A family feud has led to one brother being wrongfully dismissed from his position at the Burnaby communications technology company he owned with his brothers, the B.C. Supreme Court has found.
Doug Zoehner filed a wrongful dismissal lawsuit against Algo Communications Products Ltd., a company he owned 44.3 per cent of the shares in, claiming he was entitled to two years’ salary in repayment.
Brother Paul Zoehner also owned 44.3 per cent of the shares in the company, while Kerry Zoehner owns 11.34 per cent, according to the B.C. Supreme Court , penned by Justice Frits Verhoeven.
Just three months before Doug’s ousting, he had agreed with Paul to increase the board to three directors. With Kerry taking the third spot, Paul was able to bypass the previous stalemate between them and fire his brother.
Algo was founded by the three brothers’ parents, Alma and Gordon Zoehner, in 1968. In 1988, Gordon transferred a third of the company’s shares each to Doug and Paul, and his remaining 34 per cent were split equally among the three brothers when he died in 2009.
The company has two distinct divisions: the “interconnect division,” which installed and serviced phones and was run exclusively by Doug, and the “manufacturing division,” which manufactured internet protocol-based communications equipment and was run exclusively by Paul.
The parties largely agreed not to submit personal or corporate financial information into the court hearing, agreeing that it was not relevant. But they did all agree that the interconnect division’s financial performance was “terrible,” while the manufacturing division was described by the court as “very successful.”
But Doug contended to Paul over the years that if they wanted out of the interconnect business, they had to sell it off, as they had obligations to customers and employees.
The two brothers had an “extremely strained” relationship, communicating largely by email while the two operated separate divisions, despite working in the same facility, according to the decision.
Doug believed the brothers agreed “in a meeting at a golf course in 2015” to sell Algo, starting with the interconnect division, according to the decision, while Paul believed nothing had been decided at the golf course.
Paul left the interconnect sale “almost entirely” in Doug’s hands, according to the ruling, though he at one point “questioned whether it might be cheaper to simply cease operations, instead of selling the division. Doug reiterated that the buyer was relieving Algo of liabilities to its employees and customers.”
The brothers approved a sale on Dec. 31, 2019, and Doug began providing transitional services to the buyer for a monthly fee paid by the buyer to Algo.
The buyer terminated Doug’s transitional services by the end of April 2020, and Doug no longer had work related to the interconnect division.
“However, neither brother was communicating with each other about their respective, differing beliefs as to their plans for themselves and Algo going forward,” reads the decision.
“Doug acknowledges that he did not tell Paul that the buyer had given notice to terminate his services on March 31. Paul learned of this development after the fact. This small point illustrates the poor state of their communications.”
Doug claimed he expected the sale of the interconnect division to be just the first step of selling Algo as a whole, while Paul believed Doug would retire once interconnect was sold.
The brothers debated over email about this, as Doug continued to withdraw his $350,000 annual salary from the company. Paul emailed his two brothers in May 2020 to say it wasn’t fair to the other shareholders for Doug to continue receiving a salary since he no longer had any active role or duties in the company.
He suggested Doug would need approval from all shareholders for a job, a shareholder loan or a share buyback program to continue withdrawing money.
Doug’s response was that he would remain on payroll until the sale was completed, and added: “Perhaps we need some transparencies with the board regarding compensation offered to your immediate family,” referencing Paul’s decision to hire his son as a managing director earlier that month without consulting Doug. (Verhoeven later wrote that this was not a matter of nepotism, as Paul’s son was “well-qualified” for the role, with a master’s degree in business administration.)
Paul then escalated his language, calling Doug’s continued collection of a salary “abusive to the other shareholders” and informed him that any salary drawn after April 30 “will be considered a repayable shareholder loan until this matter can be dealt with at an annual general meeting.”
“Thereafter, Doug and Paul were at a stalemate. Paul was not in a position to dictate terms of employment to Doug, since they were both directors, and equal shareholders. Doug refused to resign or to refuse receipt of his salary. Doug was prepared to resign if Paul would agree to buy out his shares in Algo and Compak, or agree to sell Algo. Paul’s view was that Doug’s interests [were] separate from the matter of his employment with Algo,” Verhoeven wrote.
In September 2020, Paul emailed Doug to pose a shareholders resolution to increase the number of directors to three, bringing on Kerry.
“Paul’s intention was to end the stalemate on the board and terminate Doug’s employment. Doug was hoping for a sale of his interests in the two companies,” Verhoeven wrote.
Algo argued Doug had eliminated his own position by selling the division he was solely responsible for, and that he abandoned his position by failing to do work for the company and refusing to consider working with Algo to find a suitable position for himself.
The company also argued Doug was “attempting to use his salary as leverage ‘to fund his retirement’ until the other shareholders capitulated to his demands by either selling Algo or buying Doug’s shares on his terms.”
But Verhoeven rejected those arguments, saying selling off the interconnect business was, “beyond any question,” Algo’s doing. And while Paul assumed Doug would then resign, Doug never agreed to that, arguing he believed the next step was to then sell off the rest of the company.
“It was not unreasonable for him to believe that in the meantime he would continue to be employed by Algo,” Verhoeven wrote.
“Unfortunately, as Doug and Paul had a very poor, dysfunctional business relationship, and were practically not communicating with each other except via occasional emails, they failed to reach an agreement between themselves as to what would happen to Doug’s position once the sale occurred.”
The decision also notes that, while Doug’s duties were now limited, he did do some work, including foreign exchange transactions for the company.
Paul argued in trial that Doug could have found work and named a few tasks, but Verhoeven said it wasn’t up to Doug as an employee to find new work in the company – it was the company’s job to do that, or to lay him off.
Algo pointed to similar cases in which employees were found to have abandoned their positions by refusing equivalent positions upon redundancy, by refusing to do their duties, or by threatening to resign. But Verhoeven distinguished all of them from this case, noting Doug had no substantial duties to refuse; wasn’t offered an equivalent position, or any position at all; and hadn’t threatened to resign.
“Algo’s real complaint is that the plaintiff refused to resign. His refusal to resign was not a repudiation of his contract of employment. In practical terms, his position was that he was not going to resign voluntarily, unless his shareholdings … were bought out. It was not a breach of his employment agreement to take this position,” Verhoeven wrote.
“It is also quite clear that Paul did not want Doug's continued participation in the management of Algo. Paul had wanted to sever their business relationships since at least 2015.”
Verhoeven found Doug was wrongfully dismissed but determined he could have mitigated his losses by finding other employment in the equivalent of 4.8 months of salary, reducing his damages to 19.2 months of salary.
Verhoeven found in favour of Doug for $560,000 for his salary and a further $8,500 for his lost benefits.
