Ontario court applies protection from reprisals provision in the Securities Act

The Ontario Superior Court of Justice has issued its first decision interpreting and applying the anti-reprisal provisions of the Ontario Securities Act (the Act)¹. In McPherson v. Global Growth Assets Inc., the Court confirmed that the anti-reprisal provisions will apply if any part of the motivation for taking a reprisal against an employee included the employee raising or expressing an intention to raise concerns about certain “protected activities”, including concerns about the firm’s compliance with securities law. The Court also held that as the statutory provisions do not require a terminated employee to mitigate their damages, no deduction from the award should be made for any mitigation efforts.

What you need to know

• The Ontario Superior Court of Justice awarded over $5M to the former CEO and ultimate designated person (UDP) of a registered firm who was terminated after raising concerns about potential breaches of Ontario securities laws.
• The Court found that the anti-reprisal provisions will apply any time a company or person takes a reprisal against an employee if the reprisal was motivated in any part by the employee engaging in a “protected activity”.
• The statutory compensation remedy set out in the Act obliges an employer to pay an employee who was the subject of reprisal two times the amount of remuneration they would have been paid. The Court applied this remedy without any deduction for the former CEO’s post-termination mitigation but declined to award separate and further damages for wrongful termination, finding that the statutory award compensated the Plaintiff for the effect of the termination.

The decision

The Court found that Global Growth Assets Inc., Global RESP Corporation (collectively, Global) and each director of Global breached section 121.5 of the Act² when they terminated the employment of Ian McPherson, Global’s former CEO and UDP (the Plaintiff).

Applying the relevant test under the Act, the Court found that the Plaintiff (i) had reasonable belief that Global made decisions that interfered with his obligations as UDP and potentially violated Ontario securities law; and (ii) provided this information or expressed his intention to provide this information to Global. The Court concluded that Global’s decision to terminate the Plaintiff’s employment amounted to a reprisal contrary to the Act, for which the Plaintiff was awarded $5,379,808.22 plus interest pursuant to the remedies set out in section 121.5(6).

Background

Global was in the business of selling education savings plans and was registered with and regulated by the Ontario Securities Commission (OSC). In 2014, Global entered into a settlement agreement in which it and its CEO and UDP at the time, Mr. Bouji, agreed that they had violated Ontario securities law and that Mr. Bouji had failed to meet his responsibilities as UDP. As part of the settlement, Mr. Bouji was permanently suspended as UDP, Global was ordered to create an independent board and appoint a new CEO/UDP, and Global and Mr. Bouji were required to pay an administrative penalty and costs and disgorge amounts obtained as a result of the non-compliance.

Following the 2014 settlement, Global appointed a new CEO and UDP, who subsequently retired in 2017. At that time Mr. Bouji’s daughter applied to the OSC to amend her registration to allow her to assume the role of UDP. OSC staff opposed her application and the matter was brought before the Commission, which found Ms. Bouji’s conduct to be inconsistent with what is expected from an individual seeking to become a UDP in part because Ms. Bouji had “proven herself unwilling or unable to take the necessary steps to limit her father’s involvement in Global as required by the Commission’s earlier orders”³.

Shortly after the OSC’s decision, the Plaintiff was appointed as CEO and UDP of Global, while Ms. Bouji remained a director of the firm. On January 14, 2019, Ms. Bouji emailed the Plaintiff informing him of certain developments at the firm, including that she would be “reporting to the Board directly”⁴, and would therefore not be reporting to the Plaintiff as CEO and UDP going forward. Over the next month, on at least three occasions, the Plaintiff expressed an intention to provide information to Global’s board regarding his concerns with the new reporting structure and the conduct of both Ms. Bouji and Global, which he believed were contrary to Ontario securities laws. On February 28, 2019, the Plaintiff was informed that the board had terminated his employment.

Legislative provisions

In 2016, various new provisions of the Securities Act (Ontario) came into force, including Part XXI.2, which gave new statutory protections to employees of firms subject to the Act from reprisals linked to their engagement in certain protected activities. These protected activities include providing information to their employers (including both a “person” or “company”) about an act that has occurred, is ongoing, or is about to occur that an employee reasonably believes is contrary to Ontario securities law⁵. The new provisions also provide a non-exhaustive list of actions that may amount to a reprisal under Part XXI.2, including ending or threatening to end an employee’s employment and demoting, disciplining or suspending an employee.

The Act also creates a statutory right of action for employees for alleged reprisals stemming from their engagement in protected activities, placing the burden of proof on the company to show that it did not take a reprisal against the employee for a protected activity.

While the decision in McPherson featured some discussion on the appropriate statutory interpretation of Part XXI.2, including whether the protected activity has to be the sole reason for the reprisal, the Court ultimately interpreted the provisions to mean that “[n]o company shall take a reprisal against an employee if any part of the motivation for reprisal was the fact that the employee engaged in protected activity”⁶.

Application

Reasonable belief

In applying the test under Part XXI.2, the Court found that the Plaintiff subjectively believed that Global, its independent directors, and Ms. Bouji were engaging in acts contrary to Ontario securities law. Specifically, the Plaintiff believed that the decision to remove Ms. Bouji from his oversight violated Ontario securities law by interfering with his ability to discharge his duties as UDP, including his obligation to “supervise the activities of the firm that are directed towards ensuring compliance with securities legislation by the firm and each individual acting on the firm’s behalf”⁷. This concern was particularly acute given the company’s regulatory history, which included the OSC permanently suspending Mr. Bouji from acting as UDP, and concerns about the extent to which Ms. Bouji was committed to limiting her father’s involvement in Global. The Plaintiff expressed the belief that without direct oversight of Ms. Bouji, it would be more difficult for him to ensure that Mr. Bouji was not reinserting himself into Global’s operations in violation of the OSC’s prior orders.

Provided or expressed intention to provide information of a potential breach

The Court found that, on at least four occasions, the Plaintiff expressed an intention to provide information or provided information to Global’s board about acts that he reasonably believed were contrary to Ontario securities laws. In one email, the Plaintiff specifically referenced his obligations as UDP and in another warned, “I think there will be consequences if we don’t get the right answers”⁸. The Plaintiff repeatedly requested a confidential in camera meeting with the independent directors of Global to discuss his concerns.

Reason for termination

The Court did not find the witnesses for Global to be credible in their assertion that the reason to terminate the Plaintiff was for his performance. After considering Global’s regulatory history and the evidence of the parties, the Court was satisfied that at least part of the motivation underlying the board’s decision to terminate the Plaintiff was the fact that he had repeatedly expressed an intention to provide information to Global about acts of the firm that he reasonably believed were contrary to Ontario securities laws. The Court found that Global and each director of Global (as the “persons” who made the decision to terminate) violated section 121.5(1) of the Securities Act by committing a reprisal against the Plaintiff because he engaged in protected activity. 

Remedies

Under Part XXI.2 of the Act, a court may order one or more remedies, including reinstating the employee and paying the employee two times the amount of remuneration they would have received if the contravention had not taken place between the date of the contravention and the date of the order, with interest. Since the Plaintiff did not request reinstatement, the Court focused on the remuneration remedy, doubling the Plaintiff’s entitlements under the terms of his contract—including the full amount of a significant annual discretionary bonus—for a total of $5,379,808.22.

The Court dismissed the Plaintiff’s separate claim for wrongful dismissal, finding that the statutory award compensated the Plaintiff for the effect of the wrongful termination. The Court also declined to award aggravated or punitive damages.