Ontario Court of Appeal Upholds ESA Only Clause With Little Comment:

The Ontario Court of Appeal in Oudin v Le Centre Francophone de Toronto, Inc. ( 2016 ONCA 514 ) upheld the trial decision of Dunphy J. which I reviewed on November 16, 2015 under the title “Waiver and Severability Clause Cures All Defects in Employer Contract”.

In my previous blog I was critical of the Judge’s use of a vague waiver and severability clause to cure multiple defects in a ESA only termination clause.

Although this issue was a major point on the appeal, the Court did not even address this issue in their short four page endorsement other than to say that ” The motion judge’s interpretation of the contract is entitled to deference.”

It is very unfortunate that the Court of Appeal did not use this opportunity to clarify the many conflicting cases on the enforceability of these ESA clauses. The issues regarding these clauses deal with the following issues :

1) Does the agreement have to make specific reference to benefits ?

2) Does the agreement have to make specific reference to severance pay ?

3)  Does there have to be a provision which  explains that the plaintiff is limited to these termination benefits and that he has explicitly given up his right to common law reasonable notice ?

4) Does a just cause provision breach the rule that under the ESA there is a higher standard of wilful misconduct ?

5) Does the agreement have to make specific reference that the employee is also entitled to vacation pay on the termination pay ?

6) If the clause requires the employee to sign a release before receiving any payments , is the clause invalid?

7) If the clause gives the employer the right to have the employee work out both the termination pay period and the severance pay “period” , is the clause invalid?

8) To what degree, if any, does the employer need to prove that the termination clause was brought to the attention of the employee at the time of hiring ?

9) Are employees deemed to know exactly what the termination provisions of the ESA are and therefore what the employee is giving up by signing the agreement?

10) What if the person signing this agreement on behalf of the employer also does not know what the ESA provides for ? Can there be a meeting of the minds when neither party understands what they are signing?

11) Does a waiver and severability clause cure all defects in the agreement or does this offend the “no blue pencil ” rule set out by the Supreme Court of Canada ?

12) What if the clause  does not even properly refer to the Employment Standards Act, 2000 ? Are laymen supposed to figure out which statute applies to their situation? What if the employer references the wrong section of the ESA?

13) As employment contracts are usually between parties of grossly unequal bargaining power, should the doctrine of good faith administration of a contract require the employer to obtain from an employee a Certificate of Independent Legal Advice as a condition precedent to enforcing a ESA only termination clause ?

I sincerely hope that this case finds it way to the Supreme Court of Canada and that they take the opportunity to give the public ( who at the end of the day consists almost entirely of employers and employees) some well needed guidance  on this important issue affecting all of Canada , except Quebec. In the Quebec Civil Code there is an express provision providing that all termination clauses must be reasonable and thus the Court can overrule any termination provision  that the Court finds is unreasonable. Vive La Difference!

 

 

 

Plaintiff Misses $25,000 Bonus because Notice Period is Short by 4 Days:

In Marques v Delmar International ( 2016 ONSC 3448 CanLII ) Diamond J. properly found that entitlement to a bonus was to be calculated as of the end of the reasonable notice period, not the date of termination. The bonus plan guaranteed a ” minimum bonus of $25,000 after your first year of employment”

The Plaintiff first day of work was August 11, 2014. He was terminated on April 7, 2015.

After assessing the Bardal  Principles the judge commented as follows:

The assessment of reasonable notice is certainly an art and not a science. The plaintiff’s age, management position and length of service all warrant consideration. The cases provided by the plaintiff demonstrate a range of reasonable notice periods.

The judge awarded him four months notice taking his notice period to end on August 7, 2015, four days short of his one year anniversary.

The Judge then said :

This is short of the 12 month anniversary of the plaintiff’s commencement dates, and as such the guaranteed $25,000.00 minimum bonus payment is not due and payable by the defendant.

The Plaintiff submitted case law to support a notice period of 7 months. The Defendant submitted no case law at all on the issue of notice.

It gets even worse. In fact the Plaintiff mitigated his damages as of July 27, 2015 which was 3.5 months after termination. Therefore the only real reason for the trial was this bonus issue . The Judge properly determined that the fact that the employee gets a job earlier or later than the notice period is irrelevant ( OCA in Holland v Hostopia ( 2015 ONCA 762 Can LII) . He identified that the determination of the notice period is an art and not a science. In other words he had a broad discretion in setting the notice period.

He exercised that discretion in such a way that the plaintiff failed to get a minimum $25,000 bonus because he missed the mark by a lousy 4 days.

 

This Plaintiff won the battle but lost the war.

Release Found to be Void due to Unconscionability:

In Saliken v Alpine Aerotech Limited Partnership ( 2016 BCSC 832 CanLII) the Court found that a release signed by the plaintiff at the time of his  termination was invalid due to unconscionability or as the judgement said ” The issue is whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial reality that it should be rescinded” .

The reasons were as follows:

1) The only consideration paid to the Plaintiff was relief from the alleged obligation to repay the balance of a training loan in the sum of approximately $8,000. The Court found that under the terms of the loan agreement nothing was owing as he did not quit but rather was terminated without cause. Thus there was no consideration for the release.

2) The Plaintiff was required to sign the release on the spot in ” circumstances of distress and concern for supporting his family”. The entire meeting only lasted 15 minutes.

3) The termination documents were false and misleading in that they wrongly suggested that the Defendant had just cause, which they did not.

4) Whether the Release was signed or not the Plaintiff was entitled to his minimum termination payments under the ESA, which was two weeks pay.

5) Given the Plaintiff’s limited education ( Grade 11) and the legalese of the Release, the Judge doubted that the Plaintiff truly understood what he signed. The meaning of the documents was not explained to him at the time .

6) He was told by the Employer that unless he signed the Release he would not receive a cheque for his outstanding wages.

Having set aside the release the Court ordered the Employer to pay 6 months notice to a 54 year old Helicopter Mechanic making a salary of $68,000 who was only with the Employer for 1 year and 3 months.

Lessons to be learnt.

NEVER have a dismissed employee sign a Release on the day of termination.

You pay nothing, you get nothing. Don’t be a cheapskate.

In Nova Scotia a Release May Not Be Effective to Avoid Reinstatement:

In Demone v Composites Atlantic ( 2014 NSLB 163) it was held that a release which gave the ex employee both his statutory minimum notice of 8 weeks plus an extra 19 weeks pay was not sufficent to displace the employees right to seek reinstatement under Section 71(1) of the Labour Standards Code of Nova Scotia.

This section provides for statutory  tenure for employees with over 10 years service, subject to various exceptions, notably just cause or a legitimate layoff . This can only be waived if the employee obtains a benefit from the employer greater than his statutory rights, including the right of reinstatement.

This is what the Board said:

24. The Respondent’s letter also refers to what is described as a payment offered to the Complainant on a ‘gratuitous basis’. Section 71(1) of the Code provides a ten year employee with statutory tenure which means that termination may only take place where the employer is able to demonstrate “just cause”. The Code does not contain a pay in lieu of notice provision for employees whose period of employment is ten years or more. Consequently, as Board jurisprudence has shown, an employee of ten years or more who has been wrongfully terminated may seek to be reinstated. It rests with the Board to determine the appropriate remedy where wrongful termination has been established. In the absence of just cause or an exemption under section 72(3) which has not been alleged by the Respondent, the Board is left to ask does the ‘gratuitous payment’ provide the Complainant with a benefit or benefits greater than those provided under the Code? The Board is of the opinion that, based upon the information as presented, the offer of 19 weeks pay is not a benefit greater than the statutory tenure conferred on the Complainant by the Code.
25. It is the finding of the Board that the Complainant in signing the Full and Final Release gave up his rights under the Code and as such the Release, for the purposes of the Code, is invalid pursuant to section 6 of the Code.
VI Disposition
26. Based upon the Board’s finding on the preliminary issues the Complainant is entitled to pursue his complaint under the Code. A hearing will be scheduled in due course to determine the substantive issues arising from the Complainant’s termination.

When that case was ultimately heard by the Labour Board on its merits, it was found that the dismissal was a legitimate layoff ( his job duties were divided between  four existing employees ) and thus reinstatement  was not available. Moreover they seemed to question the validity of the aforementioned Preliminary Order as set out in following quote from 2015 CarswellNS 695.

71. Given the findings of the Board, arising from a full hearing of this matter and despite the preliminary ruling, it is evident that the facts and arguments of this particular case do not lend themselves to making a determination on whether a Release is binding in a situation where an employer is unable to establish that an employee had been permanently laid off by the elimination of a position and was therefore entitled to reinstatement. This, therefore, remains an issue to be determined in a different case based upon the appropriate facts and full argument. Consequently, the Board’s preliminary ruling in DeMone v. Composites Atlantic Ltd., 2014 NSLB 163 (N.S. L.B.) in so far as it relates to this particular issue is varied in accordance with the Board’s findings as set out above.

As this provision is similar to the Unjust Dismissal section of the Canada Labour Code, could this logic also be applied to settlements in the federal sector where an employee receives a common law settlement, signs a release and then pursues a claim for reinstatement ?

One way to avoid this situation may be to only settle the case after the 90 day limitation period in the Canada Labour Code after insuring that no prior complaint has been filed.

 

 

Holding Companies of Operating Companies not Common Employers

In Sproule v Tony Graham Lexus Toyota et al ( 2016 ONSC 2220) the Court held that operating companies can be common employers but that is not the case for pure holding companies .

The Court said as follows:

20. The defendants have conceded that there is a potential for a finding at the conclusion of the trial that the operating companies were one “common employer”. The evidence may potentially lead to the conclusion that they all had “effective control over the employee”. However, the defendants’ position with respect to the holding companies is that there is no genuine issue for trial, in that there is no evidence that could possibly give rise to a finding that the holding companies are common employers.
21. I agree with the position advocated by the defendants. The fact that these companies are intermingled financially, even to a great extent, will not result in a finding that they had effective control over the employee. They are holding companies — nothing more, nothing less. They do not exercise directly or indirectly any control over the employees. The doctrine of common employer has no application to them on any analysis of the evidence. As such there is no genuine issue for trial.

Furthermore there is no claim against the individual owners of the companies, even when they are the controlling minds of the employer companies unless there is an allegation of fraud, deceit, dishonesty or want of authority against the individuals.

Yukon Court of Appeal Says Short Service Employees usually get 2-3 months.

In Cabot v Urban Systems ( 2016 YKCA 4) the plaintiff was employed for only 14 months as a Professional Planner. Her age seems to be in the late 40’s.

The trial judge awarded her 6 months notice but the CA reduced it to 4 months.

This is what they said about notice periods for short service employees:

23. For a short term employee the useful starting place in discussing range is the two to three months spoken of in Saalfeld and Hall. The only feature of this case that would extend that range (there being no special circumstances such as inducement, bad faith or a poor labour market) is a level of responsibility not present in those cases.
24. Adjusting the judge’s finding that six months was a reasonable notice period to take account of his erroneous reference to Ms. Cabott’s hope of returning to British Columbia, and considering the range for this type of case which I would put generally at three to four months, I would allow the appeal, set aside the order and grant judgment to Ms. Cabott based upon four months’ notice.

It should be noted that two of the judges in this case ( Mr Justice Goberman and Madam Justice Saunders) are on the BC Court of Appeal , so in essence this could easily be viewed as the BC view of notice for short service cases.

Availability of Other Employment Requires Evidence

The BC Court of Appeal in Munoz v Sierra Systems Group ( 2016 BCCA 140) commented on the burden of proof in the Bardal Factor of availability of other employment .

The Court commented as follows:

48) The employee bears the burden of proving that the notice period should be longer because of the lack of availability of suitable work. As Madam Justice Baker said in Desaulniers v. Wire Rope Industries Ltd., [1995] B.C.W.L.D. 1332 at para. 14 (S.C.):
“If the plaintiff asks the court to depart from the general range of notice periods recognized by other courts in respect of plaintiffs of similar age, seniority and position, she must establish an evidentiary basis for such a departure.”
49) In the present case the trial judge found that “neither party produced cogent evidence of similar employment at the time of termination”. Since it was Mr. Cuesta’s burden to prove a lack of availability of work, this failure falls to him.
50) Typically the burden is met by a plaintiff demonstrating his efforts to find work through job postings and applications made. In this case that evidence was not available because Mr. Cuesta chose to focus on his existing private IT company. There is no suggestion that he did not pursue other work because none was available. Mr. Cuesta deposed that this seemed to be the sensible thing to do:

At first blush it looks like the failure of the Plaintiff to lead this type of evidence would be fatal, however the Court recognized that the burden of evidence is satisfied where the Plaintiff simply shows that his diligent job search has not resulted in a job.

This case reminds us of how important it is for the Plaintiff to present a thorough and comprehensive job search record to not only show the Court that he reasonably mitigated his damages but to  further provide an evidentiary basis to find  that the lack of available jobs is a factor that should extend the notice period.

In my experience as a mediator of employment matters,  comprehensive evidence of this type of mitigation evidence is seen in perhaps 50% of the cases. This failure of the Plaintiff to properly document their job search costs the Plaintiff money at the mediation as it gives the Employer a bargaining chip to reduce the notice period.

Contract must Comply with ESA in the Future to be Enforceable:

In Garreton v Complete Innovation ( 2016 ONSC 1178 ) the Divisional Court, on an appeal from a Small Claims Court matter, found that the time to examine a contract for its enforceability is at the time of execution, not at the precise date of termination.

This was the contractual provision under review:
Otherwise Complete Innovations Inc. may at any time terminate this agreement by providing the Employee with (1) one week notice if their duration of continuous employment with the Company is more than 3 months but less than 1 year. (2) weeks prior written notice of intention to terminate if the Employee duration of continuous employment with the Company is more than 1 year but less than (3) years. If the duration of continuous employment with the Company is more than 3 years each additional year will entitle the Employee to (1) one additional week of notice to a maximum of 8 weeks. … Complete Innovations Inc. shall maintain on your behalf your employee benefits for a period of not less than the period required by applicable statute.

The defect was that it failed to provide for the payment of severance pay under the Employment Standards Act. At the time of her dismissal the plaintiff has just over 2 years service, therefore not entitled to ESA severance pay (as you must  have at least 5 years service unless it is a mass layoff).

The Employer argued that at the time that they terminated her employment, giving only two weeks notice under the contract was legal and it mattered not if she had been terminated after 5 years of service that the contract would not have been in accordance with the ESA and thus the employee would have been entitled to common law reasonable notice.

This is what the Court said on this issue:

23 While the termination clause is therefore void and unenforceable for a CI employee of more than 5 years, is it so for Garreton who was an employee of less than 3 years?
24 Garreton relies on Wright v. Young & Rubicam Group of Cos., 2011 ONSC 4720 (Ont. S.C.J.). In that case, Low J. found that a notice provision in an employment contract was void for potentially violating the Act.
25 In that case, as here, the contract provided for the proper notice under the Act given the employee’s years of employment but was contrary to the severance provisions in ss.64 and 65.
26 In reaching her decision, Low J. relied on Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986 (S.C.C.); Shore v. Ladner Downs, [1998] B.C.J. No. 1045 (B.C. C.A.) and the obiter comments by M. D. Forrestall J. in Slepenkova v. Ivanov, [2007] O.J. No. 4708 (Ont. S.C.J.) aff’d [2009] O.J. No. 2680 (Ont. C.A.). CI in turn relies on the more recent case of John A. Ford & Associates Inc. v. Keegan, [2014] O.J. No. 3995 (Ont. S.C.J.) where Price J., after considering the above cases disagreed with Low J.’s decision and held that the contract of employment, “must conform to provincial employment standards legislation for the particular employee, in the particular circumstances (para. 150).
27 With the greatest of respect, I disagree with Price J.’s conclusion. In my view, the employment contract must be considered at the time it is executed. If the termination provision is not onside with notice provisions and severance provisions (if applicable) of the Act at the outset, then it is void and unenforceable. Potential violation in the future is sufficient. As Low J. states, “It is not that difficult to draft a clause that complies completely with the Act, no matter the circumstance.”
28 Accordingly, for the above reasons, I find the termination provisions of the Agreement respecting notice to be void and unenforceable.

In the end the the 43 year old Trainer with 2.3 years service who was making $62,500 per year got a 5 month notice period, well above her ESA minimums.

In my opinion this is the correct approach as otherwise an employment contract could be legal one day and void the next, which would add considerable uncertainty to an already difficult time for both employers and employees.

Employers can easily draft clear and legal termination clauses. The Courts should not help them clean up poorly drafted ones.

Cannot Discipline an Employee by Demoting Him

In Cousins v QEC, ( 2016 NUCJ 01) the Nunavut Court of Justice held that because the Employer had a policy on progressive dismissal that did not include demotion as a disciplinary tool, when the Employer demoted the Maintenance Supervisor responsible for 14 plants to a non-supervisory position, this constituted a constructive dismissal. The 16 year employee received 18 months notice, but had it reduced to 11 months due to poor mitigation efforts.

The Court refused to read into the Discipline Policy an implied term that the Employer had the right to use a temporary demotion as part of its discipline tool chest.

Quere, if there had not been a Discipline Policy, would the Court have allowed the disciplinary demotion where they found that discipline was warranted ?

What if the Employer could show that they had just cause to terminate the employment but instead chose to only demote the employee? Would the Employer be penalized for not being tougher on the employee?

5 Year Employee Can Give One Months Notice of Resignation:

In Consbec v Walker et al ( 2016 BCCA 11 ) a 5 year employee employed as an estimator should have given one months notice of his resignation instead of walking out immediately  and going to work for a competitor.

However the Employer failed to prove any damages as it did not show that it would have incurred any significant different expenses if the departing employee would have given the required notice. Moreover this added expense has to be reduced by the savings that the employer utilized by not having to pay the departing employee’s salary for the one months notice that he failed to give.

The damages for a wrongful resignation are not the costs of replacing the employee but rather the extra costs incurred because the employee did not give reasonable notice of his or her resignation.