Fixed Term Contracts: To include or not to include a termination clauses

| June 7th, 2017 | No Comments »

Often, the most cost effective way to fulfill a temporary business need is to hire an individual on a fixed term contract. However, what may not be known to most employers is if the employment contract comes to a premature end, then the employee would legally be owed the amount for the remainder of the contract. The way to avoid this outcome is to include a termination clause in the employment contract.

When including a termination clause there are a few options available to employers. Employers may opt to include a reasonable notice provision, which would entitle the employee common law notice. At common law, notice periods are usually longer than those provided by minimal standards employment legislation, as factors such as age, tenure, skill level, responsibilities and so on will be factored in to the length of the notice pay. However, they are easier to draft and less likely to be found unenforceable due to errors of law.

Alternatively, employers may opt to provide the minimum notice period under law. However, due to recent common law developments (see Wood v. Deeley Imports Ltd., 2017, ONCA), employers must be very careful when drafting clauses that seek to provide for the mandatory minimum. For instance, payments for notice, benefits and severance cannot be grouped into a lump sum payment. The clause must specify the amount for each requirement of severance pay under the law. Otherwise, the clause is unenforceable and essentially non-existent.  The wording is key and thus more susceptible to legal error. It is always best to seek the service of an employment lawyer when seeking this option.

Overall, it is best to include a termination clause for a fixed term contract, as this will ensure the goal of cost effectiveness. It is important to seek the assistance of an employment law expert when implementing termination clauses.  The onus on employers to draft clear, unambiguous and legally compliant termination clauses is high, and any errors will render the clause unenforceable.

My Business is Suffering: Can I Change Employee Compensation Schemes in an Attempt to Save the Business?

| May 24th, 2017 | No Comments »

Employee compensation is one of the most fundamental aspects of an employment contract. In most cases, a fundamental change in an employment contract would result in damages if litigated by the employee. An employee subject to such changes could claim ‘constructive dismissal’, which means that the employee’s employment terms were altered substantially enough to force him/her to resign.  The employee can then seek damages for wrongful dismissal.

There are exceptions, however, that would not typically trigger a constructive dismissal. In an attempt to save the business, small changes to all employees under the business will normally not warrant a constructive dismissal and would therefore be legal. Such changes should align with the goal of saving the business. For instance, a change from profit sharing to commission for a large group of employees may allow a business to be more profitable, thus being consistent with the goal of saving the business. The change should be minimal and reasonably necessary to save a struggling business. To illustrate this, consider the case of Pullen v. John C. Preston Ltd (Preston Ltd).

Pullen was hired by Preston Ltd. in 1979 as a sales manager. His base salary was $30 000 per year plus some profit sharing. Preston Ltd. was experiencing significant financial difficulties during hard economic times. Preston Ltd. reduced Pullen’s base salary by $3 000 and changed Pullen’s profit sharing compensation to a commission based compensation scheme. Further, Preston Ltd. also changed Pullen’s job description, leaving Pullen to feel as though he was a salesman rather than a manager. Pullen left his employment and claimed constructive dismissal. The court ruled that this was not constructive dismissal. Not all of Pullen’s managerial duties were taken away, and the changes to Pullen’s compensation were viewed as genuinely necessary in light of Preston Ltd.’s financial struggles.

This case shows that changes to compensation can be made while a company faces financial difficulties. However, financial difficulties must be severe enough to require changes to employee compensation schemes in order to save a business. When dealing with a similar situation, employers must be careful as changes to compensation is a fundamental term of an employment contract. It is important to seek advice from an employment law expert, especially when seeking to implement such changes to a large group of employees. Whitten and Lublin Employment Lawyers have the employment law experts to assure you are in legal compliance and do not suffer additional hardships due to costly litigation during tough financial times.

Ensuring Employees are Given Adequate Time to Review Employment Contracts

| April 21st, 2017 | No Comments »

The law recognizes that there is an imbalance of power between employees and employers. Employers hold the advantage in contract negotiations because they are in a more favourable position to pressure or influence employees into agreeing or signing terms of contract. In the case of job offers, courts will examine the surrounding circumstances in assessing whether the employee was pressured into agreeing on the terms being challenged. Employers seeking to enforce minimal standards under law within their employment contracts are more at risk of being challenge. However, there are ways to avoid the terms of the contract being deemed unenforceable by the courts.

Adequate time to review the contract:

Foremost, the employer should grant adequate time for the employee to review and consider the terms within the employment contract being offered. This is especially the case for when the parties seek to limit the amount of notice or severance pay in the event the employee is dismissed from employment. This is usually done with the goal of offering the employee less than entitled under common law, but equal or more to the entitlements that are guaranteed under the minimal standards of employment law. Time should be given from the date of the employment offer so that the employee can understand and reflect upon their entitlements in the event the employment relation is ended by the employer. Employers should provide the employee with a copy of the contract and a few days to review the terms and conditions.

Ensuring legislative compliance:

Pitfalls to avoid for employers are ensuring that the employment contract offered legally complies to the minimal standards of employment guaranteed by law. If the employment contact is found to violate law, the courts will not just simply adjust the compensation owed to the employee to match minimal standards. Rather, the courts will enforce common law entitlements which can be much more that the minimal standards guaranteed by law.

Staying up-to-date on changes in employment legislation:

In addition, it is important to be up-to-date and aware of any changes under employment law that would render the past agreed upon employment contract legally incompliant. For instance, if changes to employment law raises the minimal severance packages employees are entitled to, then all contracts signed by employees prior to the change in law must adhere to the new changes. If not, courts will apply the common-law awards in damages to employees in the event of a termination.

Be Wary of the Employment Contract – Key Terms Affecting Employee Rights

| April 7th, 2017 | No Comments »

You just received that call, the one you have been sitting by the phone waiting for.  You have been offered the job of your dreams.  Everything is perfect. Shortly afterward, the company sends you a written offer letter or employment contract to formalize everything.  However, it contains many terms that were not specifically discussed during your pre-hire negotiations. While it is very tempting to cross your fingers and hope for the best when starting out this new and exciting relationship,  before signing on that dotted line, be wary of key terms that may impact your rights and obligations.

One of the major red flags to watch out for is the termination clause. While most individuals prefer not to think about  termination at the very beginning of a new and ideally long term employment relationship, this is one of the most contentious and litigated issues in employment law.   Typically, the termination clause is crafted by the employer specifically to protect the employer, not the employee.  In fact, you may be potentially giving up significant severance entitlements if the clause limits your rights to minimum employment standards legislation, or sets out a severance formula that slightly exceeds the minimum standard.  In fact, removing the termination clause altogether can in most instances be more favourable to the employee.

Another red flag is any restriction on incentive compensation or annual bonus payouts.  This is particularly critical if variable compensation forms a material part of your overall remuneration.  Many contracts indicate that bonus payouts will not be paid out at all, unless you are actively employed on the payout date, and will not paid out on termination.  This type of restriction can potentially result in forfeiture of your bonus entitlement, if you are laid off or terminated, before the annual bonus payout.  This can be true, even if you worked for the entire fiscal year and put in all that hard work to earn the bonus!   Similarly, if you are receiving restricted share units (RSUs), share grants or options, most often employers will include a similar restriction resulting in forfeiture of all unvested equity on termination. Verify the vesting schedule and any language that could impact your eligibility for ongoing vesting.

Additionally, there may be clauses, which could impact your rights and obligations, not only during the employment relationship but also afterward.  Many contracts contain post-employment non-solicitation or non-competition restrictions that purport to limit your ability to re-employ in your profession, or which might impact your ongoing relationship with clientele.   If enforceable, these can be extremely onerous obligations that you may owe your employer following your departure, and which may impact your re-employment prospects and marketability.

If you have any of these clauses in the written job offer, what should you do?   Get proper legal advice to determine how these provisions may impact your rights, if at all.   Secondly, negotiate!  Many employers present the contract as a ‘standard form’ document that “all” employees sign.  However, the reality is, anything is up for negotiation and there is really no downside to trying.   Before you negotiate, make sure you are adequately informed about your legal rights and have a negotiation strategy in place.

 

Author: Jonquille Pak, Employment Lawyer

6 Things to Know About Non-Competition Clause

| January 28th, 2016 | No Comments »

non-compete clauseThe non-competition clause, otherwise known as a ‘Non-Compete’, is typically an agreement between an employee and employer that prevents the employee from participating in a business that competes with the employer.

Not all Non-Competes are enforceable, and often courts will strike them out of employment contracts for constituting a ‘restraint on trade’. Whether you are being pressured to sign a Non-Compete, or have already agreed to one, make sure you know these six things:

  1. Non-Competes cannot be forced: A Non-Compete is an agreement between two parties.  In order for an agreement to be enforceable, each party to the agreement must receive something of value.  If you agreed to the Non-Compete after commencing employment, and did not receive an incentive for doing so, your Non-Compete may be unenforceable.
  2. Non-Competes are generally unenforceable against former employees: There is a public interest in allowing individuals to pursue their livelihood as they see fit. Where there is an imbalance in bargaining power (e.g. the employee had little or no say into the terms of their employment contract), the Non-Compete is less likely to be upheld.
  3. Non-Competes must be limited in scope: A Non-Compete that lasts for two years and applies to all of North America is less likely to be enforced than one that lasts for six months, and applies to a small geographic territory.
  4. NonCompetes will not be upheld where a non-solicitation clause will do: Employers utilize non-competes to protect their business interests. Often that interest takes the form of a client or customer list. Courts will refuse to enforce a Non-Compete where a non-solicitation clause protects the employer’s interest.
  5. The employer must prove actual harm: In order for a Non-Compete to be enforced, the employer is faced with the burden of proving that a specific harm will arise if it is not enforced. The burden cannot be discharged by speculation or prospective thinking.
  6. You have options: Agreeing to a Non-Compete does not mean it is set in stone. Similarly, a prospective employer may be agreeable to removing it from your employment contract. If you are faced with a current or future Non-Compete, it is imperative to speak with a competent employment lawyer to know your rights.

Author: Marc Kitay, Whitten & Lublin

Q&A: Independent Contractor Rights

| May 14th, 2015 | No Comments »

QUESTION #1

2 days after I submitted a written request for my 1st Quarter 2015 performance based compensation I was fired for no reason at all.  They told me “you are an independent contractor, so we don’t have to pay you”.  What are my rights in this situation?

ANSWER

You may have rights to severance in this situation, however, this will depend on whether you are truly an “independent contractor” from a legal perspective. Employees who are fired for no reason and without adequate notice are entitled to severance. By contrast,  independent contractors are not entitled to any severance (except what may be set out in a written contract). Merely because the company labelled you an “independent contractor” does not mean that the courts are bound by that label.  Even if you signed a written agreement that refers to you as an independent contractor, this is not determinative of your legal status.  The courts will examine not just what is simply written on paper or how the parties define each other, but how the parties actually carry out the working relationship.  In reality, very few contractors are truly independent contractors at law. Even if a company calls an individual an independent contract, an employment relationship has been nevertheless  found to exist in situations where the company exercises a high degree of direction or control over the individual’s work; the tools or equipment required to perform the work are provided by the company; most or all of the individual’s time is devoted to working for the company; and the individual is integrated into the company’s organizational structure. It is not necessary for all elements to be satisfied and this is not a complete list of examples, however, these are some of the main factors the courts will typically consider in clarifying the nature of your contractual relationship and your entitlements.

Separate from the above, you are entitled to be paid for outstanding earnings or performance-based compensation that was promised for work already performed, regardless of whether you are an employee or independent contractor. You should contact an employment law expert for advice about your legal status and your rights to a severance package.

Employment contracts and their validity

| March 6th, 2015 | No Comments »

There is the possibility that an employment contract may or may not hold up in Court.  This is why it is recommended that a legal professional review documents of this nature.

Daniel Lublin, Toronto employment lawyer discusses the importance of employment contracts as they relate to their validity and legal standing in Court, non-solicit/non-compete clauses, and the legal protection of contractors and disclosing of their income. Mr. Lublin has this to say:

  • When an employee signs a non-compete/ non-solicit clause, the Court will rely on the contractual language and will determine its validity. However, there are special circumstances where an employee has a key role and is considered as a “fiduciary”.
  •  As it relates to contractors, an employer must make it absolutely clear that an employee’s compensation is kept strictly confidential.
  • A signed contract is an important document that a Judge will rely on. When an employer attempts to retract the offer, even though it is signed, consult with a legal expert.

To thoroughly understand these topics, read Daniel Lublin’s Globe and Mail column and full article Can my employer stop me from working for a competitor?

 

Employers beware of ‘Dependent’ Contractors

| October 16th, 2014 | No Comments »

When an employer decides to hire for their business, they can recruit employees, independent contractors or dependent contractors.  Distinguishing the difference can be difficult, and noting the significant advantages and disadvantages can be tricky.  With the right guidance, an employer can avoid many unpleasant surprises, like that in Khan v. All-Can Express Ltd.  Particularly, when paying close attention to drafting an employment contract that relates to the specific relationship between employer and employee, independent contractor or dependent contractor.

Employers must know that the law examines the reality of the relationship, not the words used to describe it.  Employee’s and dependent contractors have some very similar qualities.  The element that stands out most is they are both entitled to reasonable notice of termination.  Unlike independent contractors who can be terminated without, or very little, notice. Employers must ensure that they protect themselves against future dilemmas when recruiting an independent contractor.  They can certainly appreciate the benefits of independent contractors by learning more on the law that surrounds it.

The following are factors to help you beware of misclassification between employees, independent contractors and dependent contractors:

  • The reality of the relationship is key- simply calling someone an independent contractor does not make it true.
  • Employees and dependent contractors are normally entitled to reasonable notice of termination.
  •  A proper contract can eliminate the risk of a large award of pay in lieu of notice of termination for an independent contractor.

 

Whitten and Lublin’s New Book Released!

| June 28th, 2013 | 2 Comments »
Daniel Lublin and David Whitten have published their first book

Daniel Lublin and David Whitten – New Book Released!

Whitten & Lublin is proud to announce their partners, Daniel Lublin and David Whitten, have published their first book; HR Manager’s Guide to Independent Contractors in the Workplace.

In light of an increased number of clients seeking legal advice with respect to independent contractors, the idea was born to create guidance for those recruiting, hiring or employing independent contractors, as well as for those who are working as independent contractors.

 

What to Expect in the Release

The hiring of contract employees is on the rise, and Whitten and Lublin’s new book responds by giving a comprehensive analysis of the nascent and developing “law for contractors”. The book synthesizes precedents and existing law to cover topics such as: hiring contractors, payroll issues, administering the contractor/employer relationship, performance management, outsourcing contractors, hiring a third party administrator; dismissal issues; tax issues; and dealing with government bodies and dealing with tribunals.

 

Get Whitten and Lublin’s New Book Today

The book is aimed at helping all those affected by the independent contracting trend: from payers/employers to lawyers to HR professionals; anyone who has stake in issues relating to independent contractor relationships.

HR Manager’s Guide to Independent Contractors in the Workplace is available for purchase from Carswell’s store.

 

Buying a business with long term employees

| October 1st, 2012 | No Comments »

Sounds great, but what does it really mean for your business?

What happens when your relationship with long-service employees doesn’t turn out as planned and you realize that the potential costs to sever those employees could be substantial?  You might consider calculating and negotiating those potential costs into the purchase price of a business for a discounted rate.  If you do negotiate this as part of the  purchase agreement, the current owner will pay all or part of those severance costs.  Make sure a lawyer reviews that clause carefully.

If those negotiations aren’t successful, one thing that can be done is to put a proper employment contract into place – a contract that protects you.  This contract has to delineate your severance obligations.  Without a good contract, a 20-year employee, for example, could receive up to 24 months’ severance.

In any case, it is always a good idea to have an expert help put your contract together and to make sure that you are protected if a terminated employee makes additional claims on top of severance, such as bad faith and or discrimination.

Toronto Employment Lawyer, Daniel Lublin explains in further detail what steps you can take before buying a business in his latest article Buying a business? Protect yourself from high severance costs published in the Globe and Mail.