Publications

Packed with valuable information, our publications help you stay in touch with the latest developments in the fields of law affecting you, whatever your sector of activity. Our professionals are committed to keeping you informed of breaking legal news through their analysis of recent judgments, amendments, laws, and regulations.

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  • Changes to the Canadian Patent Rules came into force on October 30th 2019

    The new Patent Rules, as well as certain amendments to the Patent Act, came into force on October 30, 2019. These changes implement the Patent Law Treaty and reduce the risk to applicants of a loss of rights but also bring about practice changes worthy of mention. Canadian national phase of a PCT application For applications filed in Canada via PCT national phase entry: A little bit faster… Under the new system, the deadline to request examination will be reduced to 4 years from the PCT international filing date (currently 5 years). The shortened deadline will apply to cases having a PCT international filing date on or after October 30, 2019. Further, the deadline to respond to an Office Action will be reduced to 4 months with possible fee-based extension to 6 months (currently 6 months with no extension).That means that prosecution shall take less time overall. “Late” national phase entry It is currently possible to enter the CA national phase past the 30-month deadline and up to 42 months from the priority date, as a matter of right. Under the transitional provisions, the current system shall continue to apply to PCT applications with a PCT international filing date prior to October 30, 2019. Subsequently, for cases with a PCT international filing date on or after October 30, 2019, such “late” national phase entry will only be possible if missing the original 30-month deadline was unintentional. A statement must be submitted to that effect. The Canadian Intellectual Property Office (CIPO) will have the discretion to accept or refuse such declarations. So it will be wise to consider the 30-month deadline a hard deadline for CA national phase entry. Missing deadlines for requesting examination or paying maintenance fees Under the current system, if such a deadline is missed, a further 12 months would be available via the abandonment/reinstatement system (for applications) or the late payment system (for patents), as a matter of right. The new system will provide an additional safeguard to applicants, as missing such deadlines will trigger the issuance of a CIPO notice requesting that the required action be taken within a new deadline. However, missing the new deadline will result in a new category of abandonment requiring reinstatement under a “due care” standard. A statement must be submitted to show “due care”. Once again CIPO will have discretion to accept or refuse declarations of “due care”. This new system will apply to any deadline to request examination or pay a maintenance fee that falls on or after October 30, 2019. The prudent approach will be to avoid relying on a showing of due care by meeting all deadlines. Restoration of priority Canadian practice will come into line with the restoration of priority provisions of the PCT. This extends the usual 12-month priority period by a further 2 months if missing the original 12-month deadline was unintentional (the standard to be used in CA), and will apply to cases with a PCT international filing date on or after October 30, 2019. Therefore, applicants can rest easy that such a restoration of priority will also be available in Canada. Certified copies of priority applications Under the new system, it will become necessary to file a certified copy of any priority applications (or refer to a digital library to access the document). Note that satisfying the PCT certified copy requirements during the international phase will also satisfy the new Canadian requirements for the national phase application. “Regular” Canadian applications For Canadian applications directly filed with the CIPO (i.e., not via the PCT), equivalent changes to those noted above (with the exception of “late” national phase entry, which is not applicable) will be implemented by comparable provisions. The following additional changes are also noteworthy: Certified copies of priority applications For Canadian applications claiming priority under the Paris Convention, it will become necessary to file a certified copy of any priority applications or refer CIPO to a digital library such as WIPO-DAS to access the document. The deadline will be the later of 4 months from filing and 16 months from priority. It will of course be good practice to have such certified copies available upon filing in Canada. Easier to secure a Canadian filing date It will be easier to obtain a filing date for such direct-filed applications, as various requirements may be fulfilled shortly after filing. Notably, a translation into English or French, if applicable, may be submitted post-filing, in contrast to Canadian national phase applications filed via the PCT. It will nonetheless be good practice to have all documents and information ready at filing. We can show you the way! We can help guide applicants as we transition to this new era of Canadian patent practice. Feel free to contact a member of our team!

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  • Right to Privacy: Can the Employer conduct Surveillance?

    On October 3, the Court of Appeal of Quebec overturned an arbitral decision in which videotaped surveillance of an employee, suspected of activities incompatible with her alleged disability, would not be admitted into evidence. The majority of the appeal court judges concluded that the employer was justified in following the recommendation of its designated physician, who, for various reasons, strongly questioned the employee’s credibility. What led the Court of Appeal to overturn the arbitration award? Background The employee had been working as an orderly in a seniors’ residence for more than ten years when she took time off work due to an injured left shoulder. About two months after the onset of her disability, the employer summoned her for a medical expert opinion by its designated physician. On the day of the appointment, the physician happened to be in his vehicle when the employee arrived at his office. He decided to observe her in his rearview mirror. He noted that the employee was moving her left arm normally and that she had placed the strap of her purse on her left shoulder without hesitation or discomfort. The physician then formally examined the employee and, based on his objective examination, concluded that she was simulating all of her symptoms. He recommended that the employer carry out surveillance. The physician reminded the employer that the employee had already made false statements about her health during a period of disability a year earlier. The employer therefore had the employee followed for a day during which she drove and shop in public commercial establishments (places where an individual’s expectations of privacy are low). After viewing the videotape, the designated physician said he believed that the employee was simulating her disability. She was dismissed for failing to comply with her obligations of loyalty and honesty, as well as for her lies, exaggerations, and fraud related to her participation in activities incompatible with her alleged health status. This situation was then assessed successively by the Arbitration Tribunal, the Superior Court in a judicial review of that decision, and the Court of Appeal. Court of Appeal decision The Court of Appeal concluded that the employer was justified in relying on the findings and recommendations of its designated physician, which constituted reasonable grounds to conduct the surveillance. The Court of Appeal added that it was entirely legitimate for the employer to take into consideration the employee’s previous false statements: it believed that ignoring them would be inappropriately idealistic. The surveillance satisfied the proportionality test in the search for the truth, since the means were reasonable: one day of surveillance in public places and without traps. The Court of Appeal returned the case to the Arbitration Tribunal to review the validity of the dismissal on the basis of the video evidence. What do you need to know as an HR Manager? Ultimately, an employer may be justified in requesting surveillance when it relies in good faith on the observations and recommendations of its physician, and when the surveillance is carried out sensibly. When there are reasonable grounds to suspect activities incompatible with the employee’s limitations, surveillance can be an effective tool for unmasking fraud. We will keep you informed of any developments in this case, including a possible application for leave to appeal to the Supreme Court of Canada. Our Labour and Employment Law team is available to provide you with timely advice and solutions.

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  • Insurers’ Duty to Defend: The Court of Appeal makes a new ruling

    The Court of Appeal of Quebec was once again called upon to rule on a Wellington type application aiming to force an insurer to defend its insureds1. Over the years, the scope of this duty has developed extensively in case law. In this particular case, the Court ordered that defence costs be shared, because it concluded that the part of the damages that could be covered by the insurance policy was divisible and identifiable. Facts Développement Les terrasses de l’Îles Inc., Darcon Inc. and Groupe Dargis Inc. (collectively the “Insureds”) had purchased a commercial general liability insurance policy (the “Policy”) from Intact Insurance Company (“Intact”). The Insureds sued Intact to force it to defend them in an action for damages brought against them by the Syndicat des copropriétaires Prince of Wales (the “Syndicate”), who alleged the existence of defects in the construction of a divided co-ownership building. The originating application was amended during the proceedings to add damages resulting from water infiltration, mould and structural problems found in the building. The issue in dispute was whether the damages claimed were covered by the Policy, and if, as a result, the insurer had the duty to defend. The decision by the court of first instance According to the Superior Court, there was no reason to consider a design or construction defect as a loss or accident, as the Insured were claiming. The Court thus concluded that the damages claimed did not result from a “loss” within the meaning of the Policy, but rather from defects attributable to errors the Insured or their subcontractors had made. This reasoning also applied to the allegations of water infiltration and mould resulting from alleged poor design or construction defects. In addition, the Superior Court concluded that, in any event, the damages claimed were not covered under clauses 2.7, 2.9 and 2.14 of the Policy, which covered, respectively, material damage during construction, material damage to the work and material damage resulting from the provision of professional services. The appeal The Court of Appeal unanimously overturned the trial judgment. First, the Court reiterated the general principles set out in Progressive Homes2 regarding insurers’ duty to defend, namely that this duty to defend will arise when the alleged material damages, by their true nature, may possibly fall within the scope of the insurance policy. Hence, (1) the insured must demonstrate that the damage could be covered by the insurance policy. Thereafter, (2) the insurer may defer liability by proving that a clear and unambiguous exclusion clause precludes coverage. At this point, (3) the insured may still argue that an exception to said exclusion applies. The Court of Appeal went on to reiterate the principle that the coverage provisions must be interpreted broadly and the exclusion clauses must be interpreted restrictively. On this basis, the Court of Appeal determined that the trial judge had interpreted the terms “loss” and “accident” too narrowly in light of the legal precepts drawn from the case law. In this case, the design or construction defects had caused material damage to the building that was not anticipated, triggering the insurer’s duty to defend. Moreover, because Intact had not proven that an exclusion precluded the insurance coverage, it could be required to compensate for material damage resulting from the deficiencies, but not for the costs of correcting the latter. In this case, the Court of Appeal noted that the Syndicate was alleging not only a series of defects, but also problems caused or likely to have been caused by the defects, including water infiltration. However, according to the Court of Appeal, it was not clear whether the alleged defects have caused damages (often referred to as resulting damages) and whether these damages were claimed. Nevertheless, the Court of Appeal concluded, based on the proceedings, that the duty to defend had been triggered. Despite this uncertainty, it also concluded that the part of the damage that could be covered was divisible and identifiable, and it limited the insurer’s duty to this part. Comments The Court of Appeal applies the principles developed by the courts with respect to the duty to defend. Doing so, the Court of Appeal however limited the insurer’s duty to defend despite the fact that it is not clear whether the claim actually included damages other than defects. This conclusion may pose serious practical difficulties, given that it is usually hard to establish a distinction between defense measures taken, and incidentally the costs, strictly in relation to defects and those related to the resulting damages. It should be noted that, in Cirvek Fund I3, the Court of Appeal held that the insurer's duty to defend should only be limited in cases where the insurer demonstrates that the tasks required for the defence of the covered items are distinct from those relating to the uncovered items.   Développement les Terrasses de l’Îles inc. v. Intact, Compagnie d’assurances, 2019 QCCA 1440 Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 SCR 245, 2010 SCC 33 245. Société d'assurances générales Northbridge (Lombard General Insurance Company of Canada) c. Cirvek Fund I, l.p., 2015 QCCA 168

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  • Neural Network and Liability: When the information lies in Hidden Layers

    Many of the most advanced machine-learning techniques rely on artificial neural networks, which allow systems to "learn" tasks by considering examples, without being programmed specifically to perform those tasks. Neural networks are nothing new, however the emergence of deep learning1, and of computers able to rapidly manipulate large amounts of data, have led to the development of a myriad of solutions incorporating machine learning for various aspects of life. From image recognition to financial data processing, machine learning is becoming ubiquitous. From a mathematical perspective, modern neural networks almost always incorporate what are known as “hidden layers”, which process information between the input and output of a neural network system. Hidden layers’ nodes are not specifically assigned any task or weight by a human programmer, and typically there is no direct way of knowing how information is processed within them. In plain language, most of the current machine-learning techniques rely on methods which function in such a way that part of what is happening is not known by the human operators. For this reason, the systems that incorporate such methods will give rise to new legal challenges for lawyers. Scholars have been studying this issue for more than a decade now2, but have failed to provide definitive answers. Such questions are at the forefront of current legal debates. In a much-publicized case before the U.S. Supreme Court on gerrymandering3, machine learning was mentioned as a source of concern by the dissenting opinion. This is not surprising given that the lower courts were presented with evidence on Markov chain Monte Carlo algorithms4, which share this characteristic of not providing the human operator with a detailed explanation of how each data entered affects the results. In some jurisdictions, for example the United States, a technology user may be able to ward off requests for disclosure of the technology’s algorithms and the details on the machine-learning process by arguing that they are protected as trade secrets of the vendor of that technology5. Even then, it might still be necessary to disclose at least some information, such as the results of the machine-learning process for various situations to demonstrate its reliability and adequacy. Even such a defence may not be available in other jurisdictions. For example, in France, the Constitutional Council recently held that a public administration may rely on algorithmic processes in making decisions only if it is able to disclose, in detail and in an intelligible format, the way in which this algorithmic process makes its decisions6. From a computer-science standpoint, it is difficult to reconcile such requirements with the notion of hidden layers. More importantly, there might be cases in which a person may wish to disclose how they made a decision based on a machine-learning technology, in order to show that they acted properly. For instance, some professionals, such as in the field of health care, could be required to explain how they made a decision assisted by machine learning in order to avoid professional liability. A recent decision of the Court of Queen’s Bench of Alberta7 concerning the professional liability of physicians shows how such evidence can be complex. In that case, one of the factors involved in assessing the physicians’ liability was the fetal weight, and the different formulas that could have been used in determining it. The court made the following statement : “[…] the requisite expertise would concern the development of the algorithms used in the machine-based calculations of the composite birth weight as reflecting empirical research respecting actual birth weights and the variables or factors used to calculate composite birth weights. No individual or combination of individuals with such expertise testified. I draw no conclusions respecting the February ultrasound report calculations turning on different formulas and different weight estimates based on different formulas.” For developers and users of machine-learning technologies, it is therefore important at least to document the information used to train the algorithm, how the system was set up, and the reasoning followed in choosing the various technological methods used for the machine learning. Computer scientists who have developed applications for use in specific fields may wish to work closely with experts in those fields to ensure that the data used to train the algorithm is adequate and the resulting algorithm is reliable. In some cases, it may even be necessary to develop additional technologies to track the information traveling through the neural network and probe those hidden layers8. Things to remember The risks associated with the use of a system incorporating automatic learning must be assessed from the design stage. It is recommended to consult a lawyer at that time to properly guide the project. Where possible, technological choices should be directed towards robust approaches with results that are as stable as possible. It is important to document these technological choices and the information used when developing automatic learning algorithms. Contracts between technology developers and users must clearly allocate risks between the parties.   See, in particular: Rina Dechter (1986). Learning while searching in constraint-satisfaction problems. University of California, Computer Science Department, Cognitive Systems Laboratory, 1986.; LeCun, Yann; Bengio, Yoshua; Hinton, Geoffrey (2015). "Deep learning". Nature. 521 (7553): 436–444. For example: Matthias, Andreas. "The responsibility gap: Ascribing responsibility for the actions of learning automata." Ethics and information technology 6.3 (2004): 175-183; Singh, Jatinder, et al. "Responsibility & machine learning: Part of a process." Available at SSRN 2860048 (2016); Molnar, Petra, and Lex Gill. "Bots at the Gate: A Human Rights Analysis of Automated Decision-Making in Canada’s Immigration and Refugee System." (2018). Rucho v. Common Cause, No. 18-422, 588 U.S. ___ (2019). 279 F.Supp.3d 587 (2018). Houston Fed. of teachers v. Houston Independent, 251 F.Supp.3d 1168 (2017); Brennan Ctr. for Justice at New York Univ. Sch. of law v. New York City Police Dept. 2017 NY Slip Op 32716(U) (NY Supreme Court). Decision no. 2018-765 DC dated June 12, 2018 (Loi relative à la protection des données personnelles). DD v. Wong Estate, 2019 ABQB 171. For example: Graves, Alex, Greg Wayne, and Ivo Danihelka. Neural Turing Machines. arXiv:1410.5401, [cs.NE], 2014.

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  • Autonomous Air Vehicles : Are they at the gates of our cities?

    For many years now, we have been discussing the arrival of autonomous vehicles on Quebec roads. Thus, in April 2018, the government amended the Highway Safety Code1 to adapt it to the particularities of these new vehicles However, the automotive sector is not the only one being transformed by automation: the aeronautics industry is also undergoing profound changes, particularly with the introduction of autonomous air transport technologies in urban travel. Terminology There are many terms used in the autonomous air transport industry, including “autonomous flying car”, “unmanned air vehicle” and even “autonomous air taxi”. For its part, the International Civil Aviation Organization (ICAO) has proposed some terms that have been included in various official documents, including certain legislation2. These terms are as follows: Unmanned air vehicle: A power driven aircraft, other than a model aircraft that is designed to fly without a human operator on board; Unmanned air system: An unmanned aircraft and all of the associated support equipment, control station, data links, telemetry, communications and navigation equipment; Remote piloted aircraft system: A partially autonomous remotely piloted aircraft; Model aircraft (also called “drone”): A small aircraft, the total weight of which does not exceed 35 kg that is not designed to carry persons. As for Canadian legislation, it uses specific vocabulary and defines a remotely piloted aircraft system as a “a set of configurable elements consisting of a remotely piloted aircraft, its control station, the command and control links and any other system elements required during flight operation”, whereas a remotely piloted aircraft is defined as “a navigable aircraft, other than a balloon, rocket or kite, that is operated by a pilot who is not on board3”. Legislative Framework In accordance with Article 8 of the Convention on International Civil Aviation4, it is prohibited for unmanned aircraft to fly over the territory of a State without first obtaining the authorization of the State in question. In Canada, the standards governing civil aviation are found in the Aeronautics Act5 and its regulations. According to subsection 901.32 of the Canadian Aviation Regulations ((the “CARs”), “[n]o pilot shall operate an autonomous remotely piloted aircraft system or any other remotely piloted aircraft system for which they are unable to take immediate control of the aircraft6.” In Canada, the standards governing civil aviation are found in the Aeronautics Act5 and its regulations. According to subsection 901.32 of the Canadian Aviation Regulations ((the “CARs”), “[n]o pilot shall operate an autonomous remotely piloted aircraft system or any other remotely piloted aircraft system for which they are unable to take immediate control of the aircraft6.” Since the 2017 amendment of the CARs, it is now permitted to fly four (4) categories of aircraft ranging from “very small unmanned aircraft” to “larger unmanned aircraft7”, subject to certain legislative requirements: The use of unmanned aircraft weighing between 250 g and 25 kg is permitted upon passing a knowledge test or obtaining a pilot permit, if applicable8; To fly unmanned aircraft over 25 kg to transport passengers, it is mandatory to obtain an air operator certificate9. Ongoing projects Many projects developing unmanned aircraft are underway. The most high-profile and advanced projects are those of automotive, aeronautics and technology giants, including Airbus’s Vahana, Boeing’s NeXt program, Toyota’s SkyDrive and the Google-backed Kitty Hawk Cora10. The most advanced project appears to be UberAIR. In addition to actively working on developing such a vehicle with many partners like Bell and Thales Group, Uber’s project stands out by also focusing on all the marketing aspects thereof. The program is slated for launch in three cities as early as 202311. These cities are expected to host a test fleet of approximately fifty aircraft connecting five “skyports” in each city12. Challenges Despite the fact that technology seems to be advancing rapidly, many obstacles still remain to truly implement this means of transport in our cities, in particular the issue of the noise that these aircraft generate and the issues relative to their certification, costs and profitability, safety linked to their urban use, social acceptability and the establishment of the infrastructure necessary to operate them. In the event of an accident of an autonomous aerial vehicle, we can foresee that the manufacturers of such vehicles could be held liable, as could the subcontractors that are involved in manufacturing them, such as piloting software and flight computer manufacturers. We could therefore potentially be faced with complex litigation cases. Conclusion A study predicts that there will be about 15,000 air taxis by 2035 and that this industry will be worth more than $32 billion at that time13. In the context of climate change, sustainable transportation and in order to bear urban sprawl, these vehicles offer an interesting transit alternative that may very well change our daily habits. The flying car is finally at our doorsteps!   Highway Safety Code, CQLR, c C-24.2. Government of Canada, Office of the Privacy Commissioner of Canada, Drones in Canada, March 2013, at pp. 4-5 Canadian Aviation Regulations, SOR/96-433, s. 101.01. International Civil Aviation Organization (ICAO), Convention on International Civil Aviation (“Chicago Convention”), 7 December 1944, (1994) 15 U.N.T.S. 295. Aeronautics Act, RSC 1985, c. A-2. Canadian Aviation Regulations, SOR/96-433, s. 901.32. Government of Canada, Canada Gazette, Regulations Amending the Canadian Aviation Regulations (Unmanned Aircraft Systems) - Regulatory Impact Analysis Statement, July 15, 2017. Canadian Aviation Regulations, SOR/96-433, s. 901.64 et seq. Canadian Aviation Regulations, SOR/96-433, s. 700.01.1 et seq. Engineers Journal, The 13 engineers leading the way to flying car, May 29, 2018 Dallas, Los Angeles, and another city yet to be announced. Uber Elevate, Fast-Forwarding to a Future of On-Demand Urban Air Transportation, October 27, 2016, Porsche Consulting, “The Future of Vertical Mobility – Sizing the market for passenger, inspection, and goods services until 2035.” 2018

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  • New Compensation Method: Employee Benefit Trust Replacing Stock Option Plans

    Nowadays, many employers are seeking out forms of compensation that will help motivate and retain key employees. More and more, employers are opting for one of a variety of company stock ownership profit-sharing plans to reach this objective. Employers who wish to implement this type of structure must ensure that the one they choose most adequately meets their objectives. In this context, employee benefit trusts make it possible to reach objectives that are common to many employers while providing tax treatment that is often much more beneficial to employees. Type of Profit-Sharing Plan With this type of profit-sharing plan, employers must set up a trust and designate employees as beneficiaries. Subsequently, the trust subscribes for or purchases shares of the company. The trustees of the trust (usually the shareholders of the company) then hold these shares acquired for the employees. The deed of trust must include the terms that govern the holding of the shares by the trustees. For instance, it is important to determine which employees will be the beneficiaries of the trust, at which point(s) in time and under which conditions the shares will be designated to the employees, and under which circumstances the company would be able to repurchase the shares. Once the trust is set up, any new employee designated as such by the company may become a beneficiary of the trust. More Flexibility for Employers Employee benefit trusts provide employers with many benefits. First and foremost, employers have more control with an employee benefit trust than with an employee stock option plan (ESOP). Contrary to an ESOP, with an employee benefit trust, employees do not personally hold the company’s shares. Rather, the trustees are the ones holding said shares. As such, employees do not need to attend shareholders’ meetings or have access to the company’s financial information. Furthermore, the fact that the company’s shares are not personally held by the employees prevents problems should a misunderstanding arise with a profit-sharing employee. Furthermore, since the employees are not immediately shareholders of the company, the moment where the employees have to be part of the shareholders’ agreement of the company is postponed to a later date. This type of plan also gives employers much more flexibility in terms of selecting the employees who will become shareholders. If the deed of trust is drafted judiciously, there is no need to finalize the selection of employees who will become shareholders at the time that the trust is set up. Thus, the trust may continue to hold the shares of the company until such time as the employees who will become shareholders are chosen and the necessary conditions for the allotment of shares are met. It is therefore possible to postpone said selection until the sale of the company. In this case, the chosen employees may avail themselves of their capital gains deduction and therefore benefit from tax treatment that is much more advantageous than, say, a bonus at the time of sale. In addition, an employee benefit trust eliminates a common ESOP issue, which is having to frequently determine the fair market value (FMV) of the company’s shares. With an ESOP, the determination of the FMV of the shares underlying the options must be made every time ESOPs are granted in order to ensure that employees receive favourable tax treatment. As ESOPs are usually granted to many shareholders at various points in time over a number of years, the FMV of the company’s shares must be determined repeatedly. An employee benefit trust eliminates the need for this exercise, as the company’s FMV will only have to be established when the shares are acquired by the trust. Benefits for Employees Not only is an employee benefit trust beneficial to employers, but it also provides certain benefits to employees. Just like all other stock ownership profit-sharing plans, employee benefit trusts allow employees to benefit from the company’s future increases in value. Although employees are not shareholders of the company from the time that the trust is set up, they will benefit from all of the capital gain accrued on the participating shares that will be allocated to them by the trust. Moreover, for the purposes of certain provisions of the Income Tax Act (ITA), if a share in trust is held by a trustee, whether absolutely, conditionally or contingently, for an employee, the employee is deemed to have acquired the security at the time the trust began to so hold it. This presumption, set out in subsection 7(2) of the ITA, allows for the beginning of the computation of the two-year period following the owning of the shares, which is relevant for the employees’ eligibility to the capital gains deduction as well as to the deduction in computing the taxable income provided for in paragraph 110(1)(d.1) of the ITA. An employee benefit trust therefore makes certain tax benefits, such as the capital gains deduction, more accessible to employees. Lastly, an employee benefit trust provides a tax benefit to employees in cases in which the shares of the profit-sharing plan have decreased in value since they were issued. In the event that the trust disposes of the securities to the company and that the amount paid by the company to acquire, repurchase or cancel said securities does not exceed the amount that it had previously been paid, employees may deduct an amount to offset the taxed benefit, in accordance with subsection 7(1) of the ITA. Through this tax treatment, employees avoid losing capital at the time of the disposition of the securities to the company, a loss of capital that would remain unusable until employees achieve a capital gain. This scenario may occur, in particular, when an ESOP is implemented. Although an employee benefit trust provides many benefits to employees, this type of profit-sharing plan is more complex than traditional profit-sharing plans. Thus, in situations in which employers wish to share profits with a single employee, it may be appropriate to consider another type of profit-sharing plan. Out team in Taxation and Labour and Employment are ready to advise you and to assist you in implementing them.

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  • Duty of Loyalty and Non-competition: What are your Rights and Duties to Protect your Interests?

    During Major Symposium in Montréal held on June 4, our colleagues Michel Desrosiers and Ariane Villemaire discussed the employees’ duty of loyalty under the Civil Code of Québec. In their presentation, they discussed the case of Xit Télécom Inc. and Madysta Constructions Ltée v. Beaumier et al.1 on the scope of injunction orders that the Superior Court recently issued pursuant to the legal duty of loyalty (article 2088 of the Civil Code of Québec). On June 5, 2019, the Court of Appeal upheld these orders, prohibiting two former employees from doing business with their former employer’s customers and becoming the owners of a business in competition with their former employer. Background Two key employees, a vice-president of engineering and a head of business development (the “Defendants”), prepared for almost 12 months the launch of a business that would compete with their current employer, while they were employed by the latter. While still employed, the Defendants solicited their employer’s customers, suppliers and employees in order to persuade them to join their new business project. They also made disparaging comments to customers and employees about their employer and its CEO. Finally, they attempted to illegally appropriate business opportunities they had learned about during their employment. Once the situation was discovered, the employer quickly dismissed the Defendants and took steps to obtain safeguard and injunction orders against them. The debate On the sole basis of the legal obligation of loyalty (article 2088 C.C.Q.), rather than under restrictive clauses provided for in the employment contract, the Superior Court granted the employer interim injunction and safeguard orders in December 2018 and January 2019. In March 2019, the Superior Court issued interlocutory injunction orders for a maximum period of nine months, prohibiting the Defendants from: Using confidential information; Soliciting customers, subcontractors and employees; Doing business with customers appearing on a list filed under seal; Investing, partnering in or otherwise becoming the owner of a business in competition with that of the employer. The Superior Court, in its reasons, noted that: [TRANSLATION] [26] The Court cannot see how it could, at this time, allow the defendants to conduct business with customers to whom they made disparaging comments about the plaintiffs, without thereby giving them free rein to unfairly compete with their former employer. For the past year, until December 20, 2018, said customers who would “solicit” the services of the defendants have been receiving negative messages about the plaintiffs. Allowing the defendants to supposedly respond to the requests of said customers would amount to allowing them to reap the benefits of their unfair competition. This cannot be allowed. (Our emphasis) The Court of Appeal2 agreed with the arguments raised by Carl Lessard and Ariane Villemaire, members of our Labour and Employment Law group. It dismissed the appeal and concluded that the orders were consistent with the principles already recognized by the Court of Appeal3 : [TRANSLATION] [7] Indeed, although in principle the duty of loyalty provided for in article 2088 CCQ must not be interpreted as preventing an employee from competing with his or her former employer, the fact remains that jurisprudence tends to prohibit conduct such as that alleged against the appellants in this case, including slander tactics, benefiting from privileged relationships with customers, and active solicitation of customers during the period of employment. (Our emphasis) The Court of Appeal also concluded that the Superior Court’s decision was reasonable in setting the duration of the prohibitions at nine months given the particular facts of the case. What it means This decision is of great practical interest because it emphasizes that article 2088 of the C.C.Q. prohibits unfair competition with a former employer. Orders may thus be issued on the basis of this provision to protect the rights of employers when such unfair competition takes place during employment despite the absence of valid restrictive clauses. However, this decision also confirms the general principle that the duty of loyalty does not prohibit legal competition with a former employer in the absence of a non-competition clause. Thus, employers should continue to protect their legitimate interests by including non-competition, non-solicitation and confidentiality clauses in employment contracts when the circumstances so require. Our Labour and Employment Law group is available to assist you in drafting, analyzing and defending the means available to employers to protect their rights and business activities.   2019 QCCS 1446 Beaumier c. XIT Télécom inc. , 2019 QCCA 1000 Citing Concentré scientifiques Bélisle inc. c. Lyrco Nutrition inc., 2007 QCCA 676

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  • Conclusion of the Supervac 2000 saga: Dismissal is part of the inherent risks of a workplace

    The Administrative Labour Tribunal (“ALT”) has ruled on the merits of the Supervac 20001 case, putting an end to the saga dealing with interpreting the part of section 326 of the Act respecting Industrial Accidents and Occupational Diseases (“AIAOD”) that concerns applications for transfer of costs by reason of undue burden. With its decision, the ALT establishes that dismissal, like resignation or retirement, constitutes a risk inherent to an employer’s activities. Consequently, dismissal cannot create an unjust situation and the employer cannot claim to be “unduly burdened” by a dismissal resulting from the exercise of its management rights, even if it has the effect of terminating an authorized and available temporary assignment. Details of the decision In this case, the employer had filed an application for the transfer of costs of benefits for an employment injury under paragraph 2 of section 326 of the AIAOD. It alleged that the resumption of income replacement benefits, after the worker’s temporary assignment ended as a result of his dismissal for insubordination, constituted a situation beyond its control that unduly burdened it. The ALT’s interpretations of the term “unduly” and the notion of “inherent risk” were inspired by the landmark decision in Ministère des Transports2, although it relates to applications for transfer of costs following an industrial accident attributable to a third party. After analysis, the ALT concluded that even if an employer does not control a worker’s actions and cannot foresee them all, dismissing an employee because of behaviour issues is a management decision that does not possess the [translation] “extraordinary, unusual, rare or exceptional” character required by jurisprudence. Dismissal, like resignation or retirement, is part of labour relations and therefore an “inherent risk” to an enterprise. The interruption of the temporary assignment ultimately results from the employer’s decision to dismiss the worker. Although it had serious financial consequences for the employer, the decision to dismiss the worker cannot be considered to be an injustice. The ALT points out that the temporary assignment resulted from the injured worker’s right to rehabilitation. Even though the employer may financially benefit from the temporary assignment, it is not one of its rights. The ALT therefore concluded that the employer was not unduly burdened within the meaning of section 326 of the AIAOD, and its application for transfer of costs was dismissed. What it means In the past, many employers had successfully obtained cost transfers in connection with temporary assignments terminated as a result of dismissal for disciplinary reasons. These decisions were based in particular on the unpredictability of a worker’s behaviour, which is beyond the employer’s control. The ALT’s decision on the merits of the Supervac 2000 case will certainly put an end to the granting of cost transfers based on this argument. This decision will in particular need to be taken into account when dismissing or considering dismissing a worker on temporary assignment. However, it is still possible for an employer to allege other grounds of undue burden, such as intercurrent diseases. Our Labour and Employment Law team is available to provide you with advice and solutions in your analysis of cost sharing files.   2019 QCTAT 2540. 2008 QCCLP 1795.

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  • The Court of Appeal hands down its decision in the Kativik case: A second chance for poor performance employees?

    Does an employer have to make reasonable efforts to reassign an employee to another suitable position before proceeding to dismissal due to poor performance? This issue has been the cause of a great jurisprudential controversy, especially since the Superior Court rendered its decision in Kativik1. This judgment handed down in October 2017, implied that such an obligation could apply to Québec employers in addition to the five criteria established in Costco2 to determine whether a dismissal for poor performance is abusive, arbitrary or unreasonable. Labour market stakeholders have since been waiting for the Court of Appeal’s judgment in this case, which was finally rendered on May 31, 20193. Background on the Kativik case Here are the highlights of this saga4: An administrative technician had agreed on a three-month performance improvement plan with an employer in order to solve performance issues; During this period and faced with the employee’s inability (or difficulty) to meet the plan’s requirements, the employer offered him a receptionist position and gave him three days to accept the offer, even though the position was posted with a deadline for accepting applications that was longer than the amount of time given to the employee; The employee refused the offer, preferring to continue working according to the terms of his improvement plan; Given the employee’s lack of progress, the employer dismissed the employee for administrative reasons, being poor performance. Arbitrator Jean Ménard was seized of the grievance challenging the dismissal. He held that the employer had failed to fulfill its obligation to reassign the employee to less demanding duties, relying in particular on three arbitral awards filed by the labour union attorney applying this principle. He thus allowed the grievance5. The arbitrator pointed out that it was unreasonable for the employer to require a response from the employee within three days when the evidence showed that the employee would have been able to perform the replacement position duties. The employer challenged this decision by way of an application for judicial review. The Superior Court dismissed the application on the grounds that arbitrator Ménard had rendered a reasonable ruling by concluding that the employer had not fulfilled  its obligation to find an acceptable alternative to the complainant’s dismissal. To do so, the Court indicated that although the five criteria used in Costco did not clearly state this sixth criterion, it remained applicable in Québec according to the principles enunciated in Edith Cavell6, a decision from British Columbia that inspired the five criteria developed and established by the Québec courts for dismissals due to poor performance. Decision of the Court of Appeal The judges of the Court of Appeal dismissed the appeal and upheld the arbitral award on the grounds that it possessed all the attributes of reasonableness. However, the judges indicate that : The arbitrator departed from the majority of jurisprudence on dismissal for unsatisfactory performance;7 Another decision-maker could have come to another conclusion;8 This approach is certainly uncommon, but it is not unreasonable.9 That means that although an employer may terminate an employee’s employment for performance reasons without having to reassign him or her to another suitable position, a Tribunal may find that such dismissal is unjustified, depending on the circumstances of the case, in the absence of evidence of the employer’s effort to reassign the employee10. In this regard, establishing the legality of dismissal for unsatisfactory performance essentially comes down to context and will be decided on a case by case basis. The Court also points out that in the presence of a plurality of applicable criteria and jurisprudential controversies, the same factual situation may give rise to different reasonable outcomes, as is the case here. The Court thus concluded that the trial judge was right to dismiss the application for judicial review given that the arbitral award, in which the arbitrator applied this sixth criterion, was a possible and acceptable outcome. Conclusion: A new criterion, yes or no? On the basis of the Court of Appeal’s reasons in this case, an employer may not be required to make reasonable efforts to reassign an employee to another suitable position before proceeding to dismissal for poor performance but depending on the circumstances, may be obliged to do so. A prudent manager should therefore analyze each individual situation in order to determine whether or not the circumstances require a reassignment. It should be noted that in the Kativik case, the employee’s new supervisor had significantly changed his duties, which resulted in performance difficulties and the personal improvement plan. Yet, the employee had not encountered any difficulties in his previous duties. Such special circumstances could thus confer reasonableness upon a conclusion of the arbitrator requiring the employer to attempt a reassignment before dismissal. At the time of publication, the delays to file an application for leave to appeal to the Supreme Court have not expired. We shall follow this matter and keep you informed of any future developments.   Commission scolaire Kativik c. Ménard, 2017 QCCS 4686; on the subject of the jurisprudential controversy, see our article published on the Ordre des CRHA website [French only]. Costco Wholesale Canada Ltd. c. Laplante, 2005 QCCA 788: this landmark decision in Québec outlines the five criteria used by Québec courts to uphold a dismissal for poor performance. They are a) the employee is aware of the company’s policies and what the employer expects of the employee, b) the employee has been notified of any deficiencies, c) the employee had the support needed to remedy the deficiencies and meet his objectives, d) the employee was given a reasonable time period within which to adapt and e) the employee was informed of the risk of dismissal should there be no improvement. Commission scolaire Kativik c. Association des employés du Nord québécois, 2019 QCCA 961. The facts are more fully described in our publication further to the Superior Court decision. Association des employés du Nord québécois et Commission scolaire Kativik, 2015 QCTA 247, para. 126. Re Edith Cavell Private Hospital and Hospital Employees’ Union, Local 180, (1982), 6 L.A.C. (3d) 229 (BC). Kativik, supra note 3, para. 19. Id., para. 18. Id. Id. para. 17.

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  • A Decision of Interest to the Entertainment Industry

    Is an event organizer responsible for an artist’s late appearance? Context is key, answers the Superior Court’s, as it dismisses the application for authorization to institute a class action against Gestion Evenko Inc.1 regarding Travis Scott’s late appearance at the Osheaga Music and Arts Festival in the summer of 2018. Overview of the first class action on this topic in Quebec. Background The Osheaga Festival, organized by the defendant, Evenko, is a huge celebration dedicated to music and visual arts where artists of all genres perform for three days on the many outdoor stages set up in Parc Jean-Drapeau on Notre-Dame Island. Rapper Travis Scott was on the lineup for the evening of August 3, 2018. His performance was scheduled from 9:45 p.m. to 10:55 p.m. on the River stage. Wishing to attend this performance, the plaintiff, who had purchased a weekend pass, went to the venue at 8:45 p.m. Unfortunately, Travis Scott was held up at customs that evening. The sequence of events can be summarized as follows. At 9:55 p.m., Evenko displayed a first message on the site’s giant screens indicating that the show was delayed for a reason beyond its control. At 10:15 p.m., Evenko broadcast a second message, both on the giant screens and on Twitter, indicating that Travis Scott had been delayed at customs and was on his way to Notre-Dame Island. At 10:30 p.m., the plaintiff left the premises; she claimed that she did not believe Evenko's messages, feared a curfew and found the crowd aggressive. At 10:40 p.m., Evenko broadcast a third message on the giant screens confirming that Travis Scott had arrived on the island. At 10:55 p.m., Evenko broadcast a fourth message announcing to festival-goers that the show was about to begin. The show started at 11:00 p.m. and ended around 11:40 p.m. An application for authorization to institute a class action was filed the next day. The plaintiff sought to represent nearly 50,000 festival-goers who, in her opinion, suffered prejudice attributable to Evenko. She claimed that Travis Scott’s 90-minute delay constituted a breach of contract by Evenko such that all members of the group should obtain a refund equivalent to the value of a daily pass. The Decision In carrying out the analysis required by section 575 of the C.C.P., Justice André Prévost concluded that the alleged facts did not appear to justify the conclusions sought. The application for authorization to institute a class action was therefore dismissed. From the outset, the Court questioned some of the allegations in the application: for example, the plaintiff’s assertion that [translation] “Travis Scott’s performance was the main consideration in the contract with Evenko” seems incompatible with the fact that she purchased a three-day pass (paras. 51, 56); similarly, there was no evidence to support her claim that the crowd was aggressive (para. 54). However, it is mainly two deficiencies in the legal syllogism that led the Court to conclude that the application for authorization did not establish an arguable case or a reasonable prospect of success (para. 66). First, the Court refused to reduce the Osheaga Festival experience to a single performance, even that of a headliner. Rather, it described the event as [translation] “a comprehensive experience [...] whose interest lies in the multiplicity and simultaneity of cultural experiences” (para. 48). In fact, in addition to the invited musical, cultural and circus artists, there are various activities, fairs, cruises and awards ceremonies, to name but a few (para. 48). The Court pointed out that all documents relating to Osheaga’s programming and schedule contain one or more of the following warnings: “Schedule and lineup subject to change” or “Artists and schedule subject to change” (para. 47). These warnings are a strong indication that such delays are far from unusual or, in the words of the Court, [translation] “this is not exceptional for those acquainted with the cultural milieu” (para. 57). In this context, Evenko cannot be found to be at fault. The Court continued its analysis, adding that, even if it were found to be at fault, which is not the case, the situation did not result in any compensable damage: Citing Sofio2 and Mustapha3, the Court pointed out that mere annoyance is not prejudice, and that, in fact, [translation] “there is no evidence that Travis Scott’s delayed performance caused a more serious inconvenience than what is usual for people attending festivals of this nature” (para. 65). In short, in the context of a multi-genre festival, an artist appearing late does not necessarily constitute compensable prejudice and does not automatically amount to the promoter’s failure to fulfil its obligations. What It Means The decision is important to the entertainment industry in that it recognizes that major event organizers sometimes deal with unforeseen circumstances and they are allowed reasonable leeway to adapt to them. Of course, each situation will be particular, but a well-informed promoter will make sure to indicate that changes are possible in its documentation. The decision also recognizes that a comprehensive cultural experience is more than the sum of its parts: a single artist appearing late does not cast a pall on the entire event. This conclusion is likely to apply to many other industries: Osheaga is a typical example of a set of distinct and simultaneous performances, but the same characterization can be given to all the rides in an amusement park or all the individual sections of a zoological garden. Our partners, Myriam Brixi and Laurence Bich-Carrière have successfully represented Evenko's interests in this case.   Le Stum c. Gestion Evenko inc., 2019 QCCS 2422. The time limit for appeal expired on July 22, 2019. Sofio c. Organisme canadien de réglementation du commerce des valeurs mobilières (OCRCVM), 2015 QCCA 1820. Mustapha v. Culligan of Canada Ltd., [2008] 2 SCR 114, 2008 SCC 27.

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  • New notification process at the Trademarks Office

    The new provisions of the Trademarks Act allow for earlier intervention with the Registrar in an attempt to prevent the registration of trademarks that create confusion with registered or applied-for trademarks through a notification system. As the owner of pending or registered trademarks in Canada, it is in your interest to know and take advantage of the notification procedure, as it allows you to become more proactive and possibly avoid the costs associated with traditional opposition proceedings. Indeed, the notification procedure allows you to bring to the Registrar's attention grounds bearing on the registrability of a third party’s pending trademark application, as soon as the application is filed, without waiting for it to be published in the Trademarks Journal. The grounds that may be invoked in a notification have recently been specified by the Trademarks Office: The mark applied for creates confusion with a registered mark or with a mark for which a previous application for registration is pending. One or more registered trademarks are used in a trademark application to describe the claimed goods and services. In order to protect your rights and take advantage of the notification procedure, make sure that you have proper trademark monitoring services that allow you to be promptly informed of new trademark applications that may infringe upon your exclusive rights. For any questions regarding trademark protection, the notification process as well as our trademark monitoring services, we invite you to contact our professionals.

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  • Employers: What is defamation and how do you protect your reputation?

    At a time when it is becoming harder to distinguish true information from fake news and when a photo posted on social media can travel the world, companies are eager to do all they can to protect their image. What about when it’s your own employees who tarnish your company's reputation? Defamatory acts are increasingly common in the workplace and should not be taken lightly. These manifest in different forms and can permanently damage the employer's reputation. What is defamation? The courts agree that defamation consists in the communication of spoken or written remarks that cause someone to lose in estimation or consideration, or that prompt unfavourable or unpleasant feelings toward him or her. One might think that communication is limited to speech or writing. Nowadays, however, we recognize that defamation can be committed in many other ways, including through images or actions1. The anonymity of the web and the ease with which information can be shared have greatly altered the potential reach of a communication, which, while seemingly benign, can result in many legal proceedings. The courts have called the web the most powerful communication tool on Earth, capable of making a person famous in a few minutes or destroying their reputation with a single click!2 The three situations likely to incur the author's liability According to the Supreme Court3, there are three main situations that can constitute defamation. The first occurs when a person makes unpleasant comments about a third party that he or she knows to be false. Such statements can only be made out of malice, with the intention of harming others. The second situation occurs when a person says unpleasant things about another when he or she ought to have known they are false. A reasonable person generally refrains from sharing negative information about others if he or she has reason to doubt its veracity. Finally, the third, often forgotten, situation is that of a slanderer who makes unfavourable but true comments about another without any valid reason for doing so. In the workplace, these three situations can occur between two employees, between a supervisor and his or her employee, or between an employee and the company he or she works for. What about freedom of expression? Freedom of expression, which is frequently invoked to defend statements made against a third party, is not without limits, especially in an employment context. The concept of defamation makes it necessary to reconcile the right to protection of reputation with the right to freedom of expression, since the former generally takes away from the latter. The courts will seek a balance between these two fundamental rights, which are both protected by Quebec’s Charter of Human Rights and Freedoms. Thus, while in some cases the courts recognize the right of employees to express themselves online about their employer, they will ensure that the comments are not factual statements that prove to be false, unfounded, distorted or exaggerated4. In addition, employees may have various contractual obligations, such as any non-disclosure agreement or confidentiality agreement they may have signed, or they may be required to comply with various employer policies, for example on the use of social media or respect in the workplace. By entering into such agreements, the employee agrees to limit his or her right to freedom of expression5. Beyond any contractual obligations to which an employee has subscribed, the Civil Code of Québec obliges employees to act faithfully to their employer and not use any confidential information they obtain in the course of their work. These obligations apply not only in the context of employment, but also at all times where the information concerns the reputation and privacy of others. Moreover, these obligations continue for a reasonable time after the contract terminates. The courts recognize that the obligation to act faithfully includes protecting the employer's reputation. In case of defamation, what recourse does the employer have? Sanction the offending employee Whether the victim is an employee or a manager, the employer should not stand idly by if someone claims to be the victim of defamation. In addition to damaging the company's work environment and productivity, the victim may also be tempted to file a psychological harassment complaint, which is why it is important to act quickly and conduct a serious inquiry. The same reasoning applies when an employee makes defamatory statements about the company. If the inquiry determines that defamation has occurred, the employer may sanction the offending employee. The applicable sanctions are determined on a case-by-case basis, but may include dismissal. On this subject, we invite you to consult our guide on imposing disciplinary measures, published on the website. Sue the offending employee If the contested comments constitute a fault and cause damage, the employer could claim compensation from their author, even if he or she is a former employee, insofar as the employer can demonstrate prejudice and a causal link with the alleged comments. For example, see our bulletin on the Digital Shape Technologies decision, under which a former employee was ordered to pay $11,000 to the employer in moral and punitive damages because of the prejudice caused by two negative comments posted anonymously online. Six tips to prevent defamation Implement a policy on non-denigration and social media use and regularly remind all employees of its existence, while making the necessary links with the policies on the prevention and handling of harassment complaints, as well as policies on the promotion of civility in the workplace. Provide training to employees and educate them on the proper and ethical use of social media and the need to respect their obligation to act faithfully not only at work, but also outside it. Revise policies and working conditions (contracts and manuals) to take into account technological innovations and users’ new favourite networks. Keep an eye on traditional and social media. In this respect, it has already been decided that an employer who monitors the media through an automated alert system that informs it when articles and other written material are published about it and that, in this way, finds comments made about it by employees, is not conducting illegal surveillance6. Quickly document any defamatory situation. This is particularly important when the comments are made on the internet. The employer should keep a copy of any video, comment, blog or webpage containing defamatory comments about the employer, as they may be modified by the author or deleted altogether. These files must not be altered or modified. When it comes to an email conversation, it will be necessary to try to obtain the entire conversation and not just the defamatory passage that could be misinterpreted out of context. When the statements have been made verbally, the employer should try to collect evidence and have it recorded in writing during the inquiry. Once the employer realizes that, as a result of its inquiry, it is reasonably able to conclude that a person is damaging the employer’s reputation, it must give notice to the person to retract the comments and block any message reiterating such damage to the employer’s reputation. The employer should also check to what extent the sites and technological tools allow it to intervene in order to block or rectify the alleged remarks directly. Remember that the employer also has an obligation not to commit defamatory acts against its employees. An employer who speaks out in public and denounces the actions of its employees is equally liable. This was the case in particular in the Kativik case7, where the employer had made statements in the Journal de Montréal concerning the unprofessional conduct of one of its employees, who had publicly reported an internal dispute. The comments were deemed to be unfounded and read by more than one million readers, and the grievance arbitrator awarded the employee $15,000 in compensation. Similarly, a prudent employer will not make defamatory comments or seek to harm a former employee when contacted by another employer for references. The employer must provide truthful information, with the prior authorization of the person concerned. Prudent managers will be able to foster a respectful work environment both inside and outside the workplace through these preventive measures and, at the same time, reduce both potential and crystallized disputes by explicitly defining the behaviours expected of everyone and by acting promptly in the event of apparent breaches.   Bou Malhab v. Diffusion Métromédia CMR inc. 2011 SCC 9, par. 15. Laforest v. Collins, 2012 QCCS 3078, para. 117. Prud'homme v. Prud'homme, 2002 SCC 85, par. 6. Digital Shape Technologies Inc. v. Walker, 2018 QCCS 4374, par. 56 and 57. Ibid, para. 29. Syndicat des employées et employés professionnels-les et de bureau, section locale 574 (SEPB-CTC-FTQ) and Librairie Renaud-Bray inc. (Julien Beauregard, griefs patronaux et syndicaux), 2017 QCTA 26. Association des employés du Nord québécois and Commission scolaire Kativik,AZ-50966087.

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  • Cyberattack: Superior Court dismisses application for authorization to institute a class action against Yahoo! Inc.

    The Superior Court of Québec dismissed an application for authorization to institute a class action against Yahoo! Inc.1 (hereinafter “Yahoo!”) seeking damages as a result of cyberattacks that compromised the confidentiality of user data. Context In September 2016, Yahoo! issued a press release announcing that nearly 500 million users were reportedly victims of a cyberattack in 2014. In December 2016, the company informed its users of another cyberattack that it claims took place in 2013. In February 2017, users were informed that the use of cookies apparently allowed a third party to access information contained in their accounts between 2015 and 2016. While a class action was brought in Ontario in December 2016, an application for authorization to institute a class action was filed in Québec the following month seeking compensation for users who were victims of one or more of these cyberattacks. The decision No arguable case After limiting the class to Québec residents whose information was lost and/or stolen between 2013 and 2019, the Court addressed the test set forth in paragraph 2 of article 575 of the Code of Civil Procedure. According to this criterion, the plaintiff must demonstrate that the alleged facts appear to justify the conclusions sought. The Court must distinguish factual allegations from arguments, opinions, unsupported inferences and hypotheses, as well as assertions that are implausible or false. This analysis is carried out in light of the plaintiff’s cause of action. In this case, the plaintiff had a Yahoo! email account. She alleged having suffered harm because her account may have been hacked during the 2013 cyberattack, although the nature of the compromised information is not yet known. She added that she suffered additional harm due to the “imminent” and “certainly impending” threat of identity theft and fraud resulting from the sale of her information on the black market and its use by criminals. She was also embarrassed because some of her friends received spam emails from her account in her name. As a result, she must now take steps to protect her personal and financial information. Building on the principles set out in the Sofio2 and Mustapha3 decisions, the Court reiterated that the demonstration of an alleged fault does not presuppose the existence of prejudice and that the latter must be serious and prolonged. Embarrassment and temporary inconveniences of an ordinary nature do not constitute compensable damages. Contrary to the allegations in the application, the Court considered that the plaintiff’s answers during her examination demonstrated that she has no reason to believe that she was a victim of identity theft or fraud, since she did not identify any suspicious charges and did not receive a poor credit report. In addition, she continued to use her Yahoo! account and admitted that she did not purchase any identity protection services, such as credit monitoring. Thus, the only prejudice the plaintiff suffered is the fact that she had to change her passwords for all of the accounts associated with her Yahoo! email address and the embarrassment she suffered because of the spam emails that were sent to her friends. On this point, the Court noted that none of the spam emails were filed into the Court record and that none of the recipients of the spam emails suffered harm. Consequently, the Court concluded that the plaintiff had not demonstrated the existence of an arguable cause. The Court distinguished the facts in this case from those in Zuckerman4 and Belley5, in which the plaintiffs had incurred expenses to protect their information or had been victims of fraud or identity theft. Inadequate representation Adequate representation implies that the representative plaintiff has a valid personal cause of action. However, a civil liability action requires the demonstration of a legal basis for the claim of damages, which was not achieved in this case. To summarize: It is not enough to claim the existence of a fault: damage must result therefrom. The notion of “compensable harm” must go beyond mere annoyance. Conclusion Legal action brought as a result of data breaches has increased exponentially in recent years. Cybercrime has become the second most common type of financial fraud. Any company that retains client data should be aware of the risks associated with cyberattacks and the potential lawsuits. To minimize risks, several measures can be implemented, such as adopting a response plan for cyberattacks, training employees and regularly updating security measures. For example, the PCI DSS (Payment Card Industry Data Security Standard) provides a detailed framework that allows companies to implement secure transaction processes. It is recommended that companies consult an IT specialist or hire an internal expert for guidance. It is also recommended that companies contact their insurers to verify their insurance policy coverage and, if necessary, obtain cyber risk insurance coverage. For class action practitioners, this decision once again demonstrates the importance of bearing in mind the impact that the examination of the representative plaintiff could have on the outcome of a case.   Bourbonnière v. Yahoo! Inc., 2019 QCCS 2624. Sofio c. Organisme canadien de réglementation du commerce des valeurs mobilières (OCRCVM), 2015 QCCA 1820. Mustapha v. Culligan of Canada Ltd., 2008 SCC 27. Zukerman v. Target Corporation, 2015 QCCA 1809. Belley v. TD Auto Finance Services Inc./Services de financement auto TD inc., 2015 QCCS 168/2015 QCCA 1255.

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