1 BASIC CONCEPTS IN EMPLOYMENT LAW Jeffrey A.L. Kriwetz Partner Garfinkle, Biderman LLP Suite Adelaide Street East Toronto, Ontario M5C 2V ext (fax) jkriwetz(ii2garfinkle.com
2 1 BASIC CONCEPTS IN EMPLOYMENT LAW Introduction In order for employers to reduce the risks of claims against them by employees, it is important that they know their legal obligations and rights. There are many pieces of legislation which affect the employer-employee relationship. Furthermore, some aspects of the relationship are also impacted by various judicial decisions (i.e. the common law). The relevant legislation and common law varies by province. Certain businesses are governed by federal laws. The focus of this discussion, however, is on the Province of Ontario. It should also be noted that this paper is not intended to be a comprehensive review of the law in the area of employment, but will highlight some basic concepts only. It is also important to note that this paper is not intended to give, nor should it be relied on for specific legal advice in any particular situation. Please consult a lawyer for specific legal advice. Statutory Obligations Though there are several pieces of legislation which affect the employment relationship in Ontario, one of the most significant is the Employment Standards Ac (the ESA ). The ESA sets out the minimum standards which govern the employment relationship including: the number of hours an employee is permitted to work vacation pay entitlement overtime leaves of absence termination pay and severance pay, to name a few. As with many other pieces of legislation, the ESA s regulations exempt certain types of employees from some of its provisions. Also, the ESA specifically prohibits an employer and employee contracting out of its provisions, if they otherwise would apply.
3 2 Common Law Obligations As noted above, the common law is that body of law which arises out ofjudicial decisions. This law is not written in any legislation and, generally speaking, applies to similar fact situations. In the employment law context, the impact of the common law is most often felt at the time the employee is terminated. Specifically, though the ESA sets out the minimum notice to which the employee is entitled at the time of termination (assuming, in most cases, that the termination is not for just cause as will be discussed below), judges have often ordered employers to pay additional notice to the employee. Again, this will be discussed in further detail below. When does a dismissal of an employee become wrongful? One of the most common times an employer and employee get involved in a legal dispute is after the employer has dismissed the employee. Each party may have a different view of their rights and obligations at this time. The employer thinks it has been fair and reasonable. The employee believes he/she has been treated unfairly; seeks legal advice; and threatens to sue for wrongful dismissal. But, what is wrongful dismissal? Generally speaking, an employer has the right to dismiss any employee at any time for just cause or with proper notice. One of the main exceptions to that right is if the reason for the termination was for a reason which is prohibited under the Ontario Human Rights Code which will be discussed below. (a) What is Just Cause? If the employer has just cause to terminate an employee, the employee is not entitled to any notice of the termination at common law. The ESA does not mention the term just cause, but under the regulations, there is an exemption from the payment of termination pay and severance pay where the employee has been guilty of wilful misconduct, disobedience or wilful neglect of duty. Some courts have said that although there may be just cause in certain cases and the employer is not required to give notice at common law, it may, nevertheless, be obligated to give the minimum notice to the employee under the ESA. In other words, the conduct of the employee may not fall within the definition of wilful misconduct, disobedience or wilful neglect of duty as described in the ESA. But what constitutes just cause? The general definition is that just cause exists when the employee has committed some serious act which breaches a fundamental term
4 constitutes a breach of a fundamental term of employment depends on the circumstances in each case. Employers who believe that they have just cause must be cautioned that it is often of the employer-employee relationship. The seriousness of the act and whether it exists. If the employer fails to do so once it becomes aware of the employee s conduct, the court might find that the employer has condoned or accepted the behaviour. In such The notice obligations under the common law, however, cannot be defined in such certain or mathematical terms. of the surrounding circumstances very closely. very difficult to convince a court that just cause, in fact, existed. The reason for that is employee. In other words, the employer has significant leverage over the employee in be immediate and serious. Therefore, the court will look at the employer s actions and all out of a job rather suddenly and the financial and psychological impact on him/her will that judges are aware of the unequal bargaining positions between the employer and the case, the employer may not be able to establish a termination for just cause. that it can terminate the relationship immediately and, generally be able to carry on business after that with little or no consequence. Not so for the employee. He/she will be must give the employee proper notice or payment in lieu of notice. secure position may also be considered. (b) What is Proper Notice of Termination? circumstances. payable under the ESA are calculated based on the formula described in the Act and is is entitled to termination pay and may also be entitled to severance pay. The amounts dependent on the length of the employment. proper notice periods will depend on a number of factors including the employee s age, for each employee because each employee s circumstances are unique. Therefore, the length of employment, position, salary, etc. Other factors such as industry standards, the availability of alternate positions and whether the employee was recruited from another sufficient time to find alternate employment. The amount of time that is required differs Employers must also be prepared to act immediately if they believe just cause Ifjust cause does not exist and the employer wishes to terminate an employee, it What, though, is proper notice? As mentioned, the ESA prescribes the minimum notice entitlement. The employee The short answer to that question is that it depends on the employee s particular The courts have stated that the purpose of proper notice is to give the employee
5 4 When similar cases are analyzed, one finds that there is a range of what the courts have considered is proper notice. The range can vary by several months. Therefore, when determining proper notice, it is important to look at what the courts have decided in similar circumstances Employers must also be cautious in how they treat their employees at the time of termination. Employers who act in a high-handed manner or act in bad faith toward the employee at the time of termination, may find that the court will substantially increase the notice period to which the employee would otherwise be entitled. This can be costly for employers. Bad faith conduct can include many things. For example, it could be the employer continuing to take the position that the employee was terminated for just cause when there was no reasonable basis for it to do so. (c) Then When Does a Dismissal Become Wrongful? The termination of the employee therefore becomes wrongful ifjust cause is alleged and does not exist or if the employee is terminated with notice, but the notice is inadequate. Reducing the risk of a wrongful dismissal claim Even if the employer acts reasonably, the risk of a lawsuit by the terminated employee a wrongful dismissal claim can never be totally eliminated. There are, however, some steps which can be taken to reduce the risk that a claim will be made or improve the chance of successfully defending such a claim. 1. Specifying the Rights and Obligations on Termination in the Employment Contract New Employees If an employer is about to hire someone, the easiest thing that it can do to protect itself is to put the termination rights and obligations in a written employment agreement. There are, however, some very important things to remember when doing so. First, as noted above, the employment contract cannot contain a provision which is contrary to the provisions of the ESA. Second, if the employment contract contains a provision limiting the notice obligation to less than what the employee would be entitled to at common law, the language must be clear and unambiguous. Third, it is always a good idea for the employee to be given the opportunity to obtain independent legal advice before signing any employment agreement. The contract should also contain an acknowledgement signed by the employee that he/she has obtained such advice or has had the opportunity to do so.
6 5 For employees without a written employment agreement or there are existing written employment agreements without such provisions, however, it is, generally speaking, impossible to retroactively insert such a provision into an existing agreement and it is impossible to require such an employee to sign such an agreement. 2. Where the Employment Contract Does Not Specify the Rights and Obligations on Termination If the employer has existing employees without written employment agreements or written agreements that do not contain provisions outlining the obligations at the time of termination, what steps can the employer take to reduce the risk of a lawsuit? (a) Just Cause Situations Again, employers seeking to dismiss an employee for cause must be very careful and reasonably sure of their position. An employer who dismisses an employee for cause is more likely face a wrongful dismissal claim than if it provides reasonable notice. There may be situations where a single incident by an employee may justify his/her immediate dismissal. Employers must, however, be careful that the emotions which may be involved at the time do not cloud the decision taken. Sometimes, if a long-term employee commits a single serious act, the court may be of the view that it was out of character and that he/she should not have been dismissed, but disciplined in another way (e.g. temporary suspension, warning, etc). Therefore, the employer should carefully consider how it wishes to deal with the employee in this situation and it should deal with the issue as quickly as possible, even if the decision is not to immediately dismiss the employee. Failing to do anything risks an argument that the employer has condoned the unacceptable behaviour. In such a case the employer is well-advised to warn the employee both verbally and in writing that the behaviour is unacceptable and will not be tolerated in the future. The warning should specifically set out the consequences if the employee commits the same act again. Those consequences should include the possibility that his/her employment may be terminated and they may also include a gradual set of increasingly severe consequences with the final consequence being dismissal. Regardless how the employer wishes to structure its discipline system, for warnings to be effective, they must contain a specific provision that further similar conduct will lead to the employee s dismissal and those consequences must be specifically brought to the employee s attention. It is also good practice for a least two of the employer s representatives to be present when the warning is presented. This allows for corroboration of what was said should the employer need to justify its actions later. Notes of the meeting and what was discussed
7 6 should be taken and kept in the employee s file. The written warning should be given to the employee with a copy also placed in the employee s file. If an employee is dismissed with just cause the employer is not required to give notice or payment in lieu thereof at common law, though as mentioned above, the employer may, nevertheless, still be liable to pay notice set out under the ESA. The problem which employers often get themselves into is that they wish to argue that the termination is for cause and yet offer the employee some termination pay. These two courses of action are inconsistent with one another. Offering a termination payment will undermine any just cause argument. There may be ways to deal with this potential problem by seeking proper legal advice before any written communications are provided to the employee. (b) Notice Situations The more typical cases employers will face are terminations with notice. The usual dispute between employers and employees in this case is whether the notice which has been given is proper. As noted above, proper notice is dependent on a number of factors and the employer should not simply rely on what the ESA states. There are many ways termination packages can be structured and is often dependent on the type of employee. For example, high-level employees often have more complex compensation packages with things like bonus plans, stock options, etc. and, as such, the structuring of their termination package may require more creativity. Employers should also be aware that employees are under an obligation to mitigate any damages they sustain arising from their termination. This fact does not relieve the employer of its notice obligations, but it may give some flexibility in structuring the terms of any package. Again, employers should seek legal advice in determining what the appropriate notice period is in the circumstances. When terminating an employee with notice, it is also good practice for a least two representatives of the employer to meet with the employee. The termination package should be presented in writing. The employee should not be required to sign the package on the spot, but should be given time to seek professional advice including legal counsel before doing so (this will avoid any claims later that he/she was coerced into signing the documents). The meeting should be kept professional and to the point. One essential term of any termination package is the requirement that the employee sign a comprehensive release of the employer of all claims arising out of the employment and the termination in consideration of the receipt of any payments under
8 7 the package. It is important to note, however, that an employee is not required to sign a release for the payments he/she is entitled under the ESA, The consideration for the release is for the payment over and above the statutory entitlement. It also may be appropriate to include provisions in the termination package requiring the return of the employer s property in the employee s possession as well as provisions requiring the employee not to disclose any information confidential to the employer following the employee s termination (unless the employee has previously signed a confidentiality agreement which survives the termination of employment) As noted, the notice given can be actual notice or payment in lieu of notice. It can also be a combination of the two. Depending on the employee s position and his/her access to the company s records and systems, it may not be advisable to keep employees on after they have been given notice. The better course of action, therefore, is to have them leave immediately while giving them the opportunity to remove their personal belongings. Since it is often the case that notice situations often turn into a negotiation rather than litigation, employers are well-advised to make a reasonable offer, but give themselves some negotiating room when structuring the termination package. Employers should also remember that if the termination package is rejected, there is still an obligation on them to pay the amounts required under the ESA. Avoiding the constructive dismissal problem An employee who voluntarily quits his/her position is not entitled to any notice either at common law or under the ESA. This fact sometimes tempts some employers to create unfavourable working conditions to force an employee to quit. Employers should not do so because they will likely face a constructive dismissal claim. Constructive dismissal occurs when the employer unilaterally takes some action or series of actions which breaches a fundamental term of the employer-employee agreement, but stops short of an actual termination of the employee. In such cases, the courts have held that the employee is justified in quitting his/her position and the employer becomes liable to pay proper notice to the employee. Whether constructive dismissal has occurred is a question of fact which must be viewed objectively. In other words, the court considers whether a reasonable person viewing the facts, would consider the action(s) by the employer a fundamental breach. The factors the court considers include: the nature of the employment agreement the number and weight of the employers actions the intentions of the employer
9 8 the general circumstances Examples of what the courts have found constituted constructive dismissal include actions amounting to a demotion; adverse changes in remuneration and/or benefits; serious unilateral changes in responsibilities; changes in location (which were not contemplated in the employment agreement); and persistent and unwarranted criticism. For the employee to maintain a constructive dismissal claim requires him/her to quit and then sue for constructive dismissal. In some cases. where the employee does not quit, but continues in the position for a period of time he/she may be deemed to have accepted the changes and may lose the opportunity to maintain a constructive dismissal claim. Such cases are, however, exceptional. If constructive dismissal is proven, the employer is liable to provide the employee proper notice having regard to all of the usual factors. In addition to the usual notice that will be required, the employer may be viewed as acting in bad faith toward the employee and may be exposed to liability for additional damages. In view of this potential problem, the best course of action for the employer who wishes to terminate an employee when just cause does not exist is to do so directly and with proper notice as discussed above. The Ontario Human Rights Code As noted above, the employer can terminate an employee at any time for just cause or with proper notice. However, a termination based on a violation of the Ontario Human Rights Code (the Code ) can never be justified. The Code provides, among other things, that: Every person has a right to equal treatment with respect to employment without discrimination because ofrace, ancestry, place oforigin, colour, ethnic origin, citizenship, cree sex, sexual orientation, age, record ofoffences, marital status, family status or disability. Every person who is an employee has a right tofreedomfrom harassment in the workplace by the employer or agent ofthe employer or another employee because ofrace, ancestry, place of origin, colour ethnic origin, citizenship, creea age, record of offences, marital status, family status or disability. If a complaint has been made under the Code and the Human Right Tribunal finds that discrimination has, in fact, occurred, it has the broad power to make orders to ensure compliance with the Code and to award the complainant damages, including damages for injury to feelings, dignity and self-respect.
10 9 Independent Contractor or Employee? In some cases, employers engage staff as independent contractors because there are certain advantages in doing so. For example, this arrangement may not require the employer to pay certain things such as employee benefits and also may not require the withholding of source deductions. The issue on termination of the contract is whether the person was truly an independent contractor or was he/she, in fact, an employee. The courts have concluded that, upon the review of the relationship as a whole, the independent contractor is really an employee, then the employer s obligation toward that person will be to that of an employee, regardless of the form of the agreement. Conclusion This paper has only touched on some of the issues related to the law of employment in a very general way. As noted above, the advisable course of action to take in any given case will depend on the unique circumstances of that case. Litigating employment related matters can be very time consuming and expensive. Sometimes litigation is unavoidable and necessary. However, the key to minimizing the risk of litigation is to recognize and deal with potential problems proactively. Therefore, employers should invest in appropriate legal advice before an issue turns into a problem. Jeffrey Al. Kriwetz Partner Garfinkle, Biderman LLP Suite Adelaide Street East Toronto, Ontario M5C 2V ext (fax) jkriwetz(igarfinkle.com
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