Question:

1. Did RENOS breach the contract with Kathryn? If so, how was it breached?

From:

CASE STUDY Kathryn Kennedy is a proud Conestoga graduate. She completed her Business Diploma in Marketing. Kathryn was hired after college by her co-op placement, JG Jones Marketing Inc. ("JG Jones") in Cambridge. Kathryn has worked for JG Jones for nearly 5 years. Kathryn does has an employment contract with JG Jones which outlines her hours, her position, her salary and the required notice for leaving, which is two weeks. At the time she was hired, Kathryn was told that there was opportunities to advance and to do freelance work. During the last five years, Kathryn has learned that since JG Jones is a family owned company and Kathryn isn't family opportunities for management positions are limited. Lately Kathryn has been dissatisfied with her job. Kathryn has, on her own time, developed marketing strategies for some of the clients of JG Jones. Kathryn presented these strategies to the Senior Marketing Development Manager, Susan Jones. Susan abruptly rejected them without giving them any sincere consideration. While Kathryn has been paid relatively well, she wants to advance and be able to set her own schedule and establish a client base of smaller businesses. Kathryn has spoken with Susan on several occasions about updating JG Jones' computers and the software. Kathryn has tried to introduce smaller clients to JG Jones, but Susan advised Kathryn she couldn't work for them. Susan does not listen to Kathryn's suggestions and has never taken Kathryn's ideas to senior management. Kathryn questions whether Susan has any education in marketing or any training on the software used by JG Jones. After a few long months of frustration, Kathryn decided that JG Jones has become stagnant and unimaginative. Her dream is to start her own marketing business. Kathryn wants to approach the clients of JG Jones with her plans. Kathryn also has some great ideas for developing a marketing business serving small businesses that can't afford a full-time marketing person. After talking with friends and family, Kathryn has decided to quit her job when her contract expires in six (6) months. Since Kathryn has been considering this move for some time, she has been saving money to pay the expenses to start up the business. Before Kathryn gave notice she decided to get some things started to open her own business. Her first step was education. She decided to attend a seminar at Conestoga College for new business owners. At the seminar, Kathryn learned valuable information about registering her business name, finding a location, financing and ensuring there are no restrictions to starting a business regarding her current employment agreement. After the 2 | Page seminar, Kathryn reviewed her employment contract and discovered that it did not contain non-competition or non-solicitation clauses. Kathryn owns a small bungalow that she bought about 2 years ago that has a huge unfinished basement. Kathryn has a significant amount of equity as she inherited money from her grandmother about 3 years ago and used it to buy the home. Kathryn planned on getting the basement professionally finished to ensure it was done properly. She decided the basement would be an excellent location to start her business, at least at until it grows and requires more space. There are two issues that needed to be dealt with about the basement choice. First, can Kathryn needs to find out if she can carry on business out of her home; and second, the basement needed major work to make it a usable space. Kathryn doesn't fully understand zoning issues so she decided to find a professional renovation company who could prepare the plans for the basement as well as obtain all the necessary permits. Kathryn contacted a friend of her parents who recently had significant renovations done on his home and he provided Kathryn with the name of three businesses, which provided quotes to do the work. After consulting with the three businesses and receiving their plans for her basement renovation, Kathryn decided to use RENOS R Us Ltd. ("RENOS"). The owner, Tom Thompson, provided a thorough list of references, including her parents' friends. RENOS provided the plan that best suited the needs of her business. Tom assured Kathryn RENOS would get the building permit quite easily as he had done it numerous times for other jobs. In fact, Tom said that the price quoted included obtaining all the necessary permits for the work because he was so confident it was a very simple process. Kathryn negotiated back and forth about the deadline and the cost and they came to an agreement on all those issues. Kathryn signed a contract prepared by RENOS that outlined the work to be done, the plans for the work, the timeline for completion (which was to be shortly before Kathryn stopped working at JG Jones) and the total cost of the project. A couple of days after Kathryn signed the contract, she realized there was no mention of the building permit. When Kathryn called Tom, he assured her that he would cover any costs associated with obtaining the permit. Also, the contract did not provide for any late penalties if RENOS did not complete the work on time. When Kathryn asked about this issue Tom assured her that RENOS had never been late so there was no need for a penalty clause. RENOS was to start the 15th of the month. The 15th passed and Kathryn hadn't heard from Tom or RENOS so Kathryn called him. Tom advised that there has been an issue with her building permit. The age of her home required the renovations to include Building Code modifications as well as a rezoning of the property to allow for commercial business to be run out of the home. Kathryn was distressed by this news, but Tom reassured Kathryn that he would take care of it at no extra cost to Kathryn. Tom advised Kathryn that it would be a few 3 | Page weeks. As expected, Tom called Kathryn at work to advise Kathryn that the rezoning had been approved and the modifications to the home required for the building permit had been made and RENOS R Us was now ready to get started on the renovations in the basement. Kathryn breathed a sigh of relief and authorized them to proceed with the renovations. They were already behind schedule but Tom reassured Kathryn that RENOS would complete the work on time. Kathryn got very excited about her new business. Kathryn didn't talk about it at work as she didn't want to cause any hard feelings. She also wanted to make sure JG Jones didn't think she wasn't doing her work. Kathryn spent her lunch hours searching the internet and contacting places about furniture and computers. Kathryn also spent a lot of her free time working on her own business name as well as materials to advertise her new business to distribute to potential clients. The marketing materials Kathryn prepared needed to be perfect to impress potential clients with the quality of her work. Kathryn wanted a catchy name, so she searched the internet to get some inspiration. Many marketing companies use the name of the person who started the business, but Kathryn wanted something different that will distinguish her business out in the marketing industry. After many long hours of searching and brainstorming, she decided on "Plant for your future" with a tag line "Help us help you grow". She was very excited and her friends and family thought it was perfect. Kathryn started working on her marketing materials using the "growing" theme throughout as she thought it would be very inspiring for smaller businesses. As the renovations progressed, Kathryn became more excited. The seminar materials recommended searching for the office materials that would be needed and offered some websites as resources. Despite searching the recommended sites, Kathryn couldn't find the style of furniture she wanted for her office. Kathryn kept in touch with many of her Conestoga classmates and heard through one of them about a business that was going out of business and selling furniture for a fraction of its cost. Kathryn's friend told her to call Joey Johnson, who was selling the furniture, and provided his telephone number. Kathryn called him, learned that he is eager to get rid of desks, tables and chairs, and agreed to meet with him at his office after hours. There was a sign in the window of the business announcing it was going bankrupt. Kathryn doesn't ask about it as she doesn't want to embarrass the man. After examining the furniture, Kathryn negotiated with Joey. Kathryn was very proud of herself as she got an incredible deal. He agreed to sell the furniture, which looks brand new to Kathryn, at a fraction of the price she has seen it selling for online. Kathryn must pay in cash and pick it up herself within 24 hours. She agreed to meet Joey the following night with the money and a truck to move the furniture. 4 | Page Everything about starting her business is going so smoothly that Kathryn wondered why she didn't do this years ago. The final equipment Kathryn needed was computers, printers and photocopiers. Kathryn was fine with getting used printers and photocopiers, but she knew that the computer must be up-to-date to ensure she could use the necessary software to produce quality marketing materials for other businesses. Finding printers and photocopiers was relatively simple as many businesses change their photocopiers often, so Kathryn posted an ad on Kijiji listing the types of printers and photocopier she needed. After a few days, Kathryn had several responses to her ad. One response that caught her attention was from a co-worker at JG Jones. This co-worker was offering to sell Kathryn the exact printers and photocopier she needed at a reasonable price. The co-worker assured Kathryn that they worked fine but were old machines, so may need some work in the future. After a few messages of negotiations back and forth, Kathryn and her co-worker reached an agreement on which machines Kathryn wanted and the price. Kathryn did not put any of it in writing as she had known her co-worker for at least 4 years and Kathryn trusted her word. Kathryn advised that she couldn't pick up the printers and photocopier for a while as the renovations were making her house too dirty and the machines might be damaged. Her co-worker agreed to hold the machines for a couple more months. Finally, it seemed like everything was ready to go for her business, Kathryn put her notice in at JG Jones. They were surprised but happy for Kathryn and even suggested they would send Kathryn small businesses that couldn't afford JG Jones' prices. Kathryn was greatly relieved that there was no awkwardness and no problems with JG Jones. Now Kathryn could really start marketing her business. Throughout her years at JG Jones, Kathryn developed a list of businesses that she thought could use some updating or rebranding of their business, name, look, etc. Kathryn repeatedly presented these names to Susan Jones but she decided those businesses weren't worth pursuing. Kathryn had a list of those businesses on her computer and at work. She downloaded them and deleted them from her work computer. Kathryn had also developed many templates and precedents for various marketing plans. Kathryn downloaded those precedents to keep for reference and use. The final item Kathryn needed for her office to be operational was a computer system. Kathryn knew which type of computer she wanted but wasn't sure whether to buy the latest version or to stay with the version that she currently used. After researching, Kathryn discovered the latest version of the computer would cost her an outrageous sum of money. Kathryn decided to buy the version she was using. Kathryn spoke with the manager at the local computer store to discuss whether the computer could support the software Kathryn would be using. The manager seemed surprised at her question. He told Kathryn he didn't know much about the software program as he had no experience in marketing. He reviewed the specifications for both the software as well as the hardware and advised that in his opinion they 5 | Page were compatible. Based on his advice, Kathryn bought the older version of the computer and purchased the software program via an online distributor. In purchasing the software, an econtract appeared that outlined the return policy, which stated that the software must be returned within 30 days. Kathryn didn't really read the terms and just clicked on the "I accept" button. She received the package within 5 business days but didn't open it as she didn't have the computer set up. Two weeks before Kathryn was finished at JG Jones, Susan Jones asked Kathryn to turn over all the projects Kathryn was working on and to provide a summary of the status of the projects. Ms. Jones also asked Kathryn to turn in all work product that she has produced while working at JG Jones. When Kathryn asked her supervisor what she means by "work product", she advised all templates, precedents and other materials Kathryn created during her work at JG Jones. Kathryn provided her with copies of all the materials she already copied to take home. While Kathryn was busy during the day getting all the paperwork done at JG Jones, Kathryn came home one evening to learn that there was a significant delay in the renovations because the subcontractor RENOS uses had a personal emergency and was not able to come to the property to complete the plumbing which prevented RENOS from being able to lay the flooring and do the drywall. Kathryn immediately contacted Tom Thompson to discuss the delays and her concerns. He advised Kathryn he had another subcontractor that was going to do the work the following day, so the delay would not be as long as anticipated. Kathryn advised Tom that she needed the work to be on time or she was going to incur expenses including the delay of the opening party and the lost revenue from not being able to get the business started. Also, Kathryn had already prepared her advertising material which stated that Plant Your Future would be open for business on a specific date. Kathryn advised Tom that she would expect some compensation for the delay in completing the contract. Tom stated that he would do everything he could even if it meant the workers showed up on evenings and weekends to get the work completed on time. With respect to some compensation, Tom said they could discuss it later if there was a delay. Based on his assurance, Kathryn agreed to the workers coming into her home after regular hours to get the work done. Kathryn's final day of work at JG Jones arrived. Kathryn was both nervous and excited about starting this new chapter in her life. Over the course of the day, Kathryn turned over all client account information and cleaned out her workspace. At 5:00 p.m. Kathryn left JG Jones for the last time. Over the weekend, Kathryn became very anxious when she saw that RENOS had not completed their work. Since they weren't finished, Kathryn couldn't get the furniture out of her living room. Kathryn still needed to arrange for picking up the printers and photocopier, but the 6 | Page house was still too dusty. Her former co-worker had been calling Kathryn as she wanted it out of her home as soon as possible. Finally, after weeks of delay and frustrations with RENOS the work was finished. Kathryn got her office set up. Kathryn received a few calls from potential clients but due to the delays she wasn't able to provide any quotes. Kathryn got the furniture, the printers and photocopiers in place. Kathryn connected her computer and was going to download the software. When Kathryn started the initializing process, she received a message that the software could not be loaded on this computer as it wasn't compatible and was told to call her service provider. Frustrated, Kathryn called Nerd Herd, the computer service providers from the computer store where Kathryn bought the computer. Kathryn spent 3 hours on the phone with a member of the Nerd Herd who advised Kathryn that the software was incompatible and she either needed to buy the older version of the software or buy the newer computer to handle the software programming. Kathryn was very frustrated as she took the advice of the salesperson at the computer store and had purchased the older computer under the advice of the salesperson that it would operate the software she requires for her business. Kathryn has to decide whether to return the computer or the software but when she reviewed the warranty for the software program, it stated that she only had 30 days to return it. She had had the package for over two months waiting for her computer to be set up. Kathryn decided to spend the extra money to buy the newer computer so she returned to the store and to the actual manager who sold her the computer. After speaking with a representative from Nerd Herd, the manager agreed to give her a full refund provided it was applied to the new computer. Once Kathryn worked out the computer issue, Kathryn got started. She has printed her advertising materials to announce the opening of her business. After much time and thought, Kathryn have chosen the name "PLANT FOR YOUR FUTURE". It was similar to another company's name, "Planting the future", which was a greenhouse and gardening store. But because they do not carry on business in Waterloo and it wasn't the same type of business, so Kathryn didn't think there would be an issue. To advertise, Kathryn contacted the small companies she wanted to provide services for when Kathryn worked for JG Jones. Kathryn sends out mailings to some of her former clients as well as various other large businesses in the area. She was contacted by Sally Sweet, the VP of sales at ACME Manufacturing Inc., one of JG Jones' largest clients. Sally told Kathryn that she was very interested in hearing her ideas for a marketing and advertising plan for ACME and wanted to schedule a meeting. She told Kathryn that she did not like the person JG Jones hired to replace Kathryn and ACME was looking for another marketing company. During the conversation, Kathryn told her that JG Jones was using outdated technology and was very traditional in their marketing ideas. Kathryn spent a little time explaining why Kathryn left JG 7 | Page Jones and what the problems were there. Shortly after meeting with Sally, she called Kathryn to advise her that she was impressed by Kathryn's presentation and ACME wants to retain her services. Sally had terminated the contract with JG Jones and wanted Kathryn to come to the next board meeting to present her plans. Shortly after being retained by ACME, Kathryn received a letter from JG Jones' lawyer advising her to stop defaming JG Jones and their services and soliciting their clients or it would commence an action for defamation as well as inducement to breach contract. Kathryn is worried about these issues as she had approached a number of clients of JG Jones. After a few months, Kathryn realized that she was overwhelmed with work. Kathryn had amazing plans and so many interested clients but she realized she can't do all the work herself. Kathryn called a former professor at Conestoga to ask him if there was an outstanding student who could come and work for her part time while they were in school to help implement marketing plans. Kathryn learned that one student, Davinder Brar, had exceptional skills and work ethic. The professor did say that Davinder was young. He was only in his first semester but he would be a great employee for Kathryn. Kathryn obtained Davinder's email and she contacted him about a possible job opportunity, to which he responded eagerly with a copy of his resume. After meeting him, Kathryn realized how young he really was. His portfolio was impeccable but his age caused Kathryn to hesitate to offer him the position. After receiving other resumes and reviewing those applicant's portfolios, Kathryn decided to offer Davinder a position with her business. He would be a part time employee working 15-25 hours per week earning $17.00 per hour with a possibility of an annual bonus depending on the success of the business. Davinder accepted the offer and signed the contract, which included non-solicitation and non-competition clauses. Kathryn primarily met with clients at their offices as it was easier for them and allowed her to see their business in action. One new client, Casey Clutzy, wanted to meet with Kathryn at her office. Her appointment was at 10 a.m. but at 9 a.m. Kathryn discovered that there was a problem with the flooring. One section had lifted and caused a trip hazard. In fact, both Kathryn and Davinder tripped several times that morning. Kathryn thought about putting up a sign but forgot to do it. When Cathy came for her meeting, she tripped and fell, breaking her arm. Kathryn is very worried about whether she is liable for Casey's injuries. Kathryn went to some seminars designed to help her stay up-to-date with new software and implement new ideas for using the internet for marketing. During the next 6 months, Planting for your Future grew rapidly and Kathryn needed to help beyond a part time student. She needed more help and money to help expand the business. She realized that keeping up 8 | Page with the latest software for marketing would require significant capital, and Kathryn needed to decide how to get the money for this purchase. At one of the seminars on how to expand your business, Kathryn met a woman, Joanne Kirk, who wanted to leave her employment and start her own business. She had money to invest and about 10 years of experience in marketing and advertising. Joanne did not have many contacts as her employment contract prohibited her from soliciting any clients of her current employer. Kathryn gave Joanne her card and suggested they meet to discuss a possible business arrangement between them. After the seminar, Kathryn called Joanne and the two met for lunch a few times. During those meetings, Kathryn discussed the possibility of Joanne quitting her job and the two of them creating their own business. Their meetings and discussion continued for a few months while Joanne was deciding what she wanted to do. As her discussions with Joanne progress, Joanne decided she would quit her job and come to work with Kathryn at Planting for your Future. She didn't want to be an employee. They needed to consider what form of business create. Kathryn remembered her business law class and that there are a few options but decided to contact a lawyer about which choice best suited Kathryn and Joanne.