Law Times

Law Times • apriL 20, 2015 Page 7 www.lawtimesnews.com COMMENT Tarion's model offers many benefits BY CHRIS SPITERI For Law Times arion Warranty Corp., like other organizations designated by statute to administer consumer protection, has the authority to operate with oversight but also with a measure of independence that benefits the delivery of services. The government conceptualized and implemented this decision on a proven model and created the delegated administrative authority model to provide for the effective delivery of services while removing the risk to taxpayers. Opinion pieces such as Alan Shanoff 's March 30 commentary on Tarion's regula- tory model ignore the benefits of this organizational approach and the importance of independence. Organizations such as Tarion independently finance risk and coverage while devel- oping expertise, efficiency, and organization without using tax dollars. The organiza- tion is not a government agency and is neither staffed with public servants nor paid from tax dollars. It is a private, not-for-profit, non-share capital corporation with a mandate to administer the Ontario New Home Warranties Plan Act. Over the years, the government and outside experts have reviewed this model, and all reports recommended continuation or expansion of it. They concluded that the independent delegated adminis- trative authority model reduces costs for the government, improves regulatory outcomes and efficiencies, and increases industry engagement. Over the last 10 years while I have been a member of the board, I have seen how the model allows for forward movement. Independence allows Tarion to act quickly on issues. This year, after receiving feedback at our last annual public meeting, Tarion's chief executive officer and I met with the Licence Appeal Tribunal to explore ways to improve the appeal process. We subsequently initiated an internal dispute resolution review to look at how Tari- on could improve service delivery to homeowners. This year, we were also able to build con- sensus among stakeholders and developed a model to curb illegal and fraudulent building. Tarion's board of directors has changed its own composition to reflect balanced stake- holder representation and created a consumer advisory council to provide a consumer perspective on issues. This council includes new homeowners, condominium association presidents, real estate professionals, and industry standards regulators. Tarion introduced a public consultation process five years ago that recognized the need to engage stakeholders during our policy development process. We continue to look for bet- ter ways to solicit input, and the addition of roundtable discussions with industry leaders, consumers, and employees has increased input on all of our policy proposals. Tarion also created an ombudsperson for homeowners who feel it has treated them unfairly. In addition, Tarion has implemented many of the ombudsperson's recommendations such as improving the handling of mould and special seasonal warranty claims and ensuring informed consent when conciliations are cancelled. Tarion's most recent public consultation began with the recommendation from the ombudsperson to clarify the rules on chargeability. By being able to implement change quickly and effectively, Tarion is now a leader in ag- gregate warranty coverage in Canada. Over the last 10 years, Tarion has invested in online systems that make it easier for new homebuyers to interact with it; doubled warranty cover- age to $300,000 from $150,000; expanded protection for consumers whose closing has been delayed (Ontario is the only province providing such coverage); increased licensing require- ments for high-rise condominiums requiring builders to hire outside consultants to review and report at major stages of construction; strengthened the warranty and builder account- ability for major structural defects; introduced warranty protection related to radon; made amendments to purchase agreements to expand disclosure of closing adjustment costs; and expanded details about a builder's record in the Ontario builder directory. Independence has allowed Tarion to efficiently manage its financial affairs at no risk to Ontario's taxpayers. Over the last 10 years, Tarion paid out more than $100 million in claims and maintains a strong and stable reserve fund to protect new homebuyers' deposits and their warranty in the event of a catastrophic event, something that has happened in other provinces. Tarion has done this without unduly increasing costs to homeowners. Even though it is not a public listed entity, Tarion follows best practices in its ac- counting, reporting, and actuarial standards in accordance with international financial reporting standards. An external appointed actuary reviews Tarion's warranty liabilities in accordance with accepted actuarial practice in Canada and a public accounting firm audits our financial statements. We do all of this to ensure we are more transparent and accountable to the public. This model also provides the Ministry of Government and Consumer Services with oversight of Tarion through its accountability agreement. The government contributes to board composition and the nomination process and requires quarterly reports to the min- istry, annual reports, audited financial statements, annual business plans, yearly regulatory plans, and annual public meetings. Since 2007, Tarion, along with other delegated administrative authorities, has had to con- duct annual consumer surveys. Conducted by Harris Decima, the most recent survey shows a consumer satisfaction rate of 83 per cent. With more than 90 per cent of warranty issues resolved without Tarion having to step in and more than 99 per cent of claims resolved when it does intervene, it is fairly clear that the model works. I am proud of the work that Tarion has done over the last decade while I have been on its board. While there is always room for improvement, changing a proven model could ad- versely affect Ontario's taxpayers. We need to always look at resetting the table rather than kicking the legs out from under it. Looking forward, I believe Tarion will continue to make advancements as it has over the last decade and will create fairness and confidence in the new home buying experience with engagement and co-operation. LT uChris Spiteri is chairman of the board for Tarion Warranty Corp. and a lawyer practising in the areas of corporate commercial law and real estate. Good faith emphasized in SCC employment law ruling BY MONTY VERLINT For Law Times n a prior edition of Law Times, I wrote about the decision of the Supreme Court of Canada to grant leave to appeal in Potter v. New Brunswick Legal Aid Services Com- mission. The appeal was from a decision of the New Brunswick Court of Appeal that held that an employee's suspension with pay did not amount to constructive dismissal and that his commencement of his legal action constituted a resignation from his employment. Then on March 6, 2015, the Supreme Court overturned the Court of Appeal's decision and, in doing so, clarified the law of constructive dismissal. The facts of the case are straightforward. The employee in question, David Pot- ter, was the executive director of the New Brunswick Legal Aid Services Commis- sion. Unbeknownst to him, the board of directors of the commission had resolved to terminate him for cause unless it reached a negotiated resolution with him be- forehand. Thereafter and while on sick leave, Potter received a letter from his em- ployer's legal counsel advising him not to return to work until he received further direction from his employer but informing him that it would continue to pay him. The letter gave no reasons for the suspension, nor was there an indication of how long it would last. After about eight weeks of paid suspension, Potter com- menced an action for constructive dismissal. In response to that action, the em- ployer cut off Potter's salary and benefits. In overturning the decision, the Supreme Court clarified that there are two alterna- tive branches to the test for constructive dismissal. The first and most-cited test has two steps. First, the employer's unilateral change must constitute a breach of an express or implied term of the employment contract. Second, if it does constitute a breach, the court must find it to have substantially altered an essential term of the contract. However, if an express or implied term gives the employer the authority to make the change or the employee consents or acquiesces to it, the change is not a unilateral act and therefore will not constitute a breach or constructive dismissal. The change must be "detrimental" or "substantial" to the employee. In other words, the court must ask whether, "at the time the [breach occurred], a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed." A minor change does not amount to a constructive dismissal. The court noted this is a highly fact-driven exercise. In doing so, the court must not look at evidence that is neither known nor reasonably foreseeable to the em- ployee at the time of breach so as to avoid a fishing expedition. The second branch of the test focuses on whether the employer intends to not be bound by the contract. This approach is necessarily retrospective as it requires consid- eration of the cumulative effect of past acts by the employer and the determination of whether they evinced an intention to no longer be bound by the contract. The empha- sis of the second branch is on whether a "course of conduct" pursued by the employer evinces "an intention no longer to be bound by the contract." In this case, the court held that the employer did not have the authority, whether ex- press or implied, to suspend Potter indefinitely with pay for the reasons it gave and that the suspension was a substantial change that amounted to constructive dismissal. The court recognized that the benefits derived from performing work go beyond simply monetary and reputational ones. According to the court, whether you are a chief ex- ecutive officer or an administrative assistant, there are non-monetary benefits derived from the performance of work. Therefore, no employer is at liberty to withhold work from an employee either in bad faith or without justification. The court found that other than in the context of a disciplinary suspension, an em- ployer does not, as a matter of law, have an implied authority to suspend an employee without reasons. Employers must always show legitimate business reasons, although the nature or importance of them will vary with the circumstances. In this case, the employer had not met the basic requirement and did not provide Potter with any rea- sons for the suspension. At a minimum, acting in good faith in relation to contractual dealings means being honest, reasonable, candid, and forthright; but in this case, the employer persisted in its silence about the reasons even after a request for clarification. In obiter, the court stated that if it had not found a constructive dismissal had oc- curred, it would then have had to determine if the employee had repudiated the con- tract by commencing the action for wrongful dismissal. The court stated it would find an employee to have resigned in the "majority of failed constructive dismissal cases." However, the court left open the possibility that there may be factual circumstances in which an employee may not have resigned. In my view, while the court has clarified the test for constructive dismissal, the case does not represent a fundamental shift in the law. What is important is that the court discussed the importance of work from a non-monetary perspective. Even more sig- nificantly, it emphasized the importance of parties being honest, candid, and forth- right and of acting in good faith. In this case, it was adequately persuaded by the lack of information from the employer during the course of the suspension. Overall, the courts will likely apply these principles to further constructive dismissal cases. For example, when an employer decides to make changes to an employee's contract of employment, the court will do more to scrutinize the hon- esty, candidness, and good-faith conduct by the employer or lack thereof. There- fore, while an employer must still prove that the change does not meet the test for constructive dismissal, if it has justifiable reasons for making changes to the employment agreement and has openly communicated them in good faith to the employee, that may go a long way in assisting its position. LT uMonty Verlint practises labour and employment law at Kuretzky Vassos Henderson LLP. u SPEAKER'S CORNER T I

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