Frustration of Contract and Long Term Disability Benefits

| November 2nd, 2017 | No Comments »

Employers should be familiar with the concept of frustrated contracts in employment law. Frustration considers what the parties (employer and employee) could reasonably contemplate at the time the employment agreement was made. Put simply, when an event occurs that prevents a worker from performing the essentials of their job, then the contract may become frustrated since this was unforeseen at the time the employment contract was agreed upon.  If so, the employment relation can end with no severance owed to the employee.

When an employer offers long term disability benefits (LTD), this may create a situation where the employer should have seen the possibility of a disability preventing an employee from working at some point in the future. This is because the employer could have reasonably contemplated this as a possibility when employment offers or subsequent entitlement contain LTD benefits. Essentially, LTD benefits offered by an employer will create a situation where an employer will find it more difficult to argue an employment contract has ben frustrated, which was the case in Antonacci v. Great Atlantic & Pacific Co. of Canada.

 In this case, the court stated that the provision of LTD benefits shows that the employer was able to contemplate the possibility of a lengthy leave of absence during the course of employment. In particular, the employee here was a long term worker that eventually had to take an extended leave. The fact that the employee had been with the employer for a long period of time and the provision of LTD benefits made the employer’s argument of frustration harder to prove.

When faced with an employee on an extended leave it is necessary to take a holistic analysis of each fact. Proving frustration is a high burden, and having an employee on a long term leave lasting 2 or more years does not necessarily frustrate the employment contract. It is advisable to seek the advice of an employment lawyer when faced with such a situation.

Frustration of Contract vs. Just Cause: What is the difference?

| November 1st, 2017 | No Comments »

There are various ways an employer may end an employment relation. An employer may end a contact by offering an employee advanced notice or equivalent payment of wage and benefits required under legislation or common law. Another way is dismissing an employee for just cause or by establishing the contract has been ‘frustrated’. In each of these scenarios, there is no payment or notice required. There is an onus on the employer to prove there is just cause to dismiss or that the contract has been frustrated, which makes it important to understand the difference of each principle.

The principle of ‘just cause’ requires an employer to show that an employee has done wrongdoing to the point that continued employment is unfeasible. For single instances of wrongdoing, the wrongful act must result in violating an essential characteristic of the employment relation. For instance, if a mortgage broker was found to commit mortgage fraud, this would undeniably violate an essential element of trust required between a mortgage broker and the brokerage firm (employer). Another scenario of just cause is where an employee has repeatedly failed to correct an undesirable behaviour after several corrective measures have been taken by the employer. This must include a series of progressive discipline consisting of, for instance, a verbal warning, then written warning, paid suspension and then termination, with each stage specifying the wrongful behaviour and next possible steps of discipline.

Conversely, frustration of contract results when an employee no longer is able to perform as intended when the parties each entered into the employment agreement. The changes in performance must be significant in order for dismissal to be lawful. Such a scenario may take place when an employee has fell ill to the point where he/she cannot perform the essential duties of the job. To establish frustration of the contract, analysis of the job duties and nature of the frustration must be carefully considered. For instance, if the employee occupied a distinct position with no other employees occupying a similar function, a long term absence will cause more frustration than if there were many employees able to cover the tasks of the employee during the absence. Whatever the case may be, careful examination and consideration must be given. Always seek services from an employment lawyer as errors in legal obligations may result in significant costs and harm to each party.

Can an employer impose a longer probationary period than 3 months?

| October 17th, 2017 | No Comments »

It is common knowledge for employment probationary periods to last for three months from the commencement of the employment relation. Under minimal standards employment law (for example, the Employment Standards Act in Ontario), employers do not owe any notice or pay in lieu before 90 days. This is often believed to constitute the probationary period. Minimal standards legislation, however, does not contain any provisions on probationary periods, and as such, they may extend past 3 months.

Employers that implement probationary periods past 3 months must consider additional factors. If the probationary period extends past three months, employers will at the least owe an employee a week of notice or pay in lieu for termination of the employment contract. In the event that no termination clause is agreed upon or the clause violates minimum standards law, ‘reasonable’ notice established through common law will apply, which may entitle the employee to considerable more notice or pay in lieu. Employers that wish to limit the termination pay to the legal minimum of 1 week between 3 -12 months of employment would require a termination clause that complies with minimal employment legislation.

It is also advisable to include the probationary period within the employment contract. This way it can be shown that both parties contemplated an extended probation period and that it was mutually agreed upon. Otherwise, an extended probationary period may constitute a breach of contract by the employer.

Always seek services from an employment lawyer when seeking to implement the aforementioned clauses and limitations.

Ending Fixed Term Contracts: Is a typical severance package sufficient

| October 2nd, 2017 | No Comments »

In the case of Howard v. Benson (2016), the Ontario Court of Appeals cleared up any uncertainty regarding employers ending fixed-term employment contracts prematurely. In the case, the court ruled that fixed-term employment contracts require employers to pay the employee the reminder of what would have been earned had the contract not been ended prematurely. In other words, a typical severance package or notice is not sufficient. There is an exception, however. For fixed term contracts that contain a termination clause, the provisions of the clause would apply given it complies with minimal standards legislation.

Given recent developments, employers are held to rigorous standards when drafting such clauses as any uncertainties in language may render the clause invalid. This makes it imperative for employers to seek legal assistance when implementing termination clauses within fixed-term employment contracts. In the event the clause is found unenforceable, the balance of the contract would be owed to the employee.

Employers should also be aware that an employee’s duty to mitigate damages does not apply when the employer decides to prematurely end a fixed term contract without a termination clause. Normally, if an employee does not mitigate damages by searching for comparable employment during the notice period, the courts will award less in damages to the employee.  But in the case of fixed-term contracts, employers will owe the remaining balance of the contract regardless of the employee’s efforts to mitigate damages. This makes it all more important for employers to implement a termination clause. Always seek the assistance of an employment lawyer when implementing termination clauses within fixed-term contracts to ensure the clause is enforceable if challenged.

How to Deal With Workplace Violence

| September 18th, 2017 | No Comments »

It is exceedingly important that businesses have clear policies and procedures in place to address workplace violence, which comply with the statutes that govern workplace violence – including the Ontario Occupational Health and Safety Act.  Under this Act, employers are required by law to prepare a written policy that defines workplace violence, provides examples of it, sets out a clear program for filing internal complaints and investigating them, and describes any other steps the company will take in relation to workplace violence.

Companies may be required in appropriate circumstances to hire an external provider both to train their staff, and to investigate incidents of workplace violence as they occur.  They are also required to provide protection from any workers with a history of violence, and to reasonably protect workers who are at risk of domestic violence.

Because workplace violence is considered a “safety hazard”, workers have a right to temporarily stop performing their duties until the issue is adequately addressed.  Employers will be required to put a safety plan in place to ensure that any risks are limited to the extent legally required.  In some cases, employers may also be expected to provide counseling services, if the workplace violence incident is of a sufficiently serious nature.

Where a company fails to comply with its legal obligations, it is at risk of substantial fines, extra attention from the Ministry of Labour, unhappy employees, reduced productivity, damages for wrongful or constructive dismissal, reinstatement of terminated employees (together with back-wages) and increased legal fees – among other things.

 

Author: Daniel Chodos, Whitten & Lublin

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.

When is a non-solicitation clause not enough?

| August 11th, 2017 | No Comments »

Non-solicitation clauses prohibit an employee from actively pursuing clients of the employer when the employment relation has ended. To be enforceable, the clause must have a time limit that is reasonable. Spatial limitation (or a geographical scope) in a non-solicitation clause is becoming less common and less necessary due to the advancements of telecommunications technology and organization of service work. Overall, any restriction that goes beyond an employer’s business assets will be deemed unenforceable.

Non-solicitation clauses are usually all that is necessary to protect an employer and their assets from an employee that resigns. In exceptional circumstances, however, employers may instead need to use a non-competition clause to protect their business. Non-compete clauses prevent an employee from pursuing employment in the same or similar capacity once the employment relation has been terminated. in other words, they are not allowed to compete against their former employer. Non-competition clauses must have a defined geographic and time limit to be enforceable. These limits must be clearly stated as any ambiguity will render the clause unenforceable. Courts are also reluctant to enforce non-competition clauses because it limits the employee’s ability to earn a living. This is why only under exceptional circumstances will a non-competition clause be enforceable.

Exceptional circumstances are usually for employees that occupy key senior or managerial roles with very close relations with customers or trade secrets that would severely hurt the employer’s business if the employee left to a competitor. With regards to clients, exceptional circumstance would entail a relationship with clients that is to the exclusion of anyone else. This means that the employee, in the eyes of the client, essentially is the business. Under such circumstances, an employee leaving to a competitor would likely result in former clients following the employee without being solicited. In such instances, a non-compete clause would be necessary to protect an employer’s business.

Overall, non-compete clauses must only be used when necessary. When conditions warrant a non-compete clause, the clause must be carefully drafted, as any ambiguity will render the clause unenforceable. It is important that employers seek the advice of an employment lawyer when considering a non-compete clause as such instances are rare and need legal expert analysis

Constructive Dismissal – An Intolerable Environment or Culture

| July 6th, 2017 | No Comments »

When an employer unilaterally changes a fundamental term of an employee’s job, then an employee may quit and claim ‘constructive dismissal’. Essentially, what this means is that the changes to the employment relation would have left any reasonable individual with no other option rather than to quit. The employee may then claim constructive dismissal, and if successful, would be owed a severance (referred to as ‘notice pay’) as compensation.

Unilateral changes that usually trigger constructive dismissal include significant reduction of pay, demotion, discrimination, reduction of hours and so on. The cause of a constructive dismissal is usually easily identified as a single factor of significant affect. However, the courts do not necessarily look at a single factor. Constructive dismissal may result from several changes or circumstances that create an intolerable environment for an employee. The cumulative effect, therefore, would trigger a constructive dismissal.

This was demonstrated in Shah v. Xerox Canada Ltd 2000 (OCA). Shah was an employee of Xerox for 12 and a half years with a good performance record, bonuses and raises. Shah accepted an internal transfer and reported to a manager with a personality and philosophy that was not compatible with Shah’s. Shah’s new manager was aggressive in style, very outgoing and confident, assertive and combative; Shah was reserved, withdrawn, and gentle. This created uncertain expectations for Shah, as his new team encouraged an ‘empowerment’ culture, free thinking and independence, whereas Shah liked direction and structure. Shah’s new manager raised multiple performance concerns. The first critical performance review used poor factual evidence, and the second one provided poor detail and questionable claims. Shah then received 3 unexpected and unwarranted warning letters over a 2-month span, the last placing Shah on probation without defining any expectations or allowing an opportunity to respond. This also added to the mental distress Shah was experiencing in addition to stress from his personal life. Shah requested a transfer and once his manager denied him, Shah quit and successfully claimed constructive dismissal.

The court considered the cumulative effect of Shah’s change of environment. This included the change in culture, the manager’s style and treatment towards Shah, including the lack of detail contained in the warning letters, unclear expectations and unfounded claims. Whereas Xerox argued that constructive dismissal must result from a unilaterally imposed fundamental change to the employment contract, the court maintained that the focus must be on whether the employer intends to be bound by the employment contract. The cumulative effect of the multiple warnings that lacked details for corrective action signified Xerox did not intend to continue the employment relation with Shah. This, in addition to the cultural change affecting Shah, resulted in a constructive dismissal.

Overall, constructive dismissal may result from conditions not typical of most constructive dismissal causes. It is important to speak with an employment law expert if faced with an intolerable situation in the workplace that makes continued employment unreasonable.

Can You Collect Employment Insurance (EI) if Fired?

| June 27th, 2017 | No Comments »

The general rule for Employment Insurance eligibility is having lost employment for no fault of your own. If an employee is fired, there may be a chance that EI eligibility has been forfeited. When an employer dismisses an employee for misconduct, then this would disqualify an individual from being eligible for EI in Ontario. However, misconduct is often difficult to establish so as an employee, it is important not to assume ineligibility before attempting to apply.

Misconduct can include an inappropriate action that was deliberate and violated a term of employment. If termination resulted after only one act, then it had to have been misconduct that was very serious and incompatible with the conditions of employment. Otherwise, termination resulting from misconduct should have proceeded progressive disciplinary action – such as a warning, meeting and so forth.

It is important to gather any facts possible about the firing. Upon applying for EI after termination, a government agent will contact the employer to gain details regarding the reasons for the termination in relation to the misconduct. The employer will be required to justify why the misconduct warranted termination, which includes evidence of breach of contract, policy, or essential employment condition.

Once the investigation with the employer concludes, the employee will have an opportunity to accept or deny the reason(s) given for the dismissal, give his/her own version of events, and provide any witnesses if possible. The assigned agent will render a decision once considering both versions, each of which is given equal weight.

Overall, when being dismissed for misconduct, it is important to enquire and gather any information possible as to the reason for the firing. When in doubt, it is always best to apply for EI and allow the investigative process to determine whether EI eligibility will be granted.

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