Terminated without notice: are discretionary bonuses part of the severance package?

| August 15th, 2017 | No Comments »

Bonuses may make up a significant portion of pay for executives, senior managers, and other high skilled employees. Upon termination of the employment relation, notice or pay in lieu is meant to place an individual in a similar place had they not been terminated. Pay in lieu is refereed to as ‘notice pay’. Notice pay is how the courts determine the amount of pay in damages that an employee that was denied reasonable notice is owed. Consistent with this principle, discretionary bonuses may need to be included in an employee’s a severance when choosing no to give notice of termination.

Discretionary Bonuses

A discretionary bonus, by definition, is awarded at the employer’s will without objective criteria. When included in an employment contract, discretionary bonus will clearly specify that the bonus is solely to the determination of the employer and may or may not be granted. Employers often will argue that since the bonus is discretionary, it should not have to be included in notice pay. However, there are scenarios where discretionary bonuses will be included as damages by the courts when assessing the amount of notice pay the employee is owed.

Discretionary Bonuses and Notice Pay

When the employee has been with the employer for many years and the bonus was paid regularly, it is likely to be included in the notice pay, especially if it composed a significant portion of the employee’s total compensation. The less often and regular the bonus was paid, the greater the chance the bonus will not be included in the notice pay. Further, courts have also determined that if current employees of a similar position and status receive a discretionary bonus, the terminated employee must also receive the payment of the discretionary bonus in their notice pay.

Final Remarks

Overall, it is important for the discretionary bonus clause to be unambiguous because any difficulty in interpretation will fall in the employee’s favour. In addition, where the bonus is labeled as discretionary in the employment contract, but in practice is subjected to objective criteria, the courts will not view this as discretionary. When dealing with executive type compensation, properly drafted contracts and practices are very important. What was initially thought to be an agreed upon contact may end up being very costly for an employer. it is advisable to seek legal expertise when drafting contracts that seek to define the limits of severance payment with regards to discretionary bonuses.

‘Entire Agreement’ Clauses: Usefulness and Precautions

| July 20th, 2017 | No Comments »

Implementing an entire agreement clauses is a useful way to ensure that no verbally expressed promises are contested by an employee for being unfulfilled. An entire agreement clause can eliminate dispute over the terms of employment that were not explicitly stated within the written employment contract. The clause specifically should state that all promises and terms of employment are sufficiently expressed within the written contract. The clause must also express that the contract supersedes all discussions, negotiations and documents prior to the signing of the contract, and that all agreed terms of employment are represented within the contract being signed. This may avoid unnecessary legal costs if any future challenges of unfulfilled promises are made by the employee.

Employers must be careful not to take advantage of an entire agreement clause because the courts will not be favourable to negligent misrepresentations made to the employee, regardless of what the employment agreement states. Employers must also ensure individuals placed in positions that represent the company accurately represent the position being offered. If promises made were a necessary condition to having the employee accept the offer of employment, it is likely the promises are fundamental to the employment agreement. If found to be untrue, such a promise would be considered negligent misrepresentation. An example may be an employee being promised long term employment based on the availability of future projects, only to be terminated shortly after due to there being no such work available.

Overall, an entire agreement clause offers employers peace of mind in knowing that costly litigation will be less likely in the event an employee claims a promise has not been fulfilled. This does not absolve employers, however, of their duty to fairly represent the position offered prior to an employment agreement being signed. Courts will never act favourable to entire agreement clauses when it is found that the employer was negligent in the representation of the position offered. When drafting entire agreement clauses, it is necessary to have a legal professional draft such clauses properly and to be advised of which promises must be honoured to avoid claims of negligent misrepresentation.

Employment Contract – What to Include and Why

| June 20th, 2017 | No Comments »

A written employment contract is essential for employers and employees to minimize future disputes and the risk of costly litigation.  If properly drafted, an employment contract will clearly out the respective rights, obligations and expectations of the employer and employee. In preparing an employment contract, here are some of the most salient features to consider:

  1. Overall Clarity: an employment contract should be written in clear and precise language. In circumstances where its terms are vague or ambiguous, the courts will apply an interpretation that is least favourable to the party responsible for its drafting.
  2. Independent Legal Advice/Review: the employer should provide the employee with a reasonable opportunity to review and obtain independent legal advice before signing an employment contract, to preclude claims by the employee that it was signed under duress and therefore unenforceable.
  3. Signing and Acceptance: an employment contract should be signed before employment is commenced in order to avoid issues concerning its enforceability. If a contract is signed after employment was commenced, the employer should ensure that it provide additional consideration to the employee (g., a raise or bonus).
  4. Scope of Employment: the employment contract should clearly set out the employee’s title, duties and responsibilities. An employee’s duties and responsibilities cannot be unilaterally altered by the employer during the course of their employment. Therefore, in order to prevent claims of constructive dismissal, the employment contract should clearly state that the employee understands and accepts specific changes to conditions of employment, such as changes to salary, work location or responsibilities.
  5. Probation Period: the employment contract should clearly state whether there is to be a probationary period during which the employee could be dismissed for any reason, without pay or notice. If so, it should stipulate the length of such probationary period.
  6. Termination Clause: the employment contract should clearly state the means by which either party can terminate the employment relationship. In the case of termination for “just cause,” the employment contract stipulate what grounds will constitute “just cause.” For terminations “without cause,” it should provide for at least the minimum requirements for “notice” or “pay in lieu” of notice under the Employment Standards Act (“ESA”).  The employment contract should also make clear that in the event of termination of their employment, an employee will receive statutory severance pay (if applicable), and benefits continuation for, at the very least, the length of the ESA notice period.
  7. Restrictive Covenants: restrictions on post-employment activities are viewed by the courts as restraints of trade, and therefore are generally difficult to enforce. This is especially true in the case of a non-compete clause.  If some form of restrictive covenant is necessary, an employer should consider a non-solicitation clause that is narrowly aimed at prohibiting an employee from soliciting its customers, clients, suppliers or employees.
  8. Compensation: the employment contract should clearly set out all terms of compensation, including salary, health and medical benefits, life or disability insurance, stock options, bonuses or car allowance.
  9. Compliance with Statutory Minimums: an employment contract must comply with all basic statutory minimums under the ESA, including but not limited to, minimum wage; notice of termination (pay in lieu thereof); and vacation with pay.

Additionally, employers and employees should particularly note and account for the proposed amendments to the ESA, such as the increases to minimum wage and vacation allowance; personal emergency leave; and the risk of misclassifying employees as “independent contractors.”

If you require an experienced lawyer to prepare or review the terms of an employment contract, please contact one of our lawyers at Whitten Lublin.

 

Author: Sezar Bune, Whitten & Lublin

Proposed Changes to Labour and Employment Legislation

| May 31st, 2017 | No Comments »

The Ontario government has announced its intention to introduce several widespread reforms to labour and employment laws in the province.  The reforms, which will be set out in The Fair Workplaces, Better Jobs Act, 2017, are meant to strengthen legal protections for workers in Ontario.

New Minimum Wage:

The proposed reforms would see minimum wage increase to $14.00 by January 1, 2018, and increase again to $15.00 by January 1, 2018.  The special minimum wages for liquor servers, students under age 18, hunting and fishing guides, and homeworkers will increase by the same percentage as minimum wage.

Penalties for Incorrect “Independent Contractor” Classifications:

The new legislation attempts to discourage employers from misclassifying employees as independent contractors by setting out penalties such as prosecution and monetary penalties.  The proposed scheme would require employers to prove that an individuals is not an employee, if that individual disputes their status.

Expanded Leaves of Absences

Under the proposed reforms, employees would be entitled to a new type of 104-week unpaid Leave for Death of a Child.  Employees would remain entitled to a separate 104-week unpaid leave for Crime-Related Child Disappearance.  Family Medical Leave would be increased to 27 weeks in a 52-week period.  Employers would be prohibited from requesting a sick note from an employee taking a Personal Emergency Leave.  Finally, all employees would be entitled to 10 Personal Emergency Days per year, and two of those Emergency Days must be provided with pay.

Proposed Protections for Employees’ Schedules:

  • Employees would have the right to request schedule or location changes after having been employed for three months with the same employer without fear of reprisal.
  • Employees can refuse to accept shifts without reprisal if their employer asks them to work with less than four days’ notice.
  • If a shift is cancelled within 48 hours of its start, employees must be paid at least three hours at their regular rate of pay.
  • Employees who regularly work more than three hours per day, but upon reporting to work are given less than three hours, must be paid three hours at their regular rate of pay.
  • When employees are “on-call” and not called in to work, they must be paid three hours at their regular rate of pay for each 24 hour period that they are on-call.

Author: Simone Ostrowski, Whitten & Lublin