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

Are your Employment Contracts Illegal?

| March 8th, 2017 | No Comments »

Employers often require their employees to sign employment contracts that limit the amount of notice of dismissal they are required to provide.  In most cases, the employer attempts to limit its obligation to the bare minimums under the Employment Standards Act, as opposed to the more onerous obligation of providing reasonable notice.

Many of these contracts, however, violate one or more minimum standards under the Act, which renders the entire termination provision illegal.  Many judges in the last several years have granted leniency to employers, rather than overrule the illegal clause.

Recently, Whitten & Lublin was successful in convincing Ontario’s highest court to put an end to this practice, in the case of Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 The law on this point is now clear: a termination provision that can reasonably be interpreted as contravening the Act will fail, and the employer will be required to provide reasonable notice of dismissal.

Determining whether an employment contract violates the Act is a difficult task that requires a competent employment lawyer to assess.   Nonetheless, the following are a few guidelines for determining whether a contract is illegal:

  • Are benefits mentioned? The Act allows employers to provide payment instead of formal notice of dismissal, provided that the employee’s benefits are continued for the minimum notice period. Since benefits are not a form of “pay”, they must be separately referenced
  • Can severance be worked? Severance pay under the Act must be paid. If the contract permits an employer to satisfy all obligations with working notice, or a combination of pay in lieu of notice without separately referencing severance pay, then the contract is illegal
  • How is pay in lieu of notice calculated? Pay in lieu of notice must be calculated based on what the employee would have received, had they been given working notice of dismissal. Limiting pay in lieu of notice to just base salary may violate the Act
  • Does the contract exclude a minimum standard, or is it just silent? A contract that states that the employee will receive no further entitlement is more likely to be illegal than one that is silent on the point.

Illegal termination clauses come in all shapes and forms, and are used by large corporations, all the way down to small businesses.  Contact our lawyers to determine your rights on dismissal.

For further reading, the judgment in Wood v. Fred Deeley Imports Ltd. can be viewed here.

Can a Non-Payment of a Bonus Trigger Constructive Dismissal?

| February 24th, 2017 | No Comments »

In the case of bonus pay, would a disagreement over the entitlement, and subsequently a non-payment, be enough for an employee to claim constructive dismissal? When an employer changes an essential term of an employment contract without the consent of the employee, this is a unilateral change and would warrant a constructive dismissal claim. This means that the employee had no reasonable alternative but to walk away from the job. This requires a fundamental change to the terms of employment such as pay and responsibilities. The remedy sought would be damages in the form of ‘notice pay’.

This, of course, is circumstantial. Important factors include the amount of the bonus in question. If the bonus makes up a large proportion of the employee’s pay and is guaranteed, then a failure of payment would more likely result in a successful constructive dismissal claim. Alternatively, if the bonus was a small amount with no other alteration to the employment contract, a constructive dismissal claim will unlikely be successful. A 2016 Ontario Superior Court case of Chapman vs GPM Investment Management (the company) deals with exactly this.

In this case, Chapman was the CEO and President of GPM. Chapman felt he was entitled to a bonus of 10% of profits made off the sale of an asset (property) for which GMP was involved. GPM disagreed over this 10% bonus because they claimed the gains made did not fall under the definition of ‘profit’ as defined in the employment contract. Chapman quit and claimed constructive dismissal in addition to payment for the 10% bonus he felt was owed. The Ontario Superior Court found that Chapman was entitled to this bonus, however, the failure to make this payment was not enough to trigger constructive dismissal.

The reasons the court did not find this to be constructive dismissal was due to a few reasons: the bonus was not much compared to Chapman’s overall compensation, the terms of the employment contract (the bonus structure) were not altered, and the employer intended to continue  honouring the employment contract in the future. The disagreement was also over a particular type of asset that the employer was never going to deal with again, thus making this a one-time isolated event. Overall, the circumstances here did not fundamentally change the conditions of employment, and therefore did not amount to a constructive dismissal. In addition, the employer here gave Chapman options to peacefully resolve the issue.

If there is a concern over an issue regarding the payment of a bonus, it is important to attain legal advice. The issue may involve a disagreement over the interpretation of an employment clause, which requires a wholesome approach – it is often not enough to only consider the clause in question. For both employers and employees, it is advisable to seek legal assistance in determining the appropriate remedies.

Geographic Relocation and Constructive Dismissal

| February 17th, 2017 | No Comments »

Constructive dismissal is when an employer alters the fundamental conditions of the employment contract, which gives the employee little choice but to resign. Many employees do feel that relocation is constructive dismissal. The general rule for establishing constructive dismissal is whether the employment contract has been fundamentally changed. Relocation may be a fundamental change to the employment contract as displayed in past court cases. The following are a few factors to be aware of when deciding to seek representation by an employment lawyer.

It is important to be aware of whether relocation is an implied term of the employment contract as terms of the employment contract are often not in writing. ‘Implied’ terms are certain provision that should be reasonably assumed even though not formally written. In the case of a relocation request from an employer, the request may be implied in a number of circumstances. This includes whether the employer has relocated other workers in the past, whether the business is international (has many locations internationally), and the size of the organization. When the business is international and the position is not a demotion, it is generally seen as an implied condition of the employment contract and therefore not grounds for constructive dismissal.

Other factors to be aware of are whether the relocation is temporary, whether there are changes to other fundamental terms of the employment contract (such as pay and responsibilities), whether relocation expenses are being covered by the employer and whether undue hardship will result from the relocation. Further, the relocation must be done in good faith (i.e. for a legitimate business purpose). If you feel that a relocation request would be constructive dismissal for the reasons mentioned or any other factors, it is important to seek legal consultation from an employment law expert.

Courts have ruled against employers when relocation was not a term included in writing within an employment contract, even when the business was international with offices in other countries. For employers, it advisable to included relocation clauses in initial written employment contracts if this is a reasonable expectation given the nature of the company’s operation. For any uncertainties, seek the advice of an employment lawyer.

Inducement of an Employee: Risks and Damages

| January 9th, 2017 | No Comments »

Inducement: When pursuing an employee that works for another company, it is important to be mindful that this employee would be sacrificing a number of employment benefits by leaving their employer. This generally includes seniority, potential career advancements with their former employer, job security, benefits and so on. If recruiters are very persistent and aggressive towards an employee of another organization, or use promises such as career advancement, security, or higher pay, then this will be seen as inducement. The law seeks to protect individuals being induced by holding employers liable if the employee is terminated unjustly or too quickly. Thus, when recruiters focus on attracting talent from another organization, employers should be aware of the potential risks.

Risk 1: Increased damages through notice pay

This is problematic an unjust dismissal or constructive dismissal claim. In these circumstances, the employer will owe the employee pay for damages through increased notice pay as a result of the inducement. (Notice pay are damages owed to place the employee in a similar position had he/she not been terminated).

Risk 2: Damages for Misrepresentation (moving costs)

Another concern for employers should be whether the inducement was accompanied by a misrepresentation of the employment offer. The key is to be completely honest about the available position. If certain promises are made, such as advancement, but it is known that such promises are only possible with a budgetary approval, this information must be given before the candidate is hired. If a misrepresentation is made, the employer will be liable for any moving costs the employee incurred in addition to the amount owed through increased notice pay. Of course, this is only an issue if the employee is terminated undeservingly (i.e. termination without just cause) or too quickly. Nonetheless, employers should take the necessary steps to ensure their recruiters are fairly representing employment opportunities to potential candidates.

Factors used to Determine if Inducement Occurred

If the employer is able to show that the employee was not induced or if the employment lasted several years, then it is less likely that damages will be awarded. In summary, some of the factors to determine whether inducement occurred are:

  1. Whether the former job was secure
  2. Whether the employee accepted the offer while there were other better offers available
  3. Whether the employee had to move as a result of accepting the position
  4. Whether the employee was an owner of a business prior to inducement

If you are an employee and feel you have been induced and now find yourself unemployed after a short period, please contact an employment law expert to ensure you are compensated fairly. Employers are also encouraged to seek legal advice for any concerns regarding the risks mentioned above.

Important Additions in a Severance Package

| December 21st, 2016 | No Comments »

severance package calculateThe purpose of a severance package is to make a terminated employee “whole” over a reasonable period of time.  Very commonly, severance packages include only base salary, neglecting other elements of compensation – such as benefits, RRSP or pension contributions, bonuses, commissions, and so forth.  If a severance package excludes any of these elements, the employee ought to speak with an employment lawyer.

Sometimes, the missing elements of severance packages are subtle.  For example, many benefit schemes include more than just health and dental coverage – they also often include life insurance, long-term disability coverage, critical illness, a health spending account, and the like.  Each of these items has a dollar value – whether it’s the company’s cost or the replacement cost.  Where the severance package offers health and dental continuation and nothing further, the extra cost of these missing items needs to be accounted for in some other way in order to make you “whole”.

Bonuses are also a major bone of contention in severance package negotiations.  The Ontario courts have been very clear recently that bonuses which would have been earned during the severance period must be included in a severance arrangement, unless the company has communicated very clear language to the contrary through its bonus plans and/or employment contracts.  Employees ought to remember that in severance negotiations there are often two different bonus issues: 1) the bonus earned during the year of the termination; and 2) the bonus which would have been earned if not for the termination.  Both these elements are up for negotiation.

Finally, it is very common to negotiate non-monetary items into a severance package, such as a reference letter, employment transition counselling, and reeducation allowances.  Although companies generally do not have to offer these items, some companies include them anyway, if they feel it could provide value to the departing employee.

 

Author: Daniel Chodos, Employment Lawyer

Establishing Whether an Employment Relationship Exists

| December 13th, 2016 | No Comments »

employment relationship agreementBoth parties have an interest in determining if there is in fact an employment relationship between the employer and individual providing service. If there is no employment relationship, then the Employment Standards Act (ESA) does not apply. For employers, this means that they are not liable for wrongful dismissal or other obligations that otherwise would apply under the ESA. Conversely, individuals providing service have an interest in establishing the existence of an employment relationship to make a wrongful dismissal claim in the appropriate situation.

How to Establish Whether There is an Employment Relationship

The relation between an individual providing service for an organization may be ambiguous at times – an example includes long-term contracted employees. The tests developed by the courts were established overtime and are used to analyze the fundamental nature of the employment relationship, and ultimately whether there can be a wrongful dismissal claim. The four tests below are not used in isolation by the courts; the courts will apply all relevant factors. As such, the question of whether there is an employment relationship can be complex and warrant the expertise of a legal expert. The tests below are not comprehensive and are meant to serve as a general guide.

The Control Test

The control test views the essence of the employment relationship being a question of control over the work performed. The most important aspects of this test include the discretion over payment, the control over the timing, type and manner of work, and disciplinary power. If the individual is subject to a high degree of control over the duties being performed, terms of payment and discipline imposed by those receiving the service, this is indicative of an employment relationship.

The Fourfold Test

In the case of professional or highly skilled individuals, the control test may not truly capture the essence of the employment relations as skilled employees tend to have more autonomy and control over their work. The fourfold test seeks to determine the owner of the business. Likewise, the test analyses the degree of control the employer has over the work, the ownership of tools, who stands to make a profit, and conversely, who is at risk of a loss. Generally, if the employer owns the tool and equipment and bears most of the risk for a loss, then this is indicative of an employment relationship.

The Organization Test

This test is usually a last resort used in conjunction with some of the factors in the control or fourfold test when no clear answer is rendered. This test seeks to establish whether the individual’s services are fundamental to the business or if the individual is dependent upon the organization as their main source of income. It is used as a broad overview in determining whether an employment relationship exists.

The Permanency Test

This test is most appropriate for contract employees and seeks to establish the overall stability of the relationship. Indicators of an employment relationship include the employer providing training, selecting the individual for employment rather than having a staffing agency make the placement, and continued supervision. In such instances, a long-term contracted individual may be seen as an employee rather than a contract worker.

Forgotten Employee Rights: Overtime Pay for the Salaried Employee

| December 7th, 2016 | No Comments »

employee rights to overtime payIt’s hard to understand your employee rights. Many salaried employees believe they are not entitled to overtime pay.  This is a surprisingly common myth. There are a large number of salaried professionals who receive an annual salary, who work extremely long hours and never receive a dollar in overtime pay.   Many employees may leave a lot of money on the table each year without ever realizing it.

The reality is that unless you fall into an exempt occupational category, you are entitled to overtime pay.   Most salaried employees are entitled to overtime pay.  Federal and provincial employment standards legislation mandate that employers must provide overtime pay, regardless of whether you earn commissions, a base salary or an hourly rate. The manner in which you are paid has nothing to do with your eligibility for overtime pay.  Overtime pay for salaried employees is generally calculated by converting your annual salary to an hourly rate and overtime is paid at 1 ½ times the regular hourly rate for each overtime hour worked.

Employees who exercise managerial or supervisory functions or belong to certain exempt occupational groups are not entitled to statutory overtime pay.  That said, employees who bear the title of ‘manager’ or ‘director’, but who do not exercise supervisory or managerial functions, are still entitled to overtime pay.  It is not a valid justification for an employer to rely on a job title alone to avoid its overtime obligations.

Being entitled to overtime pay is one thing, but the practical hurdle is often proving the overtime hours. Most salaried employees do not have a system of tracking their hours of work, so overtime hours are often overlooked or difficult to prove after the fact.  The reality is, that even if you are a salaried employee, your employer bears the onus of tracking your overtime hours.  Even though it is the employer’s responsibility, you should be doing the same. Maintaining a daily time sheet on your own can validate the actual number of overtime hours you work in support of your overtime entitlement.

Overtime rules vary slightly by province. In Ontario, employees are entitled to overtime pay at time and a half, for hours worked in excess of 44 hours in a week.   In some provinces, employees are entitled to daily and weekly overtime.    You should check with the employment standards office in the province where you work to determine the overtime rules that apply to you.  Some employers may have overtime policies that are more generous than employment standards.  You should also review your employer’s overtime policy, if one exists, to determine if you may have additional rights or benefits under the policy.

 

Author: Jonquille Pak, Employment Lawyer

Is an Employee Obligated to Provide an Employer ‘Reasonable Notice’ of Resignation?

| November 23rd, 2016 | No Comments »

notice of resignationIt is well known that employers must give an employee ‘reasonable notice’ or pay in lieu upon termination when there is no just cause (i.e. the employee has not done anything wrong to be fired). Conversely, although rarely pursued, an employer has the right to receive ‘reasonable notice’ from an employee planning to resign. Below, the factors for determining ‘reasonable notice’ time for employees will be reviewed with reference to a relatively recent case by the Ontario Supreme Court case [Gagnon v. Jesso ONSC] (referred to as “Jesso”).

Reasonable Notice

For employees, ‘reasonable notice’ is the period of time an employee is required to give their employer before the date they wish to resign. The amount of ‘reasonable notice’ time required from an employee will vary with respect to the importance of the employee’s position and duties. The purpose of ‘reasonable notice’ is to grant the employer enough time to either replace the employee or to adjust in a way that would avoid substantial financial losses. In general, employees with managerial responsibilities are required to provide longer notice periods; however, employees in key non-managerial roles may also be require to provide comparable notice time. Jesso highlighted the relevant factors to consider, which include: the employee’s length of service and the difficulty the employer will face with replacing the employee’s skillset (i.e. the labour market conditions). If applicable, any unique circumstances that would result in the employer needing added time to adjust must also be factored into the notice time.

Jesso Example: 

To illustrate the factors considered in determining “reasonable notice”, consider the example of Jesso v. Gagnon. Gagnon is a heating and cooling company (owned by Pierre Gagnon), and Jesso was a salesperson for nearly 10 years with a mechanical engineering degree. Jesso and his sales partner were responsible for over 60% of the company’s sales, and ultimately, a significant source of Gagnon’s revenue. Jesso eventually resigned after strained relations with his employer. Further, Jesso knew that his sales partner was also planning to resign around the same time, since both were pursuing employment with the same competitor.

Initially, Jesso gave Gagnon 2 weeks of notice but the court ruled that reasonable notice in this case would be 2 months. This is not a trivial amount of notice time. Firstly, Jesso’s length of service with Gagnon did contribute to the 2-month required notice time. The most important factor, however, was his substantial skillset, which is indicated by Jesso’s sales performance. Gagnon could not quickly replace the performance gap that Jesso’s resignation would cause. This was due to Jesso’s skillset in itself, as well as the low availability of comparable employees within this industry – these factors contributed to the length of time Gagnon would need to replace or adjust to Jesso’s resignation. Lastly, there was the issue of Jesso knowing that his sales partner was also resigning near the same time. This was a special circumstance that would add to Gagnon’s difficulty in adjusting to this loss as Jesso and his sales partner contributed to over 60% of Gagnon’s sales.

It is important to understand that the above example is a simplified generalization used to apply the relevant factors for determining reasonable notice for employees. Each case will be influenced by the particulars of the employment relationship and surrounding circumstances. Jesso makes this point clear, as any unique circumstances that may create more difficult for the employer to adjust or replace the employee must be considered. Please seek the advice of an employment law professional if faced with a similar situation.