started as CTO in 2005.3
Consequently, details of the CTO’s initial duties mainly came from Mr. Celestini who gave largely
uncontradicted evidence about his role based on the instructions that he received from Mr. Dwyer,
the Shoplogix CEO who initially created the CTO position and its responsibilities.
[36]
In negotiations leading to the Edgestone deal in 2005, Mr. Celestini agreed to sell a portion
of his Shoplogix shares for $500,000.00 and committed to serve as its CTO for two or three years
while the company built its business and positioned itself to be acquired. To grow the company,
he understood that Edgestone would support Mr. Dwyer’s plan to pursue a new and aggressive
sales-focussed approach. As such, when he began as CTO, he expected that his tenure would end
within three years. He did not expect his employment to continue for almost twelve years.
[37]
Although the CTO was part of the senior management team, the role was designed to be a
stand-alone consultative position that was independent from the management team that Mr. Dwyer
was hiring. Mr. Dwyer directed Mr. Celestini to focus on transferring knowledge internally within
Shoplogix to help managers and staff understand how to effectively market its key data-collection
product to clients. Mr. Celestini was tasked with explaining why and how Shoplogix’s patented
product was technically better than its competition and how its overall equipment effectiveness
(i.e., a manufacturing standard for measuring productivity) would enable the company to market
the product’s functional benefits to clients. Mr. Dwyer effectively structured the CTO role around
sharing knowledge within Shoplogix to address product areas and markets that should be pursued
for further development. Mr. Celestini performed this role by creating and implementing an
internal knowledge transfer program, as he was instructed. At the request of the company’s board
of directors, Mr. Celestini prepared a project roadmap for this knowledge transfer program which
2021 ONSC 3539 (CanLII)
Ltd., 2019 SKQB 100 at paras 33-49.
- 11 he launched and solely-managed before the new VP Research and Development, Karen McKibbin,
joined the company and became involved.
When the CTO position was being created, Edgestone had raised a concern that Shoplogix
was heavily if not totally reliant on Mr. Celestini and Mr. Renwick for their technical expertise
and corporate knowledge. To build Shoplogix’s value, Edgestone wanted the company’s new team
to become well-informed, knowledgeable and able to function independently without relyingon its
co-founders for knowledge or guidance. Edgestone’s concern informed Mr. Dwyer’s decision to
assign Mr. Celestini the key task of transferring knowledge within the company so thatit could
function effectively after its co-founders left the business.
[39]
When he started as CTO, Mr. Celestini was not responsible for any operational programs
or anything directly related to Shoplogix’s sales or research and development activities. Mr. Dwyer
was highly confident that the new “Navy Seals” sales team would successfully grow Shoplogix’s
business with a new sales-focussed strategy, and Mr. Celestini was not called upon to contribute
directly to sales or development programs. Instead, his role was to explain the business to others
at Shoplogix including its new sales team that was led by VP Sales Gary Davies, VP International
Sales Bill Sullivan, VP Marketing Brian Maguire, and Sean Clare who led business development
and partnerships under Ms. McKibbin’s portfolio. Given his limited role, Mr. Celestini had no
staff and no direct managerial or operational responsibilities. He performed his duties expecting
that Mr. Dwyer would remain as CEO and grow Shoplogix with his sales-focussed strategy and
Edgestone’s full support. However, events would unfold differently.
[40]
In late 2007, Mr. Dwyer left Shoplogix. On an interim basis, Damien Steel, an Edgestone
representative, began working with Shoplogix on its finances. By the first quarter of 2008, the
company was interviewing for a new CEO.
[41]
Following Mr. Dwyer’s departure, and until a new CEO was hired, Mr. Celestini was asked
to help manage Shoplogix’s transition to a new CEO. This new role required him to work with the
company’s senior leaders, including Mr. Davies, Mr. Sullivan, Mr. Maguire, Ms. McGibbon, Mr.
Collins, and Mr. Steel, to manage a range of activities, including sales, that Mr. Dwyer earlierhad
managed. The Defendants claim that Mr. Celestini’s management activities during this periodwere
muted as Shoplogix’s vice-presidents continued to work with departmental managers and
2021 ONSC 3539 (CanLII)
[38]
- 12 staff. However, I find that Mr. Celestini’s role shifted considerably during this period as Shoplogix
relied on him to handle important managerial and operational duties that extended well beyond the
likely influenced how Mr. Ambrose chose to later restructure Mr. Celestini’s role at the company.
[42]
In March 2008, Mr. Ambrose joined Shoplogix as its new CEO. His arrival introduced a
new management approach that marked a substantial departure from his predecessor’s approach
to leading the company. In large measure, his approach was dictated by the company’s prevailing
circumstances and performance. At the time, much of the $15 million joint lead arranger (“JLA”)
financing that Edgestone had arranged for Shoplogix in 2005 had been spent, leaving only about
$3.6 million for its use. By then, it was evident that the company’s “Navy Seals” had not achieved
its expected level of success in growing sales. Mr. Ambrose attributed this limited success to the
fact that Shoplogix’s main product device resembled others already in use on many production
lines which diminished the value of the company’s bundled proprietary software. In his opinion,
Shoplogix had to migrate away from blended device and software products and market softwareonly licence-based products to build sales. He also felt that other business changes were necessary.
[43]
On March 31, 2008, Shoplogix introduced the ICA annual bonus plan for its senior
management team. The ICA significantly changed Mr. Celestini’s compensation. His target bonus
went from $125,000.00 under his 2005 Employment Agreement to $175,000.00 under the ICA
based on new eligibility criteria (i.e., being 75% dependent on Shoplogix’s performance and 25%
dependent on his own performance). In 2009, he earned a $192,710.00 bonus that reflected 110%
of his target ICA bonus after Shoplogix attained all of its revenue, booking and cash targets. Later
on, his bonus was $80,526.00 in 2010 and $100,080.00 in 2011, which reflected the company’s
modest performance over this period. Although his ICA bonus fluctuated, it ultimately climbed
as Shoplogix successfully expanded its sales over time. His ICA bonus was $257,850.00 in 2015
and $293,850.00 in 2016, which surpassed his initial $125,000.00 target bonus in 2005.
[44]
Under Mr. Ambrose’s leadership, Shoplogix’s management and sales teams became much
leaner. As a consequence, Mr. Celestini was tasked with significant new duties and responsibilities that
fundamentally changed his employment from what it was in 2005 when he started as CTO.
2021 ONSC 3539 (CanLII)
limited CTO role that he initially performed. I also accept that his work during and after this period
- 13 [45]
Between February and April 2009, Mr. Ambrose dismissed all of the above-mentioned
Shoplogix vice-presidents except Mr. Celestini, CFO Jeff Collins and Mr. Davies (n.b., although
company’s senior management team and saved about $1 million in annual compensation expenses. Mr.
Ambrose later advised the board of directors of his plan to have remaining key employees double
the company’s sales from the previous year by assigning them additional responsibilities. He
dismantled his predecessor’s “Navy Seals” sales team and re-directed Shoplogix’s growth efforts
away from a sales-focussed approach in favour of a new strategy to build the company bypursuing
organic growth through its existing partners and business relationships.
[46]
Thereafter, Mr. Celestini’s workload and responsibilities increased substantially. Although
he retained his CTO title, his new duties included managing a number of activities that previously
were handled by former senior managers. When Ms. McKibbin left Shoplogix, several employees
that had reported to her began reporting to Mr. Celestini who became responsible for managing
important aspects of the company’s sales and marketing operations, along with its business
development, customer support and engineering program areas. His new duties included working
with field engineers to resolve technical issues, working with the development team on solutions
management issues, and ensuring that required testing and quality assurance was being conducted.
He created a website for generating sales leads and managing international content and
presentations, helped to create new software to manage customer relationships and prospects, and
led two evolutions of the company’s main website by preparing content and coordinating sales
methods and pricing. He also worked with managers to concentrate efforts on generating sales to
ensure Shoplogix’s future. Ultimately, he came to direct managers and staff who were reassigned
to report to him. His number of daily questions and action items increased significantly.
[47]
Initially, travel was not part of Mr. Celestini’s role in 2005 when Shoplogix used its
talented sales team to pursue sales opportunities. However, from 2010 to 2016, his travel schedule
increased dramatically and became a significant part of his duties as he pursued international sales
opportunities in China, the U.A.E., Italy, the U.K., South Africa, Australia, Mexico, and various
parts of the United States, among other places. He personally met with clients and business partners
at sales and development meetings and discussed prospects with other global business leads. These
2021 ONSC 3539 (CanLII)
he left in 2010). The dismissed vice-presidents were not replaced, which drastically reduced the
- 14 new responsibilities embodied Mr. Ambrose’s strategy to organically build Shoplogix’s business
by pursuing existing partnerships and relationships.
Mr. Celestini became responsible for all of the company’s infrastructure responsibilities,
which included three (3) office moves within seven (7) years to help reduce overhead costs.
Although staff members previously had performed these duties, Mr. Celestini became responsible
for them after staff were dismissed to reduce costs. Similarly, after human resources staff left the
company, Mr. Celestini dealt with human resource issues. When Shoplogix faced legal action by
some of its former clients, he worked on these matters to resolve the disputes.
[49]
During Mr. Ambrose’s tenure, Mr. Celestini began to regularly meet with prospective
investors to solicit investment funds for Shoplogix. Due to the company’s modest performance,
its expended JLA financing, and the impact of the 2008 economic downturn, Mr. Celestini claims
that Mr. Ambrose developed significant funding concerns and, along with reducing overhead costs,
strongly renewed efforts to solicit investors to ensure Shoplogix’s financial survival. Mr. Ambrose
claims that Mr. Celestini has overstated the funding concerns as Edgestone remained committed
to funding Shoplogix, which also raised funds by issuing debentures and attracting new investors
on its own. Regardless, I am satisfied that Mr. Celestini’s involvement in Shoplogix’s efforts to
solicit investment funds significantly changed his role from what it was in 2005.
[50]
From the totality of the record, I am satisfied that Mr. Celestini’s CTO role fundamentally
changed when Mr. Ambrose became Shoplogix’s CEO. Abandoning the knowledge-transfer role
that Mr. Dwyer initially created for the CTO, Mr. Ambrose assigned Mr. Celestini significant and
important new duties that fundamentally expanded his position. Although his job title remained
unchanged, his portfolio substantially grew. This outcome resulted from Mr. Ambrose’s overall
plan to make the company leaner and more efficient by reducing its senior management team and
tasking its remaining managers with much greater responsibilities. Mr. Ambrose’s approach was
complemented by the introduction of the ICA bonus which incentivized Mr. Celestini and others
to perform at a high level in the face of these significant changes at the company.
[51]
Mr. Celestini’s new responsibilities were not necessarily inconsistent with the type of work
that a CTO might generally be expected to perform at a technology company. However, on the
particular facts of this case, I am satisfied that the new responsibilities that Mr. Ambrose assigned
2021 ONSC 3539 (CanLII)
[48]
- 15 to him were substantial and fundamentally changed his CTO role from what it started as in 2005.
In my view, his position at termination in 2017 bore little resemblance to the comparatively limited
transferring product and corporate knowledge within Shoplogix. Although his initial role included
corollary duties aside from transferring knowledge, I am satisfied that his key CTO responsibility
when he started in 2005 was to focus on internally transferring knowledge so that others in the
company could understand its main product and how to best market its capabilities. The added
duties that Mr. Ambrose later assigned to Mr. Celestini conferred significant operational roles that
fundamentally altered his CTO responsibilities. The nature and extent of these changes to his duties
were consistent with Shoplogix’s evolving nature as it adopted a leaner management structure and
remodeled its business using a very different approach under Mr. Ambrose’s leadership. Over
time, Shoplogix successfully grew its business under his leadership and posted strong sales that
undoubtedly convinced Friedman to acquire its controlling interest in 2017.
[52]
The Defendants submit that Mr. Celestini’s responsibilities changed only incrementally or
unexceptionally during his employment. However, they did not challenge his evidence regarding
Mr. Dwyer’s instructions for the CTO role in 2005 which created the initial CTO job description.
Given the limited nature of the CTO role as initially conceived, I am satisfied that the new duties
that Mr. Ambrose later assigned to Mr. Celestini significantly reshaped the CTO position in a
fundamentally different way.
[53]
As mentioned earlier, the ICA introduced a lucrative new bonus structure in 2008 that
foreshadowed Mr. Ambrose’s plan to improve performance by incentivizing Shoplogix’s senior
managers. Ultimately, Mr. Celestini’s overall compensation, including his base salary and bonus
payments, moved from $300,000.00 in 2005 to $518,850.00 in 2016 (i.e., his last full fiscal year
at the company). This increase to his compensation was significant. The Defendants correctly note
that Mr. Celestini’s overall compensation varied from year to year as his ICA bonus changed based
on company and individual performance measures. Based on this, they submit that any changes to
his compensation were only incremental or unexceptional. Respectfully, I disagree with this
submission. While his bonus fluctuated, it increased over time to the point where it significantly
shaped his compensation as Shoplogix became established and saw fruitful returns on its business
growth and development. The overall progression of his total remuneration, which climbed about
2021 ONSC 3539 (CanLII)
role that Mr. Dwyer had designed for the CTO position when he directed Mr. Celestini to focus on
- 16 173% over the course of his employment, was significant and far surpassed what reasonably would
have been contemplated for the CTO role in 2005.
Shoplogix did not mention or ratify the Employment Agreement when Mr. Celestini agreed
to the ICA in March 2008. Doing so would have given him a fair opportunity to consider the matter
and negotiate other terms. As the ICA substantially changed his compensation, I am satisfied that
Shoplogix ought to have ratified the Termination Clause in the Employment Agreement had it
wished to continue relying on its terms: Schmidt at paras 32-34; McKercher at paras 50-52.
[55]
In 2012, Shoplogix restructured its product and pricing model to remove or defer up-front
costs for clients. In turn, the company began to pay bonuses based on revenue rather than bookings,
which ultimately led bonus payments on long-term product subscription deals to be deferred until
clients paid their subscriptions invoices (i.e., at intervals, in lieu of paying up-front subscriptions).
Although Mr. Celestini claims that this change contributed to the loss of the substratum of his
initial contract of employment, I regard this change as a comparatively modest one as it only served
to defer bonuses until revenue was collected without otherwise changing or varying entitlements.
From the limited evidence before me, I accept that this change was an incremental one that does
not implicate the changed substratum doctrine.
[56]
Based on the foregoing, I am satisfied that Mr. Celestini’s duties changed substantially and
fundamentally over the course of his employment. Among other things, he received the following
new tasks: a) managing important sales and business development activities; b) handling technical,
solutions management and quality assurance matters; c) directing managers and staff who were
reassigned to report directly to him (i.e., after he had worked for several years without any direct
reports); d) pursuing business opportunities with international partners that introduced global
travel requirements; e) handling a range of company infrastructure and other administrative
matters; and f) contributing significant work to solicit investment funding. In my view, these
responsibilities were substantial and far exceeded any predictable or incremental changes to his
role that reasonably would have been expected when he started as CTO in 2005. In addition,
Shoplogix made substantial changes to his compensation. In light of these significant changes, I
find that the substratum of his original contract of employment disappeared and that its notice
terms should no longer be enforced as they could not have been intended to apply to his role at
termination. Applying the changed substratum doctrine, I find that the terms in the Employment
2021 ONSC 3539 (CanLII)
[54]
- 17 Agreement that purport to limit the notice obligations for termination should no longer have
contractual force: Rasanen at para 41, Wallace at pp. 180-181; MacGregor at paras 11-12; Irrcher
satisfied that the substantial changes to his position support the application of the substratum
doctrine in this case: Rasanen at para 41; MacGregor at para 12; Krieser at para 56.
[57]
The Employment Agreement does not feature a term which expressly states that its terms
continue to apply notwithstanding any changes to Mr. Celestini’s responsibilities, which otherwise
may have averted the application of the substratum doctrine in this case: Schmidt at para 33; Miller
v. Convergys CMG Canada Limited Partnership, 2013 BCSC 1589 at para 35, affirmed 2014
BCCA 311, leave to appeal denied 2015 CanLII 25422 (SCC). Relying on the language at para 1.4
of the Employment Agreement, the Defendants submit that Mr. Celestini was required to devote
his full working time and attention “to the performance of the duties to be performed by him
hereunder and to the performance of any other duties that may reasonably from time to time be
assigned to him by the Chief Executive Officer of [Shoplogix] and/or the board of directors of
[Shoplogix].” To meet Shoplogix’s dynamic and changing business needs as they evolved, the
Defendants claim that para 1.4 anticipated that substantial or fundamental changes could be made
to the CTO’s responsibilities without affecting the application of the notice provisions under the
Employment Agreement. However, unlike the term in Miller which expressly provided that the
employment contract would apply despite any changes to the employee’s role, para 1.4 contains
no such language: Miller at para 35. Instead, para 1.4 simply required Mr. Celestini to perform
duties that were reasonably assigned to him. As explained earlier, his new responsibilities were
not necessarily inconsistent with what a CTO might generally do at a technology company. In the
circumstances, I am not persuaded that para 1.4 is sufficiently clear to permit Shoplogix to make
substantial or fundamental changes to the CTO role while preserving the notice terms in the
Employment Agreement. A contract of employment should be interpreted to further employment
law goals including the protection of employees who are most vulnerable when their employment
is terminated: Wood v. Fred Deely Imports Ltd., 2017 ONCA 158 at paras 26-28; Ceccol v. Ontario
Gymnastic Federation (2001), 55 OR (3d) 614 (CA) at para 47; Christensen v. Family Counselling
Centre of Sault Ste. Marie, 2001 CanLII 4698 (ONCA) at para 14. Accordingly, I conclude that
para 1.4 of the Employment Agreement should not circumvent the application of the changed
substratum doctrine in this case.
2021 ONSC 3539 (CanLII)
(SCJ) at para 15, affirmed (ONCA) at paras 1-2. Although his job title remained unchanged, I am
- 18 c.
Reasonable Notice and Damages
[58]
Having found that the contractual notice terms are unenforceable by operation of the
reasonable notice at common law: Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679 at
para 19. The framework for deciding the period of reasonable notice takes into account all of the
circumstances of a case including such factors as the character of the employment, the length of
service, the age of the employee, the availability of similar or comparable employment, and the
experience, training and qualifications of the employee: Bardal v. Globe & Mail Ltd. (1960), 24
DLR (2d) 140 (Ont HC) at 145; Cronk v. Canadian General Insurance Co. (1995), 25 OR (3d)
505 (CA) at para 85; Honda Canada Inc. v. Keays, 2008 SCC 39 at paras 28-32. The analysis to
apply in deciding the period of reasonable notice is flexible, as each case will turn on its particular
facts: Paquette v. TeraGo Networks Inc, 2015 ONSC 4189 at para 28, reversed on other grounds
2016 ONCA 618; Minott v. O’Shanter Development Co., 1999 CanLII 3686 (ONCA) at para 62;
Cronk at para 85. Determining the reasonable notice period is “an art not a science”: Minott at
para 62. None of the Bardal factors are to be overemphasized in assessing the length of reasonable
notice: Singer v. Nordstrong Equipment Limited, 2018 ONCA 364 at para 6.
[59]
The character of employment factor in Bardal tends to justify a longer notice period for
senior level managers or highly skilled employees: Paquette at para 29, Cronk at para 21; Bullen
v. Proctor & Redfern Ltd., [1996] OJ No 340 (Gen Div) at paras 7-10; Bernier v. Nygard
International Partnership, 2013 ONSC 4578 at para 57; Love v. Acuity Investment Management
Inc., 2011 ONCA 130 at para 21, leave to appeal refused [2011] SCCA No 170 (SCC). Although
the character of employment may be a Bardal factor with declining importance, I am satisfied that
it remains an appropriate factor to consider under this analysis: Arnone v. Best Theratronics Ltd.,
2015 ONCA 63 at para 11.
[60]
Reasonable notice of termination is decided on a case-specific basis without an absolute
upper limit or “cap” on what constitutes reasonable notice. However, as a general matter, only
exceptional circumstances will support a base notice period in excess of 24 months: Lowndes v.
Summit Ford Sales Limited, 2006 CanLII 14 at para 11; Keenan v. Canac Kitchens Ltd., 2016
ONCA 79 at para 30; Dawe v. The Equitable Life Insurance Company of Canada, 2019 ONCA
512 at paras 31-33, leave to appeal denied 2020 CanLII 25174 (SCC).
2021 ONSC 3539 (CanLII)
changed substratum doctrine, it is my determination that Mr. Celestini is entitled to damages for
- 19 [61]
Applying the Bardal factors, and having particular regard to the character of employment
factor, Mr. Celestini submits that the reasonable notice period here should approach 36 months.
existing caselaw for a senior employee such as Mr. Celestini given his employment circumstances.
[62]
Mr. Celestini was about 50 years old and had earned $518,850.00 in the prior fiscal year
when Shoplogix terminated his employment on March 2, 2017. At the time of dismissal, he had
served as the company’s CTO, a senior and highly skilled role, for about 12 years after working
as its CEO for roughly 3 years. Absent an express understanding to the contrary, I am satisfied that
it is appropriate to give some recognition to Mr. Celestini’s prior employment at Shoplogix in
deciding the reasonable notice period: Manthadi v. ASCO Manufacturing, 2020 ONCA 485 at para
54; Addison v. M. Loeb, Ltd., [1986] O.J. No. 2367 (CA) at para 22. In view of his age and family
responsibilities at the time of termination, I accept that the loss of his employment came during a
vulnerable time in his career: Samuel v. Benson Kearley IFG, 2020 ONSC 1123 at para 76; Cyr v.
Banting Property Management Inc., [1994] OJ No 1566 (Gen Div) at para 76.
[63]
Mr. Celestini was a senior executive, a part-owner of Shoplogix, and one of only several
senior employees who reported directly to its CEO. Valuing his technical expertise and company
knowledge, Shoplogix relied heavily on Mr. Celestini to handle important aspects of its operations,
particularly in relation to its product development and marketing activities. He was a trusted
Shoplogix representative to clients and investors, and he managed a heavy portfolio that crossed
many of the company’s program areas. He played a critical role to its overall success. After
Edgestone acquired the company, Mr. Celestini initially contributed to its success by sharing
product and corporate knowledge with others in the company. He later handled substantial duties
and responsibilities that allowed Shoplogix to successfully market its product to global clients. Its
success led to Friedman’s acquisition of Shoplogix in 2017. During his employment, the company
depended on Mr. Celestini and compensated him significantly. He had vital skills and knowledge,
and clearly occupied a senior and important role in the company’s hierarchy which favours a longer
period of reasonable notice: Love at para 21; Cronk at para 21.
[64]
Care must be taken to ensure that the availability of similar employment is not under-
emphasized when assessing a reasonable notice period: Wolfman v. Rocktenn-Container Canada,
L.P., 2015 ONSC 1432 at para 15. In addressing the availability of similar employment under this
2021 ONSC 3539 (CanLII)
The Defendants submit that common law notice in the range of 17 to 18 months is consistent with
- 20 analysis, it is important to note that Mr. Celestini received significant annual compensation and
held shares in the company. These were important aspects of his employment at Shoplogix and are
Belzberg v. Pollock, 2003 BCCA 71 at para 35. From the record, I find that the potential for him
to find comparable employment at a business with similar remuneration would have been limited.
[65]
Mr. Celestini seeks a longer notice period at common law by claiming an entitlement to
unpaid commissions on recurring software licence revenues following termination. To support his
claim, he relies on Prozak v. Bell Telephone Co. of Canada, [1984] OJ No 3217 (CA) at paras 4648 and 61, in which the defendant employer reassigned the dismissed employees’ sales territories
in a deliberate effort to deny them commissions. That case supports the principle that a wrongfully
dismissed employee is entitled to damages for lost opportunities to earn commissions during the
period of reasonable notice: Prozak at para 41. However, the dismissed employee must show that
commissions would reasonably have been received during the notice period. In this case, there is
no evidence of any commission-based compensation that Mr. Celestini was entitled to receive. Mr.
Celestini asserts that he was paid commissions and adduced tax records to support this claim.
However, the evidentiary record shows that his compensation at termination was limited to only
his base salary and ICA bonus entitlements, as described earlier. Although his tax records indicate
that Shoplogix paid him commissions, the Defendants state that these records are inaccurate and
mischaracterized his compensation which never included commissions for any sales that he either
generated or contributed to. From my review of the record, I am satisfied that Mr. Celestini was
not entitled to commission-based compensation. Accordingly, I find that unpaid commissions
should not be a factor in determining the period of reasonable notice.
[66]
That said, and just one month before Shoplogix terminated his employment, Mr. Celestini
helped to close a three-year software licence deal with a global auto parts manufacturer. The deal
apparently was large and had been structured to generate more sales revenue in the third year of
the software licence. Relying on this, Mr. Celestini seeks a notice period of sufficient length to
recoup damages for his ICA bonus from this sales revenue over the three-year licence period.
However, no evidence was led to show how revenue from this or any other sale would impact his
ICA bonus entitlement. In addition, there was no evidence before the court to compare this sale
with any of the others that Shoplogix closed. Without any evidence to suggest an unfair or disparate
2021 ONSC 3539 (CanLII)
relevant factors to consider in assessing similar employment opportunities: Love at para 22;
- 21 impact to his ICA bonus arising from this particular sale, I am not prepared to find that a longer
notice period is justified solely on account of this product sale.
Ultimately, I find that the facts of this case are similar to those in Hinke v. Thermal Energy
International Inc., 2011 ONSC 5345, affirmed 2012 ONCA 635, in which the founding executive
of a thermal energy technology company was awarded 18 months of notice after he was dismissed
without cause following 15 years of service. Having regard to relevant caselaw, and applying the
Bardal factors to this case, I am satisfied that the appropriate notice period for Mr. Celestini’s
dismissal from employment should be 18 months.
[68]
Turning to the matter of damages, I find that Mr. Celestini’s wrongful dismissal damages
should include his ICA bonus during the notice period. I also find that Mr. Celestini received his
MIP retention entitlements, subject to certain required holdbacks.
[69]
Mr. Celestini is entitled to damages for pay in lieu of reasonable notice at common law.
These damages should put him in the same financial position that he would have realized if
reasonable notice of his termination had been given: see Sylvester v. British Columbia, [1997] 2
SCR 315 at para 1. Damages in a wrongful dismissal case usually include all compensation and
benefits that the terminated employee would have earned during the notice period: see Matthews
v. Ocean Nutrition Canada Ltd., 2020 SCC 26 at paras 49-54. In deciding whether a terminated
employee is entitled to bonus compensation during the reasonable notice period, the court
considers: a) whether the employee would have been entitled to the bonus as part of their
compensation during the reasonable notice period; and b) if yes, then do the terms of the
employment contract or bonus plan unambiguously take away or limit that common law right:
Matthews at paras 52-55; Paquette v. TeraGo Networks Inc., 2016 ONCA 618 at paras 30-31.
[70]
Mr. Celestini’s bonus under the ICA was integral to his compensation. Although the ICA
states that it was to have expired on December 31, 2008, the record clearly shows that Shoplogix
did not retire the ICA on that date. Instead, it continued to administer the ICA and paid bonuses to
Mr. Celestini under this bonus program until it terminated his employment on March 2, 2017.
[71]
The Defendants submit that any damages that are awarded to Mr. Celestini for wrongful
dismissal should not include damages in lieu of any bonus entitlements during the applicable notice
2021 ONSC 3539 (CanLII)
[67]
- 22 period given that article 2.2 (Employment Compensation) of his Employment Agreement explicitly
… If the Employee’s employment hereunder is terminated during any fiscal year
of the Employer, the Employee shall be entitled to receive any pro-rated share of
such bonus from the first day of the fiscal year during which such termination
occurs to the date of termination …
However, this limiting clause dealt with Mr. Celestini’s initial bonus plan (i.e., which entitled him
to a bonus of up to $125,000.00 based on revenue and cash balance targets that Shoplogix’s board
of directors set each fiscal year) at the start of his tenure as CTO. On March 31, 2008, his initial
bonus plan was overtaken by the ICA which introduced a new bonus agreement and expressly
superseded all prior bonus or incentive plans as stated at s. 4 of the ICA as follows:
Prior Agreement. This Agreement (including any other agreements specifically
mentioned in this Agreement) contains the entire agreement of the partiesrelating
to any incentive, contingent, variable or bonus compensation for the Annual
Compensation Period to be paid by Shoplogix and supersedes all prior agreement
and understandings with respect to such subject matter, and the partieshereto have
made no agreements, representations or warranties relating to such subject matter
that are not set forth herein or in the other agreements mentioned herein.
[Emphasis added]4
Based on this, I am satisfied that article 2.2 of the Employment Agreement does not apply to limit
or restrict Mr. Celestini’s bonus eligibility under the ICA.
[72]
Pursuant to ss. 1 and 2 of the ICA, Mr. Celestini was required to be actively employed with
Shoplogix in order to remain eligible for a bonus under the ICA:
Eligibility. Subject to Section 2 below, if Employee’s employment terminates
for any reason prior to the last day of the Quarterly Compensation Period, or the
Performance Requirements are not satisfied during the Quarterly Compensation
Period, the Employee will not earn, and Shoplogix shall not have any obligation
to pay, the Incentive Compensation. If the Incentive Compensation is earned
pursuant to this Agreement prior to the termination of employment, the net
amount will be paid within thirty (30) days after it is earned.
Effect of Termination Upon Earning the Retention Incentive.
Notwithstanding the foregoing, if prior to the end of the Compensation Period,
Employee resigns his employment then Shoplogix shall pay to Employee the
Incentive Compensation earned up to the date of termination within thirty (30)
days of the effective date of termination. If Shoplogix terminates Employee’s
2021 ONSC 3539 (CanLII)
limits his bonus entitlements in a termination scenario as follows:
employment for “Cause”, then Employee will not earn and Shoplogix will not
have any obligations to pay Employee any portion of the Incentive
Compensation. For greater clarity, if prior to end of the Compensation Period,
Shoplogix terminates Employee’s employment for a reason other than Cause,
then Shoplogix shall pay to Employee the Incentive Compensation earned up to
the date of termination within 30 days of the effective date of termination.
[Emphasis added]
However, writing for the Supreme Court in Matthews, Kasirer J. confirmed at paras 49-55 that a
requirement to be actively employed in order to maintain eligibility to receive a bonus or benefit,
without more, will not remove a dismissed employee’s common law right to damages for lost
bonuses or benefits that would have accrued during the reasonable notice period. Applying the
reasoning in Taggart v. Canada Life Assurance Co., (2006) CanLII 53345 (ONCA) at paras 1320 and reiterated in Paquette at paras 25-32, Kasirer J. set out a two-step analysis for determining
a damages claim for lost bonuses or benefits during the period of reasonable notice: 1) whether,
but for the termination, the employee had a common law entitlement to the bonus or benefit as part
of their compensation during the notice period; and 2) whether the employment contract or bonus
plan unambiguously removes this common law right: Matthews at paras 52-55. This analysis
recognizes that terminated employees claiming wrongful dismissal damages are seeking damages
as compensation for the income, benefits and bonuses they would have received had the employer
not breached the implied term to provide reasonable notice: Keays at paras 54-55. It also reflects
the settled understanding that a contract of employment effectively “remains alive” for the purpose
of assessing damages based on the compensation that the employee would have earned under the
employment contract but for the dismissal: Matthews at para 54; Gillies v. Goldman Sachs Canada
Inc., 2001 BCCA 683 at para 17.
[73]
The ICA was part of Mr. Celestini’s contract of employment and its entitlements were
integral to his compensation. From the record, and absent any evidence to the contrary, I accept
that Mr. Celestini would have been eligible to receive his ICA bonus had Shoplogix continued to
employ him in 2017 and 2018 over the 18 month period of reasonable notice.
[74]
Other than requiring active employment, the ICA has no language to limit Mr. Celestini’s
eligibility for ICA bonus payments during the reasonable notice period. In my view, the wording
in the ICA does not unambiguously remove or limit his common law right to damages in lieu of
2021 ONSC 3539 (CanLII)
- 23 -
- 24 the bonus payments under the ICA that he was entitled to have during the reasonable notice period:
Matthews at para 52; Paquette at paras 31. Without more, the simple requirement for active
part of his wrongful dismissal claim: Paquette at para 47.
[75]
In quantifying Mr. Celestini’s damages in lieu of his ICA entitlements over the reasonable
notice period, I recognize that his ICA bonuses cannot be determined in the usual manner as a
component of his bonus was based on his performance. In addition, the parties did not adduce any
evidence of Shoplogix’s actual business performance in the 2017 and 2018 fiscal years. Although
Mr. Celestini offered some impressionistic figures to describe Shoplogix’s performance over this
period, I am not persuaded that his uncorroborated evidence is reliable as other figures that he gave
in his evidence were later shown to be incorrect. For his part, Mr. Lee claims that Mr. Celestini’s
likely bonus in 2017 would have been $102,500.00 had he worked for that entire fiscal year at
Shoplogix. However, it is unclear how Mr. Lee came to this figure. Although he apparently based
his 2017 bonus estimate after reviewing Shoplogix’s financial statements for 2014, 2015 and 2016
and its consolidated statement of income forecast, it is unclear how he actually arrived at his 2017
bonus figure. He also did not explain why his 2017 bonus estimate of $102,500.00 is considerably
lower than the $293,850.00 bonus that Mr. Celestini received in 2016. Furthermore, Mr. Lee did
not provide an estimate for Mr. Celestini’s 2018 ICA bonus. Given the vague and limited nature
of Mr. Lee’s evidence, I am not persuaded that the court should adopt his estimates in quantifying
Mr. Celestini’s damages for his bonus entitlements under the ICA.
[76]
In my view, Mr. Celestini’s damages claim for his ICA bonus should be determined by
averaging the annual bonuses that he earned in the last three (3) fiscal years immediately preceding
his dismissal: Bernier v. Nygard International Partnership, 2013 ONCA 780 at para 5; Sager at
para 14. In my view, this approach offers a fair and balanced method for deciding these damages
and would reasonably gauge Shoplogix’s performance during the reasonable notice period. To this
end, Mr. Celestini’s bonus was $117,695.00 in 2014, $257,850.00 in 2015, and $293,850.00 in
2016, which averages to $223,131.66. Applying this average, I find that Mr. Celestini should have
$334,697.49 (i.e., $223,131.66 ÷ 12 x 18) in damages in lieu of his ICA bonus entitlement from
March 2, 2017 to September 2, 2018 (i.e., the 18 month period of reasonable notice), less the
$50,554.44 pro-rated bonus that Shoplogix previously paid him for the period of January 1, 2017
2021 ONSC 3539 (CanLII)
employment is not sufficient to deprive him of damages for bonus entitlements under the ICA as
- 25 to March 2, 2017 pursuant to article 2.2 of the Employment Agreement, which leaves damages of
$284,143.05 for his bonus entitlement under the ICA.
I find that Mr. Celestini should have a total of $20,800.00 in damages for his car allowance
entitlement over the 18 month notice period (i.e., reflecting $23,400.00 as his total car allowance
over the 18 month notice period, less $2,600.00 that Shoplogix previously paid him for his March
and April 2017 car allowance entitlement).
[78]
I am persuaded that Mr. Celestini is entitled to have $3,600.00 to replace his life insurance
coverage benefit.
[79]
As no evidence regarding any other employment benefits was adduced, I decline to award
Mr. Celestini any further damages in respect of his benefits.
[80]
As stated earlier, Shoplogix introduced the MIP to provide Mr. Celestini and other senior
managers with a retention bonus. The MIP entitled Mr. Celestini to a share of the “Incentive Pool”
which was defined at para 1.2(e) of the MIP as follows:
“Incentive Pool” means an amount equal to 10% of the Sale Price, up to the
maximum aggregate value of $3,200,000;
The size of the Incentive Pool is based on the “Sale Price,” which is defined at para 1.2(j) of the
MIP as follows:
“Sale Price” means the aggregate net consideration received by the Corporation
or the shareholders of the Corporation, as applicable, upon the completion of an
Exit Event after deducting any fees and expenses paid or payable by the
Corporation or the shareholders collectively, as the case may be, in connection
with the Exit Event including, without limitation, fees and expenses paid or
payable to agents, bankers, lawyers and other professional advisors retained by
the Corporation or the shareholders collectively, as the case may be, in
connection with the Exit Event. In the event that some or all of the consideration
payable to the Corporation or the shareholders consists of non-cash
consideration, the value of such non-cash consideration shall be equal to the
value attributable or allocated to such consideration in the purchase agreement
or sale documentation effecting the Exit Event and if no such value is indicated,
the value of such non-cash consideration shall be equal up to the fair market
value of such non-cash consideration, determined as of the date of the closing of
the Exit Event as determined by the board of directors of the Corporation, acting
reasonably. [Emphasis added]
2021 ONSC 3539 (CanLII)
[77]
- 26 -
Under paras 1.2(c) and (k), an “Exit Event” and “Share Event” are defined as follows:
…
“Share Event” means a transaction or series of transactions involving the sale,
exchange or other disposition of all or substantially all of the outstanding shares
of the Corporation.
[81]
On March 2, 2017, Friedman acquired all of the shares in Shoplogix. The Defendants agree
that the acquisition was a Share Event that triggered an Exit Event and entitled Mr. Celestini to a
33% share of the Incentive Pool. To date, Shoplogix has paid him $84,387.37 in MIP bonuses.5
The Defendants also concede that Mr. Celestini may be eligible to receive up to $49,500.00 from
the final tranche of MIP entitlements. However, this tranche is currently the subject of a holdback
until all of the expenses for the acquisition can be resolved. Given the language at para 1.2(j) of
the MIP, I accept that these expenses include the employment liabilities and litigation costs related
to the acquisition. As these expenses will quantify the Incentive Pool and its remaining funds for
distribution to MIP participants, I accept that this holdback (i.e., with Mr. Celestini’s final MIP
bonus entitlement) will remain outstanding until these costs are quantified (i.e., when this litigation
and other such matters are determined) and the disputes over these expenses are concluded.
[82]
Mr. Celestini claims that the MIP payments owing to him should be based on Shoplogix’s
Sale Price by Friedman before fees and expenses are deducted. However, article 1.2(j) of the MIP
clearly provides that MIP payments are based on the Sale Price after any fees and expenses paid
by Shoplogix for the Exit Event are deducted. Accordingly, I am satisfied that these fees and
expenses should properly be deducted.
e.
Mitigation
[83]
It is well established that employees are legally obliged to mitigate the damages that flow
from a wrongful dismissal by seeking an alternative source of income, absent an agreement that
provides to the contrary or stipulates a fixed notice period: Bowes v. Goss Power Products Ltd.,
2012 ONCA 425 at paras 24 and 34; Howard v. Benson Group Inc. (The Benson Group Inc.), 2016
ONCA 256 at para 44, leave to appeal refused 2016 CanLII 68016 (SCC). Here, the Defendants
2021 ONSC 3539 (CanLII)
“Exit Event” means a Share Event, an Asset Event, a Merger Event or an IPO;
- 27 have the onus to prove that Mr. Celestini failed to mitigate his damages: Samuel v. Benson Kearley
[T]he burden which lies on the defendant of proving that the plaintiff has failed
in his duty of mitigation is by no means a light one, for this is a case where a
party already in breach of contract demands positive action from one who is
often innocent of blame.
Red Deer College v. Michaels, [1976] 2 SCR 324 at 332.
In effect, to discharge this burden, an employer must show that the employee did not attempt to
take reasonable steps and could be expected to have secured not just a position but a comparable
one reasonably adapted to his abilities had his job search been active: Samuel at para 78, citing
You v. Canada Kitchens Ltd., 2009 CanLII 9412 (ONSC) at para 16; Link v. Venture Steel Inc.,
2008 CanLII 63189 (ONSC) at paras 45-46. An employer must show that the employee’s conduct
was unreasonable, not in one respect, but in all respects: Furuheim v. Bechtel Canada Ltd., [1990]
OJ No 746 (CA) at para 3.
[84]
Ultimately, a dismissed employee is obliged to mitigate his damages by taking reasonable,
not perfect, steps. Even if a defendant employer shows that an employee’s efforts at mitigation
were modest at best, if the employer fails to prove that the employee could have found similar
employment by having acted with greater diligence, then the employer will not have discharged
its burden and the employee will not be found to have failed to mitigate: Rothenberg v. Rogers
Media Inc., 2020 ONSC 5853 at para 51; Day v. JCB Excavators Limited, 2011 ONSC 6848 at
paras 109-110. A terminated employee is entitled to consider their own long-term interests and
will not fail to mitigate merely by choosing to take some career risks that might not minimize the
compensation that a former employer will owe to them: Brake v. PJ-M2R Restaurant Inc., 2017
ONCA 402 at para 94; Peet v. Babcock & Wilcox Industries Ltd. (2001), 53 OR (3d) 321 (CA) at
para 8. The mere fact that an employee did not apply for certain positions does not mean that
reasonable efforts to mitigate were not made: Ibid. In assessing an employee’s mitigation efforts,
the courts are tolerant and the employee need only act reasonably, not perfectly: Cormier v.
1772887 Ontario Limited c.o.b. as St. Joseph Communications, 2019 ONSC 587 at para 69.
[85]
Following his dismissal from Shoplogix, Mr. Celestini attempted to mitigate his damages
by pursuing several business ventures that aligned with his entrepreneurial experiences. Together
2021 ONSC 3539 (CanLII)
IFG, 2020 ONSC 1123 at para 78. As the Supreme Court has stated, this is not a light burden:
- 28 with a former colleague from the company, Mr. Celestini met with major consulting and industrial
automation providers to discuss a business concept for delivering developmental services to
launch two new technology start-up companies using innovation funding from the Industrial
Research Assistance Program at the National Research Council of Canada.
[86]
In May 2017, Mr. Celestini co-founded Wondermaker Inc. as a technology start-up that
would create experiential games for use in human resource testing and evaluations. Mr. Celestini
contributed personal funds to launch this venture and has not yet drawn a salary from this company
as it has not generated revenue to date. However, Wondermaker Inc. is collaborating with a major
automotive manufacturer on a long-term hiring evaluation plan for their organization.
[87]
In November 2017, Mr. Celestini co-founded Pacefactory Inc. which is a technology start-
up company that applies video analytics to identify and resolve workplace safety, quality and
efficiency issues. Although Pacefactory Inc. had no revenues in 2017, it went on to generate
revenues of $56,000.00 in 2018 and $316,000.00 in 2019, respectively. Mr. Celestini’s personal
earnings at Pacefactory Inc. in 2019 amounted to $120,000.00 which he kept in the company as a
shareholder’s loan.
[88]
The Defendants submit that Mr. Celestini’s entrepreneurial efforts were insufficient to
satisfy his obligation to mitigate in light of various re-employment opportunities that he chose to
not pursue. Between July 7, 2017 and February 8 2018, Shoplogix sent twelve (12) unsolicited
emails to Mr. Celestini containing various links to a number of job postings for him to consider.
However, apart from confirming that these postings were delivered to him, the Defendants gave
only limited evidence and submissions to explain why or how any of the postings were comparable
to Mr. Celestini’s former CTO role at Shoplogix. Instead, they largely invited the court to simply
review the postings and make its conclusions. Although voluminous, the collection of postings
(i.e., which came to roughly 350 pages of printed content) did not show that most of the posted
jobs were comparable to his former CTO role at Shoplogix, particularly in respect of compensation
for which there was fairly limited evidence. Most of the postings were from employers in fields
that are largely if not wholly unrelated to the manufacturing sector work that Mr. Celestini had
performed at Shoplogix. Many advertised positions that were junior to his CTO role.
2021 ONSC 3539 (CanLII)
clients. Despite their efforts, neither obtained any work opportunities. Both then opted to jointly
- 29 [89]
As Mr. Celestini pointed out, a number of job postings asked for educational credentials
(e.g., graduate degrees) or industry experience (e.g., in financial services, e-commerce, retailing,
analytics or other internal support roles that were predominantly unrelated to his former work as
Shoplogix’s CTO which focused on developing products for the predicted needs of manufacturing
sector clients. Still others were for academic or regulatory jobs that involved work of an entirely
different nature to what he had performed as Shoplogix’s CTO. In the circumstances, I find that
the Defendants have not discharged their weighty onus to show that Mr. Celestini failed to mitigate
by not taking reasonable steps to find comparable alternate employment: Ariss v. NORR Limited
Architects & Engineers, 2019 ONCA 449 at paras 48 and 50; Carter v. 1657593 Ontario Inc., 2015
ONCA 823 at para 6. I add that Mr. Celestini was not required to uproot his family to pursue
employment in Western Canada or in the United States: Ariss at para 49.
[90]
I accept that a small handful of postings, particularly the one for a chief software architect
for a network automation provider, likely were not incomparable with Mr. Celestini’s former CTO
role. That said, his technology start-up businesses are showing promise. In the circumstances, I am
not persuaded that the Defendants have established that his decision to forego employment and
pursue entrepreneurial opportunities that align with his skills and experiences resulted in a failure
to reasonably mitigate his damages. A dismissed employee’s legal obligation is to take reasonable,
not perfect, steps to mitigate damages which may be satisfied with reasonable efforts. In any event,
there is no evidence in this case to establish that Mr. Celestini would have obtained comparable
re-employment by having acted more diligently: Rothenberg at para 51; Day at para 106. Given
his entrepreneurial knowledge and experience with manufacturing clients, Mr. Celestini’s decision
to seek new business opportunities by building on his previous relationships in the manufacturing
sector was a sensible and reasonable way for him to pursue a livelihood. This is supported by the
promising uptake and progress of his new ventures. Accordingly, I am satisfied that Mr. Celestini
reasonably mitigated his damages by launching the technology start-up business ventures.
Outcome
[91]
Having regard to the whole of the evidence, I am satisfied that I can make the necessary
findings of fact and apply the law to those facts in a proportionate, more expeditious and less
2021 ONSC 3539 (CanLII)
marketing, and other fields) that he lacks. Other postings sought to fill enterprise architecture, data
- 30 expensive means to achieve a just result without a trial. Accordingly, I find that the matters in
dispute can fairly be determined on this summary judgment motion: Hryniak at para 4.
I find that the substratum of Mr. Celestini’s written employment contract with Shoplogix
disappeared due to substantial changes to his responsibilities that rendered the notice period in his
Employment Agreement unenforceable. By reason of this, I find that Mr. Celestini was wrongfully
dismissed. In my view, Mr. Celestini should have damages reflecting 18 months of pay in lieu of
notice at common law. As Shoplogix previously paid him 12 months of base salary continuance
and a limited pro-rated bonus in 2017, I find that Mr. Celestini should have $396,643.05 in
damages (i.e., comprising $112,500.00 of additional base salary continuance for 6 months, plus
$334,697.49 in ICA bonus entitlements over the 18 month notice period, less $50,554.44 in prorated bonus payments that he received) for his base and bonus compensation. In addition, I find
that he should have damages of $20,800.00 for car allowance entitlements and $3,600.00 to replace
his life insurance benefits. I find no breach of Mr. Celestini’s duty to mitigate.
[93]
Accordingly, I grant Mr. Celestini summary judgment of $421,043.05 plus pre-judgment
and post-judgment interest in accordance with the Courts of Justice Act.
[94]
I encourage the parties to confer and agree on the issue of costs. However, if they are unable
resolve the matter of costs, Mr. Celestini may deliver written costs submissions of up to 3 pages
(excluding any costs outline or offer to settle) within 20 days, and the Defendants may deliver
responding submissions on the same terms within a further 20 days. Reply submissions shall not
be delivered without leave.
Doi J.
Date: May 31, 2021
2021 ONSC 3539 (CanLII)
[92]
CITATION: Celestini v. Shoplogix Inc., 2021 ONSC 3539
COURT FILE NO.: CV-17-2452-00
DATE: 2021 05 31
RE:
Stefano Celestini, Plaintiff
AND:
Shoplogix Inc., Friedman Canada
Inc. and Vela Software International
Inc., Defendants
BEFORE:
DOI J.
COUNSEL: Christopher A. Sinal, for the moving
Defendants
David Conn, for the responding
Plaintiff
ENDORSEMENT
Doi J.
DATE: May 31, 2021
2021 ONSC 3539 (CanLII)
SUPERIOR COURT OF JUSTICE - ONTARIO
1
In addition, para 2.2 of the Employment Agreement confirmed, among other things, Mr. Celestini’s
entitlement upon a dismissal without cause to his prior fiscal year’s bonus pro-rated to the period in the current fiscal
year when he was employed:
… If the Employee’s employment hereunder is terminated during any fiscal year of the
Employer, the Employee shall be entitled to receive any pro-rated share of such bonus from the
first day of the fiscal year during which such termination occurs to the date of termination, unless
the Employee’s employment with the Employer is terminated (i) by the Employer [for cause]
pursuant to Paragraph 3.2, or (ii) by reason of the voluntary resignation of the Employee pursuant to
Paragraph 3.8 hereof. [Emphasis added]
Article 1.2 of the Employment Agreement states that the CTO, “shall perform the duties and exercise such
powers related to such office as set forth in the bylaws of the Employer (if any) and as prescribed or specified by the
CEO, subject always to the overall control and direction of the board and consistent with such office.” The parties
led no evidence of any bylaws, written CEO directions, or board documents setting out the CTO’s duties or powers.
2
3
Although the Defendants sought to adduce evidence from Nick Marchioli and Michael Fricke regarding
Mr. Celestini’s duties as CTO, Mr. Marchioli testified that he was did not have any knowledge of Mr. Celestini’s
role between 2005 and 2007, and Mr. Fricke conceded that he had no knowledge of Mr. Celestini’s responsibilities
before 2010.
4
Article 5 of the ICA confirms that the agreement extends to and is binding upon the parties and their
respective successors and assigns, including any existing or future subsidiaries and affiliated persons, owning or
controlling, or owned or controlled, directly or indirectly, by Shoplogix.
Mr. Celestini’s individual entitlements and payments under the MIP are detailed at Exhibits “P”, “Q” and
“S” to the Affidavit of Daniel Lee sworn July 16, 2020.
5
2021 ONSC 3539 (CanLII)
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