When Uncle Tony promises $500K in shares and doesn’t pay up
By Howard Levitt
Your mother was right: honesty is the best policy.
In 2012, John Antunes was lied to by a relative and promised an employment deal of a lifetime. While employed elsewhere, Antunes began meeting with Tony Lima, president of Limen Structures (his brother was Antunes’ uncle) about opportunities there.
Lima represented to him that Limen, in his opinion, was worth $10 million. He offered Antunes shares representing five per cent of Limen’s worth (as Antunes accordingly understood it, $500,000). Antunes said that he knew or believed, given his familial relationship with Lima, that Lima was a successful businessman with a successful company and, for the same reason, trusted Lima. Antunes believed Lima’s estimate and began work as senior vice-president, believing that he would be entitled to that interest in the company.
Not only did the shares never materialize but Antunes was fired five months after he commenced employment. It was explained to Antunes that his position was no longer available and that he was no longer needed.
Antunes brought a claim against Limen for wrongful dismissal, breach of contract and negligent misrepresentation.
In 2015, the court awarded Antunes damages for wrongful dismissal in the amount of $105,228.54. It also awarded $500,000 in damages for breach of contract and negligent misrepresentation. The court found that Antunes relied on misrepresentations made by Lima in accepting employment.
Limen appealed the $500,000 award, arguing that there was no evidence that the shares were worth $500,000.
The Ontario Court of Appeal unanimously dismissed the appeal on the grounds that Limen had called no such evidence at trial.
Antunes’ employment contract explicitly dealt with the shares issue, stating that he would be issued five per cent of the company shares when he began work. Given Lima’s statement that Limen was worth $10 million, the five per cent share was worth $500,000. At trial, Limen called no evidence on this or any other issue. No Shareholders’ Agreement, as referenced in the employment contract, was ever provided to Antunes. Nor was it produced during trial. Limen’s silence on these issues was damning.
Based on the available evidence, the court found that Limen failed to act honestly, both in negotiations entering into the contract of employment and at the time of termination.
Ultimately, Antunes trusted and relied upon representations made by Lima, given their familial relationship, in accepting the employment offer, and the court found that reliance to be reasonable. Since he accepted employment based upon being told that he would be assigned shares worth $500,000, that is what he was awarded. The fact that the shares might have been worth less was irrelevant.
Employers must be cautious. Promises made to employees become part of their entitlement and companies must be wary what benefits and working conditions it represents to their recruits.