147 D.L.R. (4th) 128, 29 C.C.E.L. (2d) 96, 30 O.T.C. 172

1997 CarswellOnt 1779

Schumacher v. Toronto Dominion Bank

C. John Schumacher, Plaintiff and The Toronto-Dominion Bank and Toronto-

Dominion Securities Inc., Defendants

Ontario Court of Justice, General Division

Kiteley J.

Judgment: May 15, 1997

Docket: Toronto 95-CQ-61700CM

Proceedings: additional reasons at (November 17, 1997), Doc. Toronto 95-CQ-61700CM (Ont. Gen. Div.)

Counsel: R.L. Colson and Larry M. Najjar, for plaintiff.

Robert S. Harrison and David F. O'Connor, for defendants.

Subject: Labour and Employment

Employment Law --- Termination and dismissal -- Termination of employment by employer -- Constructive dismissal -- Change in responsibilities or location of work

In nine years plaintiff progressed from trainee to senior vice president of defendant bank responsible for all trading in five key areas of bank's treasury operations -- Bank unilaterally decided to hire employee to assume part of plaintiff's duties and responsibilities -- Bank's action constituted constructive dismissal -- Implied term of employment contract that bank first consult plaintiff before making fundamental changes to plaintiff's duties and responsibilities -- Bank's unilateral decision to hire employee and change plaintiff's duties and responsibilities without first consulting plaintiff amounting to repudiation of employment contract.

The plaintiff commenced his employment with the defendant bank in 1984 and consistently moved into positions of greater responsibility. By 1994, he was a senior vice president, had acquired the top trading position in the bank and was responsible for all trading in each of the bank's five key areas. Throughout his employment, the plaintiff received positive and sometimes exceptional performance appraisals. The bank recognized the plaintiff as an important contributor to its derivative products and fixed income groups and acknowledged that he helped the bank achieve a top bond underwriting position. The plaintiff's notable achievements and contributions to the bank's profitability were reflected in the compensation which he received by way of salary and significant bonuses for successive years between 1987 and 1994. The compensation was related to the plaintiff's productivity and the profitability of his group. In the 18 months preceeding his departure from the bank the plaintiff received bi-annual bonus payments of $650,000 to $700,000.

In January 1995, the bank hired W to assume responsibility for fixed income, money trading, bond borrowing and lending operations. The plaintiff retained responsibility for foreign exchange, derivatives and bank funding operations. As a result of this, the plaintiff lost reponsibilty two of his four products, including the product with the greatest potential for growth. He also lost the opportunity to make broad recommendations affecting all five areas and participate in their implementation. As well, the plaintiff's objectives, as set out in his job description, could not be met in many respects because he no longer had control nor direction over important products and research. Furthermore, as a result of the changes in the plaintiff's duties and responsibilities brought about by W's hire, the plaintiff also stood to lose approximately 15 percent of his bonus, which constituted the most significant component of his total yearly compensation package.

The bank did not discuss W's hiring with the plaintiff prior to the hiring for fear that the plaintiff would react negatively and leave as a result. The bank maintained that the position held by the plaintiff was not materially changed and that the plaintiff should return to work. When the plaintiff failed to return to work on the date requested by the bank, the bank took the position that the plaintiff had resigned from his employment. The plaintiff brought an action for wrongful dismissal, alleging that he was constructively dismissed.

Held: The action was allowed.

While the employer has the unilateral right to change the duties and responsibilities of an employee, there are limits on those rights. Where the unilateral change is substantial, it constitutes a fundamental breach of contract and is constructive dismissal. It was an implied term of the plaintiff's employment agreement that he be consulted before fundamental changes were made and that he be involved in the process of hiring significant employees, especially where the hiring posed a fundamental change to his own duties and responsibilities. The hiring of W was the first time that fundamental changes were made to the plaintiff's duties and responsibilities without his consent and collaboration. These changes were material in nature and amounted to a repudiation by the employer of the contract of employment, and the constructive dismissal of the plaintiff on that date.

In none of the communications from the plaintiff to the bank did the plaintiff make a clear and unequivocal statement of intention to resign. The plaintiff was entitled to keep his position with the employer until he was constructively dismissed or he resigned. It was not essential that he take the positive step of saying that he wanted to keep his job. The plaintiff therefore did not repudiate the contract of employment and the option of treating him as though he had resigned was not open to the bank.

Cases considered by Kiteley J.:

Bardal v. Globe & Mail (The), [1960] O.W.N. 253, 24 D.L.R. (2d) 140 (Ont. H.C.) -- considered

Black v. Second Cup Ltd. (1995), 8 C.C.E.L. (2d) 72 (Ont. Gen. Div.) -- considered

Bremner v. Trend Housewares Ltd. (1985), 51 O.R. (2d) 101, 7 C.C.E.L. 272 (Ont. H.C.) -- applied

Canadian Bechtel Ltd. v. Mollenkopf (1978), 1 C.C.E.L. 95 (Ont. C.A.) -- considered

Cayen v. Woodwards Stores Ltd., 75 B.C.L.R. (2d) 110, 100 D.L.R. (4th) 294, [1993] 4 W.W.R. 11, 45 C.C.E.L. 264, 22 B.C.A.C. 32, 38 W.A.C. 32 (B.C. C.A.) -- considered

Cox v. Royal Trust Corp. of Canada (1989), 26 C.C.E.L. 203, 33 O.A.C. 95 (Ont. C.A.) -- considered

Davidson v. Allelix Inc. (1991), 39 C.C.E.L. 184, 86 D.L.R. (4th) 542, 7 O.R. (3d) 581, 54 O.A.C. 241 (Ont. C.A.) -- considered

Farber c. Royal Trust Co. (1996), (sub nom. Farber v. Royal Trust Co.) 145 D.L.R. (4th) 1 (S.C.C.) -- referred to

Farquhar v. Butler Brothers Supplies Ltd., 23 B.C.L.R. (2d) 89, [1988] 3 W.W.R. 347 (B.C. C.A.) -- considered

Greaves v. Ontario Municipal Employees Retirement Board (1995), 15 C.C.E.L. (2d) 94, 129 D.L.R. (4th) 347 (Ont. Gen. Div.) -- considered

Kolcun v. Carsten Electronics Ltd. (May 8, 1995), Doc. CA C16909 (Ont. C.A.) -- considered

Longman v. Federal Business Development Bank (1982), 36 B.C.L.R. 115, 131 D.L.R. (3d) 533 (B.C. S.C.) -- applied

Meyer v. Jim Pattison Industries Ltd. (1991), 38 C.C.E.L. 101 (B.C. S.C.) -- applied

Michaels v. Red Deer College, [1976] 2 S.C.R. 324, [1975] 5 W.W.R. 575, 5 N.R. 99, 75 C.L.L.C. 14,280, 57 D.L.R. (3d) 386 (S.C.C.) -- applied

Mifsud v. MacMillan Bathurst Inc. (1989), 28 C.C.E.L. 228, 63 D.L.R. (4th) 714, 35 O.A.C. 356, 70 O.R. (2d) 701 (Ont. C.A.) -- applied

Moore c. University of Western Ontario (1985), 8 C.C.E.L. 157 (Ont. H.C.) -- considered

O'Grady v. Insurance Corp. of British Columbia (1975), 63 D.L.R. (3d) 370 (B.C. S.C.) -- considered

Orth v. MacDonald Dettwiler & Associates Ltd. (1986), 8 B.C.L.R. (2d) 1, 16 C.C.E.L. 41 (B.C. C.A.) -- considered

Pulak v. Algoma Publishers Ltd. (1995), 10 C.C.E.L. (2d) 111 (Ont. Gen. Div.) -- considered

Ryshpan v. Burns Fry Ltd. (1995), 10 C.C.E.L. (2d) 235, 95 C.L.L.C. 210-036 (Ont. Gen. Div.) -- applied

Skidd v. Canada Post Corp. (1993), 93 C.L.L.C. 14,027, 47 C.C.E.L. 169 (Ont. Gen. Div.) -- applied

Smith v. Viking Helicopter Ltd. (1989), 24 C.C.E.L. 113, 31 O.A.C. 368, 68 O.R. (2d) 228 (Ont. C.A.) -- considered

Stacey v. Consolidated Foods Corp. of Canada (1987), 15 C.C.E.L. 113, 76 N.S.R. (2d) 91, 189 A.P.R. 91 (N.S. T.D.) -- considered

Wilkinson v. T. Eaton Co. (1992), 2 Alta. L.R. (3d) 71, 41 C.C.E.L. 57, (sub nom. Wilkinson v. Eaton (T.) Co.) 130 A.R. 55 (Alta. Q.B.) -- considered

Wood v. Canadian Marconi Co. (1995), 9 C.C.E.L. (2d) 174 (Ont. Div. Ct.) -- applied

ACTION for wrongful dismissal.

Kiteley J.:

1 John Schumacher was a highly regarded, very profitable senior executive in the employ of the defendants. In the fiscal year which ended shortly before his departure, he was within the top five earners in the Bank. He had, what he described as, the best job in Canada. Did he choose to leave this environment or was the choice made for him? For the reasons which follow, I find that he was constructively dismissed.

Employment History of John Schumacher

2 Schumacher is 41 years old. He obtained an LLB in 1980, and was called to the Ontario Bar in 1982. He has never practiced as a lawyer. He completed an MBA in the spring of 1984. The Toronto Dominion Bank (the TD Bank) was his first and only employer between graduation and 1995.

3 While still a student at the University of Western Ontario in early 1984, Schumacher met Ken Foxcroft at a reception. At that time, Foxcroft was Vice President, International Treasury at the Bank. Foxcroft and Schumacher hit it off. Schumacher accepted the training position offered by the TD Bank, and started working in May 1984.

4 Schumacher began as trainee in the Trading Room at a salary of $30,000. Throughout his career, he received positive and sometimes exceptional performance appraisals. In the spring of 1985, he was promoted to Treasury Officer, International Treasury. The performance review in 1986, when he was Senior Treasury Officer, indicated that Schumacher "showed a high degree of ability and initiative. He was able to quickly identify problems and propose and implement solutions."

5 In the spring of 1986, Schumacher was offered the position of Senior Treasury Officer in Tokyo. Schumacher attempted to negotiate a better financial arrangement than that offered by the Bank. He was promoted to Senior Dealer, Capital Markets in 1986, even though he rejected the offer to move to Tokyo. In the spring of 1987, he became eligible for participation in the Bank's Performance Compensation Plan (PCP).

6 After a brief stint as Senior Dealer, in June 1987, he was promoted to Chief Dealer, Capital Markets. This was a significant step for Schumacher. He had come to realize he was going to be a success. He knew that he could trade. He felt he was starting to get recognition from his peers as a rising star. The performance appraisal listed his strengths as "extremely strong math skills and very high desire to succeed and detailed knowledge of inter-relationships of major markets (a rare skill)." Schumacher had continued to take courses to increase his knowledge. He was acknowledged for his efforts with the comment in the appraisal that he was "a very profitable and most highly educated trader in TDB".

7 In the spring of 1988, Schumacher became eligible to participate in the Bank's Long Term Incentive Plan (LTIP). As a result, Schumacher was awarded units which had a base price of zero and the market value of the Bank's common stock. The units were redeemable in five years, with the redemption price based on the trading price. In the letter notifying Schumacher of his eligibility, the President of the Bank described the rationale of the Plan as to "focus management's attention on building shareholder value". The letter further indicated that the Board of Directors "has identified you as a being an important contributor to the Bank and want you to feel as a senior management employee that you have a significant ownership interest in the Bank's long term results."

8 Although his star was clearly rising, Schumacher resigned in May 1988. Since these circumstances came to be relevant when events occurred in 1995, I digress to summarize what occurred. Schumacher received an offer of employment from another bank with a significant salary increase and signing bonus. He met with Foxcroft and Bob Kelly (then General Manager, Capital Markets and Fixed Income Group) to discuss the pros and cons. In the end, Schumacher agreed to stay, with an increased salary equal to the competitor's offer and an increase in his trading limits, giving him greater scope in his job. The performance appraisal completed shortly after this event was very positive, including comments such as "outstanding trading skills".

9 In March 1989, Schumacher was promoted to Assistant General Manager and Chief Trader, Capital Markets and Fixed Income, Treasury & Investment Banking Division. This was the first of his appointments senior enough to require the approval of the Board of Directors. He became an officer of the Bank. The derivative products group which he had supervised had done very well, while the fixed income group had done poorly. Kelly created a group to help to improve fixed income performance. The performance appraisal completed later in 1989 included this comment under performance characteristics: "Expert understanding of the mechanics, trading and risk management of the bank's most complex foreign currency and interest rate related products. Highly disciplined, organized and dedicated. Is able to work with little supervision." Kelly and Foxcroft commended him for his "major accomplishments", and noted that profitability in fiscal 1989 was "significantly well above plan."

10 By the spring of 1990, it was apparent that Schumacher had "made major contributions to the reorganization and redevelopment" of the fixed income group and had achieved "significant improvement in the unit's performance". As a result, in June 1990, the Board of Directors approved his promotion to General Manager, Capital Markets & Fixed Income. His performance appraisal later that year noted that he had "consistently exceeded job expectations over the past year".

11 Schumacher continued to perform well. In 1991, the Board of Directors approved his appointment as Managing Director and Chief Trading Officer of Toronto Dominion Securities Inc. (TDSI), and he was elected to the Board of TDSI. Shortly thereafter, he was appointed to the position of Vice Chairman, TDSI. The memorandum by Foxcroft recommending the appointment contained this explanation: "With Mr. Schumacher now being responsible for trading activities in bonds and money market securities, he is already performing the role of Chief Trading Officer for a large part of the Bank's exposure. The Chief Trading Officer recognizes this fact and his membership on the Board will provide valuable input into trading risk and compliance issues." These changes put Schumacher into the senior management category, and made him eligible for further performance bonuses. His position at TDSI signalled his involvement in the regulatory issues which arose in running an investment bank. When he became Vice Chairman, TDSI, he joined five other Vice-Chairmen and the Chairman, the small group responsible for TDSI. Schumacher reported to Foxcroft both at the Bank and at TDSI.

12 Schumacher said that in 1991, he had a discussion with Charles Baillie, then Vice-President of the Bank. In this discussion about compensation, Baillie told Schumacher he was doing a good job and that, for the foreseeable future, the amount at the bottom right hand corner of his tax return would exceed $1 million. Baillie did not adopt that remark attributable to him about the tax return, but he did say that if Schumacher's performance continued, he would receive a bonus such as he had in the past.

13 In the performance appraisal in August, 1991, it was noted that "under Mr. Schumacher's management and direction, strong progress has been made over the past 12 months in money markets, bonds and capital market (derivative products) activities." The concluding remark by Foxcroft was that "Mr. Schumacher's sphere of responsibility has dramatically increased over the past 12 months, a major challenge for him in 1992 will be effective delegation of responsibilities to his key reports."

14 In late 1991, Schumacher was approached by a head hunter. He informed his superiors of this, which resulted in discussions of improving his compensation package. Schumacher declined the position promoted by the head hunter. But, the negotiations which ensued left him with a compensation package very similar to the competitor's position.

15 The performance appraisal in late 1992 reflected an overall rating of "B". It identified the "considerable progress" which had been made by Schumacher and his group in certain key aspects of the business. The "noticeable achievements" included, maintaining the leading money market dealer position with the Canadian market, attaining the top ten fixed income dealer position, attaining the top three position in Canada for medium term derivative products and first position for short term derivative products, dramatically upgrading the results for the Canadian derivatives group, playing a leading role in contributing to the success of the ALCO Committee, leading TDSI to a top three corporate bond underwriting position in Canada, and dramatically upgrading the bank's market position with key provincial governments.

16 In February 1993, Foxcroft announced that the Board of Directors had promoted Schumacher to the position of Senior Vice President, Capital and Money Markets Group (Global), Treasury, Corporate & Investment Banking Group. This was a significant promotion to the office of Senior Vice President. It put Schumacher in the group of senior people in the bank. The new position encompassed derivatives, fixed income and money markets. The appointment was not accompanied by a salary increase, but did attract other benefits.

17 In less than 9 years, Schumacher had progressed from Trainee to Senior Vice President. He consistently moved into positions of greater responsibility, and achieved or exceeded the Bank's expectations. As Senior Vice President Capital and Money Market Group, he was accountable for co-ordinating underwriting, distribution and trading of derivative, fixed income and Canadian Treasury money market products for the Bank, and managing the Bank's Canadian and U.S. funding activities. This required developing a strategy to increase new business and developing a strong group of subordinates.

18 While Schumacher welcomed the new responsibilities of the position of Senior Vice President, there were significant stresses both in his business and personal life. He had separated from his wife and had been working seven days a week. In late May or early June, he attended a TDSI meeting, where he and Foxcroft made a presentation on the Fixed Income group. They were met with some criticism of the group's performance. He felt burnt out and unsupported by his peers.

19 On June 30, 1993, Schumacher was notified of his bonus for the first half of the fiscal year. Later that day, he submitted his written resignation to Baillie, who was then Vice Chairman, Corporate and Investment Banking Group. He indicated that he would continue to work until his departure date was agreed upon. He did not have another job, nor had he looked for one. Although he was reporting to Foxcroft at that time, he submitted his resignation to Baillie as Foxcroft was away.

20 In anticipation of meeting on July 20th, Schumacher sent a detailed letter to Baillie setting out the "measures necessary, in approximate order of priority" to have him withdraw his letter of resignation. His conditions included the promise that within 3-4 years he would be among the senior officers running the Bank, a change in reporting structure in order that he report to Baillie, increased staff, and a commitment for increased compensation (base salary and bonus). The priorities were essentially, career opportunities and compensation, in that order.

21 Baillie agreed to all conditions except the change in reporting from Foxcroft to Baillie. Schumacher withdrew his resignation. Schumacher said, in retrospect, that he was happy he had retreated from the impulsive decision to resign, which he had made to escape family and other pressures.

22 In the summer of 1993, steps were taken to reorganize Treasury Group given the changes in the market which caused them to desire an organization which made them more accessible to their clients. The planning and design took place during the balance of 1993. Implementation of the "Navigator project" took effect in February, 1994. Schumacher was in charge of the project. Up to that point, the Treasury Group had been organized by products with trading, sales and administration designated to each product. The conceptual change was that Treasury was re-organized along function lines, and not along product lines. The process of conception, design and implementation was very interactive. Schumacher achieved a high level of consultation, both within the group and in other departments. All senior people experienced a job change except for Foxcroft.

23 As a result of the change, Schumacher became responsible for all trading in each of the five key areas: derivatives, fixed income, money market, funding (including repos), and foreign exchange. Three other vice presidents were in charge of institutional sales, commercial sales, and retail sales.

24 While that project was underway, and before the organizational changes took effect, Foxcroft did the 1993 appraisal, and gave Schumacher an overall rating of "B+" with this comment:

The interest rate environment during fiscal 1993 did not provide the same opportunities to John Schumacher and his group as were seen in 1991 and 1992. "Choppy" markets had a detrimental impact on trading in the early part of the year, but results have improved in the latter months. Excellent progress has been made with regards to the distribution of Fixed Income and Derivative Products.

Foxcroft summarized nine notable achievements for Schumacher and his group over the preceding year including:

...being the leading instigator of the "Navigator Project" which has prompted a total review of how we develop and distribute treasury products to our various client sectors. Changing the emphasis of the Canadian Treasury operations from a product to a client focused organization.

25 The organizational changes took effect in February 1994, at which point Schumacher became Senior Vice President, Treasury Trading & Risk Management. He had the top trading position in the bank with global responsibilities. Schumacher said that he was very happy in the reconstituted job. He felt that trading really suited him and that the reorganization achieved the change he had been looking for. He described it as the "ideal job" and the "best job in any trading room in Canada".

26 In September 1994, Schumacher received his performance appraisal from Foxcroft at the same time as the job specification for the new position was finalized. The appraisal is attached to the Position Document (referred to below). This was his last appraisal, and his best. His overall rating up to February 1994, was "B+", and after the change in responsibilities his rating was "A". Foxcroft reported that "under John's direction, trading results for the first 7 months of 1994 reached record levels." Schumacher's "notable achievements" included a dramatic increase in contribution to profit (CTP) of derivatives and fixed income groups, upgrading staff, reorganizing the trading sector, and providing a focus for the newly formed proprietary trading group.

27 In the usual year end letter of December 1994, reporting on the bonus for the fiscal year, Foxcroft indicated that "fiscal 1994 represented a record year for the Treasury Group with an increase of 24% to the Bank's total profits over last year." Because performance was stronger in the first six months than in the last six months, the year end installment of the bonus was not as high as might have been suggested by the earlier high performance. In response to the bonus letter, Schumacher sent an e-mail to Baillie personally thanking him for the bonus and indicating that he felt "very grateful for being given the opportunity to earn such a good living and to have such a good job".

28 While Schumacher expressed considerable gratitude, the process of the year end performance appraisal and bonus calculation was not without controversy. Schumacher's compensation, both salary and bonus, was related to his productivity and the profitability of his group. Typically, Schumacher met with Foxcroft and exchanged views on profitability, taking unique circumstances into account. There was clearly an element of negotiation, particularly on the subject of what Schumacher's peers were receiving at other financial institutions. Schumacher was not always content with the outcome. But he was highly involved in the process. In the fall of 1994, Schumacher asked for a total year bonus of $2 million.

29 Schumacher was rewarded in benefits and perquisites, and in salary and bonus.

30 The following table summarizes his compensation for the calendar years indicated:

Year Salary Bonus Total

1987 $ 60,000 $ 49,000 $109,000

1988 $ 90,000 $ 80,000 $170,000

1989 $110,000 $130,000 $240,000

1990 $135,000 $231,000 $366,000

1991 $150,000 $750,000 $900,000

Year Salary Bonus Total

1992 $150,000 $ 900,000 $1,050,000

1993 $175,000 $ 850,000 $1,025,000

1994 $200,000 $1,400,000 $1,600,000

1995 $200,000 $ 0 $ 200,000

31 The bonus payments in later years were paid bi-annually. In 1993, the installments were in the amounts of $200,000 and $650,000. In 1994, the installments were each $700,000. In the 18 months preceding his departure, Schumacher received bi-annual bonus payments of $650,000 to $700,000. By far the largest component of his compensation was the bonus.

32 In January 1995, Schumacher had one hundred and two people reporting to him directly or indirectly (referred to as "reports"). Of those people, fifty-six directly reported to him. He was responsible for four major businesses: derivatives, foreign exchange, fixed income, and money market. Schumacher and members of his group handled trillions of dollars of investments. Schumacher's job was "much bigger than any other in the Canadian Market", and was so significant and so diverse that it was not replicated in Canada, which caused difficulties in finding comparables for purposes of establishing compensation. Schumacher was in charge of the Trading Room for one of Canada's leading banks. Schumacher spent about 5 hours each day in the Trading Room, 25% of that in making his own trades, and 75% in watching other peoples' positions and setting the trading strategy.

33 Schumacher said that he loved his job. He also felt partly responsible for creating it through the Navigator Project. Although still in the early stages, he felt it had already been proven a success. He said that there had been no year when he had more job satisfaction. He felt that the group had "fired on all cylinders".

34 The TD Bank built an investment banking business with individuals promoted from within, by merging or acquiring brokerage firms, and by hiring known performers at other institutions. Schumacher and his peers and seniors were always alert to external prospects. It was expected before and after Navigator that the trading room needed more experienced talent.

35 Before moving to the events which occurred at the end of January, a brief description of other significant persons is required.

36 Ken Foxcroft has worked for the T.D. Bank since about 1963. He progressed through many levels of responsibility similar to the advancements experienced by Schumacher. During the events in January 1995, Foxcroft was an Executive Vice President of the Bank and Deputy Chairman of TDSI.

37 Foxcroft described the massive growth in treasury businesses from 1985 to 1995 at TD Bank and all banks and investment dealers. Increasingly, banks had to compete for employees against investment dealers. Compensation that involved a bonus scheme was imperative. Foxcroft was involved in introducing it to the TD Bank. The Performance Compensation Plan (PCP) worked as follows. The success of the Treasury Group was determined by calculating the total revenue generated. Then the revenue from each product group was isolated and from that, the expenses of the product group were deducted. The remaining amount was the contribution to Profit (CTP). Then a portion of that CTP was put into the pool from which bonuses were paid. The portion of the CTP varied by product, for example, it was 10% for foreign exchange and 27.5% for derivative products. Generally, bonuses were paid only from that pool. The group and individual contribution in the year was calculated with comparisons between groups. At some of the senior levels, they commissioned market surveys to gain an understanding of what "the competition" was paying to ensure that the aggregate of salary and bonus was competitive in order to retain the executive. It was Foxcroft who made the decisions up to Schumacher's level. For Schumacher, he made a recommendation to Baillie. Baillie would involve others including the President of the Bank and the Compensation Committee.

38 Before making a decision or recommendation as to bonus, Foxcroft discussed it with the employee. Typically, the employee, including Schumacher, put forward a "brag sheet" to outline the individual contribution. The discussion usually included what the employee's expectations were. Foxcroft explained how difficult it had been to find a comparator for Schumacher's job because there was no other job like it in Canada. This had an impact on the discussions about the "retention factor". In addition to the profitability and comparative components of the bonus analysis, Foxcroft also considered soft factors such as potential and team work.

39 Generally at the half way point in the year, the analysis was made of performance to date, it was annualized and the employee received 40% of what the year end bonus was expected to be, to give some room in case any negative change in performance occurred in the second half of the year.

40 Foxcroft thought that he and Schumacher had a good working relationship. They talked several times each day and Foxcroft tried to meet with his reports weekly. Discussions in these regular meetings with Schumacher and others included people or human resources issues such as hiring, or promotion or people with disappointing performance or risk issues etc.

41 Following the implementation of Navigator, Foxcroft described Schumacher's role as head of global trading to include direct responsibility for all of Canada, oversight responsibility for non-Canadian offices, trading, risk management, compliance with Bank policies and regulatory requirements. Schumacher also had a broader responsibility to consider the future of the business and how the Bank would grow, and to make recommendations to Foxcroft and the Executive.

42 Allan Bell had been with TD Bank since 1981. He is Senior Vice President, Human Resources. He had been involved with recruitment for Treasury since the mid 1980's. He has dealt with recruitment, organization, compensation, and training. Bell had worked with Schumacher. After Schumacher resigned in 1993, Bell made a deliberate effort to communicate frequently with Schumacher. Bell said that the senior vice president group is the team which has accountability to run the businesses. They have a team approach. They are compensated on the basis of the impact that they have on the share value of the Bank.

43 A. Charles Baillie joined the Bank in 1964, and except for three years elsewhere, has been with the Bank ever since. He is the President. He first knew Schumacher in 1985 or 1986 when Treasury started reporting into his area. He had been involved when Schumacher resigned in 1993. He agreed that he had told Schumacher that he was one of four or five of the officers of his generation who, with skill and with a little luck and continued good performance, should be in the group running the Bank, meaning at the level of executive vice president and up.

Events Leading up to Hiring Donald A. Wright

44 Before embarking upon an outline of the events, I digress to remark that, in this case, there is a considerable paper trail. Key events were summarized in memoranda to individuals or to files. And the telephone line in the trading room from which Schumacher typically conducted business (with an extension in his office) was constantly recorded for purposes of verifying the communications and instructions between and among traders and clients and others. The tapes of relevant conversations and transcripts of those tapes were produced.

45 Donald A. Wright had been President of Merrill Lynch, Canada until April 1994, when he had joined Burns Fry as Executive Vice President, Fixed Income. When Burns Fry was acquired by another firm, Wright became available. He had a very high profile in the fixed income area. In August 1994, when Schumacher had one of his meetings with Baillie, they discussed possible "hires". Baillie asked Schumacher what he would think about Wright coming to the Bank. Schumacher responded that he thought Wright would want Baillie's job or Foxcroft's job because Wright was between Baillie and Schumacher in terms of stature and experience. Schumacher said that he did not consider Wright as a threat to him because Wright wasn't a trader. He described Wright as more of a "sales person".

46 Baillie said that he had raised with Schumacher the prospect of hiring Wright to "give us a boost in the fixed income side." Baillie could not remember Schumacher's exact response, but he understood that Schumacher didn't think it was a good idea. Baillie said that he remembered "clearly that it was not something [Schumacher] would favour".

47 In cross-examination, Schumacher accepted that he might have been a bit flippant with Baillie in his remark about Wright wanting Baillie's job. He thought that the conversation was casual, not focused on Wright. He resisted Baillie's interpretation that he gave the impression that he was opposed to Wright running Fixed Income.

48 In September 1994, Schumacher had a conversation with Ken Hight and Andrea Rosen, both of whom were Senior Vice-Presidents, in which Hight raised the possibility of Wright joining the TD Bank to run Fixed Income. Immediately after, Schumacher called Foxcroft to report how Hight had been "stirring the pot". Since the call was made on a phone line which is recorded, the tape and the transcript were produced. One can draw the inference from the call that Schumacher was not enthusiastic about the prospects of Wright taking over one of his key areas, namely Fixed Income. In cross-examination, he explained that he was very sensitive to criticism about the progress of the Fixed Income area, and that it was a hot button, particularly coming from Hight. His concern was that Hight and Rosen would not be the executives who would present a credible proposition about Wright, and that Hight was simply making a point of needling Schumacher. Schumacher said he was reacting negatively to the needling, not to the prospects of Wright being hired. It was Hight who had been the leader of the criticism in the TDSI meeting in 1993, which had been a factor in Schumacher's resignation. Foxcroft's evidence about the phone call was that Schumacher "didn't seem to be too pleased with the idea" of Wright being hired, and he took some objection to Hight and Rosen as the source of the prospect.

49 Foxcroft said that in early October, he had told Schumacher and Peter Bethlenfalvy that he had had lunch with Wright, and that Wright had offered his services as a consultant. According to Foxcroft, Schumacher's reaction was that it wasn't a good idea. Schumacher did not give any evidence about this event.

50 Schumacher said that, after the Hight/Rosen contact, he did not hear about Wright again until the morning of January 24, 1995, when he heard through the grapevine that Wright had been hired to run Fixed Income. Unbeknownst to Schumacher, senior officers of the Bank had engaged in preliminary discussions, and they had finally negotiated an agreement with Wright. All of which was done deliberately without Schumacher's knowledge.

51 In August 1994, Baillie and Marshall Lewis (Vice President, Human Resources) had met with Wright. In early September, Baillie asked Foxcroft to consider whether the Bank/TDSI should hire Wright to run the Fixed Income Area. Foxcroft said that he was "a little caught by surprise", and asked Baillie if he could consider it before responding. Foxcroft sent Baillie a memo dated September 7, 1994, outlining the pros and cons. On the positive side, he thought that hiring Wright would be "an attractive solution to quickly build our Fixed Income and Money Market Securities Business". Foxcroft prepared an organization chart by taking those areas away from Schumacher and putting them under Wright, while still having Schumacher and Wright report to Foxcroft. He also outlined four problems, two of which related to Schumacher:

(1) Be prepared to offer C.J. Schumacher a package (constructive dismissal).

(3) We would potentially lose C.J. Schumacher's trading revenues (which would, hopefully, be offset by increased revenues from the upgraded Fixed Income Group).

Foxcroft's explanation on the latter point was that if Schumacher left, the considerable revenues from his personal trading in bonds and derivatives would be lost. Foxcroft's closing recommendation was that he and Baillie should have further conversations with Wright.

52 Foxcroft was questioned at length about the first of his comments in the memo to Baillie about offering a package to Schumacher. He said that he had not discussed with anyone knowledgeable the meaning of "constructive dismissal" before he wrote the memo, and he had never been through a situation where an employee alleged such dismissal. He used the term because he had heard it before. And he knew that Schumacher would not receive the hiring "in a positive way". Foxcroft was conscious of Schumacher's legal background, indeed it had been a factor in his original hire, and he thought that a "possible outcome" would be that Schumacher would assert constructive dismissal. He anticipated that Schumacher would be upset if Wright were hired and that he would react negatively and might want to leave the Bank. He formed this conclusion on the basis of the telephone conversation about Hight "stirring the pot", and on what he perceived as Schumacher's two previous resignations and threats to resign on other occasions. Foxcroft thought that Schumacher would "strongly object" to Wright being hired. Although Foxcroft had expressed these concerns about Schumacher potentially leaving, he nonetheless did not want Schumacher to leave. He "definitely did not want to lose him".

53 In September or early October, Foxcroft met with Wright. Wright wanted to come in at the Executive Vice President level, the same as Foxcroft and Kym Anthony. Foxcroft told Wright that it was unlikely, but that he would talk to others. As an alternative, Wright suggested that he come in as a consultant for six months or so to advise on "growing" the investment banking business.

54 Foxcroft canvassed the prospect of Wright coming in at the Executive Vice President level with Anthony. Anthony was not impressed with the prospect and unwilling to share responsibility with Wright. Foxcroft then reported Wright's proposal to Baillie, advising him that neither he nor Anthony were keen on the idea. He recommended that Wright not be hired at the Executive Vice President level, and Baillie agreed that it should be dropped.

55 Wright subsequently approached Foxcroft in early November, and outlined his proposal which essentially involved Wright taking over "a whole range" of Foxcroft's existing responsibilities. Foxcroft canvassed the proposal with Baillie, Bell and Lewis. The consensus was that the others "were comfortable about [Foxcroft] doing the job" and the proposal was rejected. Foxcroft added Baillie's comment that if Wright was rejected, then Foxcroft ought to be looking to hire people for the Fixed Income area. It was shortly after this that Schumacher hired Chris Coderre to work as a trader in Fixed Income. More will be said about Coderre below.

56 Wright surfaced again. He called Foxcroft and they had lunch at the end of December. Wright was still interested in TD Bank and willing to come in at a lesser role. He thought his abilities were in fixed income and the repo business. Foxcroft thought that this proposal was more "workable". He rationalized the Wright hire in those areas in this way. Foxcroft had experienced a lot of pressure from peers to build the business quickly. Schumacher and Bethlenfalvy had tried to build it over two or three years and had done well and quickly passed some of the smaller players in the market. TD had gone from 16th or 17th ranking over a three year period to 6th or 7th ranking without costing a lot of money in acquisitions. They had acquired a brokerage firm which did mergers and acquisitions. They had increased derivative business. They were building a research capability and were developing relationships. There was some feeling that fixed income wasn't growing at the same pace as derivatives. Wright had twenty years' experience and had built Fixed Income at Merrill Lynch and, in his short tenure at Burns Fry, he had accomplished a lot. Foxcroft thought that the Wright hire would give TD "instant credibility" in Fixed Income and would make it easier for the Bank to attract critical clients. Foxcroft thought that this was an opportunity which could not be rejected.

57 Foxcroft reported this proposal to Baillie and Anthony who were in agreement. From that time forward, Marshall Lewis, Vice President, Human Resources, handled the negotiations with Wright. By letter dated January 20, 1995, Lewis informed Wright of the proposed terms of his employment as Vice Chairman, TDSI, reporting to Foxcroft as Executive Vice President of the Bank. The Board would be asked to appoint him as a Senior Vice President in the Bank after he started. His responsibilities would include "Fixed Income and Money Market Trading operations (including the bond borrowing, lending and "repo" activity) together with the distribution of Interest Rate securities and other Treasury products to the Corporate Borrowers, Canadian Government accounts and institutional investors." After some negotiations on compensation, Wright accepted the employment offer on the evening of Monday, January 23rd.

58 Foxcroft was asked why he had not discussed the prospect of the Wright "hire" with Schumacher. He thought that Schumacher would take the news negatively, and that he would leave the Bank as a result of it. Foxcroft did not want him to leave. Further, he was not entirely sure that Wright was coming until he signed the contract, and he did not want to be left without both Schumacher and Wright. It was Foxcroft who recommended that Schumacher not be told until after Wright had been hired.

59 When Foxcroft was asked how he intended to deal with Schumacher's possible departure after learning of Wright's hire, he responded by saying he would try to carefully explain to Schumacher why the Bank thought the hire was a good idea. He was optimistic that he could explain the rationale, including the change in responsibilities and how those changes could be dealt with as a management team.

60 Bell was also asked whether there had been mention of including Schumacher in the pre-hiring discussion. He said that it had been considered but there was uncertainty about concluding a deal with Wright, (which Foxcroft assessed at only 50%), that Foxcroft thought Schumacher had a tendency to "be upset, to be volatile" and, with the chances of success so low, there seemed no point in unnecessarily upsetting Schumacher. When asked to elaborate on "volatile", Bell said that Schumacher didn't always agree with the strategic direction of the Bank. He had a tendency to become upset, and on one occasion he had resigned or threatened to resign. He said "we didn't want to risk losing [Schumacher] on a less than 50% chance of getting Wright."

61 Baillie agreed that it was a deliberate decision not to include Schumacher in the discussion. He said that they were afraid that if they told Schumacher, he might get upset and leave, and then they might not get Wright and they would be left with nobody.

Events After Donald A. Wright was Hired

62 Wright signed the contract on the night of Monday, January 23rd. Foxcroft, Lewis and Joseph were the only Bank employees aware that evening that the deal had been made. Wright had a vacation planned from January 24th. He agreed to start on the 30th. He asked that details not be disclosed to employees or to "the street" or to the press until he returned. Wright wanted to be in the Trading Room or outside so that he could immediately meet his new reports after the announcement. And he thought he could participate in informing the press. Foxcroft arranged to meet with Joseph, Bell and Lewis the following morning at 9:00 a.m. to discuss how people would be told, including Schumacher, Bethlenfalvy and other staff.

Tuesday, January 24th

63 At that meeting there was a discussion about telling Schumacher. The consensus was that Foxcroft would deliver the news to Schumacher and Bethlenfalvy that morning but that others would not be told until later in the week. Foxcroft would tell Schumacher about the hire, about Wright's responsibilities and what would be left for Schumacher, that the Bank still considered him a valuable employee and wanted him to stay, that his reporting would not change, his base salary would not be affected and that Foxcroft could give him a strong message that they didn't think that his ability to earn a bonus would be affected. Someone queried whether that message could be given, to which Foxcroft responded that he thought Schumacher was keeping "the lion's share" of the business from 1994, and that he would be left with Foreign Exchange and Derivatives which represented 85% to 90% of the CTP. Foxcroft said that he had not done an analysis in advance, that he "threw out" those percentages, but that he was fairly confident of that range given his regular review of the CTP numbers.

64 While that meeting was going on, the news of the Wright hire leaked out. Bell was called out of the meeting and returned to report that "the cat was out of the bag". Foxcroft was shocked and extremely annoyed because there had been an agreement that it be kept quiet. They were developing a "carefully laid plan" to tell Schumacher and Bethlenfalvy who were entitled to hear from Foxcroft, not from the street. He said he felt badly for Schumacher and Bethlenfalvy for the way they had heard it. He acknowledged that they were entitled to be told by their direct boss. Because of the leak, the discussion with Schumacher and Bethlenfalvy had to take place immediately. Bell agreed that it was "bad propriety" for Schumacher to find out as he did. Baillie said that it was "terrible" and "wrong" that word had gotten onto the street before Schumacher was told officially.

65 In the morning of Tuesday, January 24th, Schumacher heard from several of his reports who had heard from the street that Wright had been hired to run Fixed Income. Schumacher called Foxcroft, Baillie and Lewis, but was unable to reach any of them. As Schumacher said, he was unprepared for the news because Wright didn't have much of a reputation for trading - he had a good profile as a "relationship guy".

66 Foxcroft went to his office and "quickly checked" the CTP numbers for 1994, to verify what he had said in the meeting. He had anticipated the meeting with Schumacher would have been difficult in any event, but the leak made it "doubly difficult" because Foxcroft was no longer in control of the process.

67 Foxcroft and Schumacher met that morning. The evidence of Foxcroft and Schumacher about this meeting is consistent in many respects. Foxcroft confirmed that Wright had been hired to run Fixed Income, Money Market trading and Bond Borrowing and Lending (Repo business). Schumacher would retain Foreign Exchange, Derivatives and Bank Funding. Schumacher's title would not change, he would continue to report to Foxcroft and they thought that he should have the same opportunity for bonuses.

68 The messages which Schumacher heard from Foxcroft were that the Bank had "lost confidence" in Schumacher, and that Wright could do a better job in Fixed Income. Schumacher said it was the combination which had an important impact on him. He said that if the discussion had only been about Wright's abilities he would not have felt so "destabilized". Foxcroft vigorously denied that he said anything which would directly or indirectly indicate that the Bank had lost confidence in Schumacher.

69 Schumacher agreed that Foxcroft acknowledged that a mistake had been made by not telling Schumacher before the news leaked. Foxcroft asserts that not only did he acknowledge the mistake, but he also apologized to Schumacher. Schumacher is adamant that there was no apology.

70 Schumacher said he raised with Foxcroft the prospect of a transfer to the London office and that Foxcroft had said it wasn't "in the cards." Foxcroft asserted that the London issue was not discussed.

71 Schumacher agreed that Foxcroft told him on behalf of the Bank that the Bank did not want him to leave. But he said he found it difficult to accept those words at face value because it was in the Bank's interest to say something like that.

72 Foxcroft said that in difficult meetings like this one, you have to focus on the messages because the person you are speaking to doesn't hear it.

73 In his evidence and his note of the conversation, Foxcroft said that the products for which Schumacher were still responsible comprised 90% of Treasury's CTP in 1994, and that he expected the Bank would pay a "similar level of bonuses as in previous years", given the CTP of the business still reporting to him.

74 Schumacher described his reaction to the news. He considered that the unbroken pattern of promotions, and ever increasing responsibilities and accountabilities which he had enjoyed for the previous ten years, had come to an abrupt halt. Instead of expanding responsibilities, his job was reduced. Schumacher thought that this signalled the end of his career at the Bank. He felt that it was the worst day of his life. He was so shocked that he was having difficulty integrating what was going on.

75 In the meeting in the early afternoon between Foxcroft and Schumacher, they discussed how the hire of Wright would be officially announced. By this time, the rumour about the Wright hire was widespread. Foxcroft deferred to Schumacher since it was his responsibility to pass on the information. But Foxcroft offered to make the announcement if he was not up to it. Schumacher agreed to do it. At trial, Schumacher said it would have been beneficial if Foxcroft had offered to accompany him in making the announcement as a show of support from the Executive Vice President. Foxcroft said that if Schumacher had asked him, he would have participated with him in meeting his reports, but that it wasn't normal practice, and it didn't cross his mind to suggest it.

76 In the late afternoon, Schumacher assembled his direct reports, a group of 6 to 8, and told them the news - which by then they all had known unofficially. Schumacher said that he felt vulnerable because he couldn't answer some of the questions, such as who would be responsible for Fixed Income Research and whether the hiring of Wright meant the dismantling of Navigator. He had never been in a position of not knowing answers to such questions. It is agreed by the defendants that Schumacher communicated a positive message to his reports, encouraging them to welcome Wright and work with him, notwithstanding the awkwardness of the position he was in, namely that it was clear that a senior and reputable executive would tak