Written by Michael J Weiler
Pepin v Telecommunications Workers Union 2016 BCSC 790
I always find it interesting to read cases where the employer is a union. There is somehow an irony in seeing a union qua employer taking a hard-nosed stand against its employees who may be represented by a union. In a recent court case where the Telecommunications Workers Union was the employer/defendant the result was quite unusual and opens up potentially a whole new area of punitive damages.
Diane Pepin was employed by the TWU as a communication specialist. An issue arose as to whether she was included in the COPE bargaining unit. Two years after she was hired the TWU successfully argued before the Labour Relations Board that she should be excluded. Her contract contemplated that the parties would then negotiate certain terms. The parties negotiated for quite some time. The TWU refused to negotiate through Ms. Pepin’s lawyer. Negotiations finally broke down and Ms. Pepin resigned. She sued for damages including a number of items she claimed she was not properly compensated for. She initially claimed constructive dismissal but abandoned that claim. Finally she claimed punitive damages for the bad faith manner in which the TWU treated her in negotiating the terms of the contract two years after she was hired following the LRB decision confirming she was excluded from the COPE bargaining unit and collective agreement.
The case comments on two areas of particular importance to employers. First there is a good discussion of the principles a court will follow in interpreting an employment contract. Secondly it extends the duty of honesty and good faith to the negotiation of the contract and awarded punitive damages to Ms. Pepin (which by the way are tax-free).
- Contract Interpretation
The court provided a very succinct statement of the current law in interpreting contracts as it relates specifically to employment agreements. While the quote below is a bit lengthy, it is such an important subject that it is worth quoting in full:
 As the issue between the parties concerns the interpretation of the plaintiff’s contract, it is first necessary to discuss the approach the court should take when interpreting contractual language. In Miller v. Convergys CMG Canada Limited Partnership, 2014 BCCA 311, leave to appeal referenced  SCCA No. 424, Madam Justice Neilson reviewed the law at para. 15:
 The court should strive to give effect to what the parties reasonably intended to agree to when the contract was made. The starting point is the language of the contract, which should be given its plain and literal meaning, and be interpreted in the context of the entire agreement. Consideration may also be given to the factual matrix surrounding the creation of the contract. If the contractual language reveals two possible interpretations, the court should seek to resolve this ambiguity by searching for an interpretation that reflects the true intent and reasonable expectations of the parties when they entered the contract and achieves a result consistent with commercial efficacy and good sense. Considerations of reasonableness and fairness inform this exercise. If these principles do not resolve the ambiguity, extrinsic evidence may be admissible to assist in ascertaining the parties’ intent. As a last resort the principle of contra proferentem may be invoked to favour the construction of the ambiguity against the party that drew the agreement. This principle may not be used, however, to create or magnify an ambiguity. As to employment contracts, in particular, these will be interpreted in a manner that favours employment law principles, specifically the protection of vulnerable employees in their dealings with their employers. Nevertheless, the construction of an employment contract remains an exercise in contractual interpretation, and the intentions of the parties will generally prevail, even if this detracts from employment law goals that are otherwise presumed to apply: Geoff R. Hall, Canadian Contractual Interpretation Law, 2d ed (Markham, Ont.: LexisNexis, 2012) at 9-52, 66-70, 187-88.
 In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Justice Rothstein elaborated on the approach to contract interpretation at paras. 47-50. He noted that the overriding concern of the decision-maker was to determine the intent of the parties and the scope of their understanding adopting a “practical, common-sense approach not dominated by technical rules of construction” and that ascertaining contractual intention from the words alone can be difficult because “words alone do not have an immutable or absolute meaning” absent a consideration of the surrounding circumstance (at para. 47). He quoted Lord Wilberforce from Reardon Smith Line Ltd. v. Hansen-Tangen,  3 All E.R. 570 at 574 (H.L.), at para. 47:
No contracts are made in a vacuum: there is always a setting in which they have to be placed. … In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this, in turn, presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
 Justice Rothstein at para. 48 said:
 The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (see Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society,  1 All E.R. 98 (H.L.):
The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115]
 He went on to state that the goal of contractual interpretation is to ascertain the objective intent of the parties by considering the words of the contract in light of the factual matrix surrounding them at the time the contract was made (at para. 49).
 As to the role of the facts surrounding the making of the contract the Court said at paras. 56-58:
 I now turn to the role of the surrounding circumstances in contractual interpretation and the nature of the evidence that can be considered. The discussion here is limited to the common law approach to contractual interpretation; it does not seek to apply to or alter the law of contractual interpretation governed by the Civil Code of Québec.
 While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62).
 The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parole evidence rule discussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact.
The court then applied those principles and the rule of contra preferentum and found largely in favour of Ms. Pepin, although finding she was estopped from claiming overtime.
- Punitive Damages
The court rejected Ms. Pepin’s claim for punitive damages based on breaches of the Employment Standards Act. However the court found that TWU’s conduct during negotiations including the hardball tactics and raising baseless performance issues deserved an award of punitive damages. The court stated:
 As stated, the TWU executive may have felt the plaintiff was not performing her job duties as they had expected and they were paying her too much. Her job performance issues were not addressed with her at any time during her employment other than during the negotiations she initiated. In my view they were addressed at that time to pressure her into abandoning her contractual rights. I am also of the view the TWU’s ‘take it or leave it’ demand that she defer any wage increase to 2016 was strategically chosen to frustrate the Contract and the plaintiff. I find her responses were not “insubordinate”: rather they were made out of her frustration at being rebuffed and an employer’s offer that was far from the initial Contract she entered into. In my view TWU’s conduct of negotiations with the plaintiff was characterized by delay, by a lack of good faith and with little sensitivity for her and warrants an award of punitive damages. In essence, the plaintiff had been constructively dismissed and was justified in resigning her employment under the circumstances.
 The TWU was put on notice in Ms.Pepin’s letter of February 20, 2013 the plaintiff’s health was being adversely affected by its refusal to honour its contractual obligations and that she was seeking professional help for stress and anxiety.
 I award the plaintiff $25,000 as punitive damages for the unduly insensitive treatment she was subject to during her attempts to exercise her rights to renegotiate the Contract.
The law in respect of an employer’s obligation to act honestly and in good faith not just at the time of termination but during the employment is developing rapidly in light of the Supreme Court of Canada’s decision in Bhasin v Hrynew 2014 SCC 71. Although the Bhasin decision was not relied on by the court in awarding punitive damages it reflects the views of the courts to protect employees who are vulnerable and subject to stress and anxiety and unfair treatment during their employment and at termination. I suspect this area of the law will expand and there will be more and more cases where such damages are awarded. Stay tuned!