Business law - chapter 10: Employment law

What’s Canadian employment law

A blend of statutes (the laws enacted by federal and provincial governments) and common law principles (derived from court decisions)

Employment Standards Act (ESA)

Sets out the minimum standards for employment in BC

Employment Standards Act (ESA) [con’t]

Covers various aspects, such as minimum wage, hours of work, overtime, vacation entitlements, leaves of absence, termination, and other basic rights and obligations

Human rights code

Ensures equal treatment and prohibits discrimination and harassment based on protected grounds, such as race, gender, age, religion, disability, and sexual orientation

Workers Compensation Act (WCA) 

Establishes a comprehensive system for providing compensation to workers who suffer work-related injuries or occupational diseases

Workers Compensation Act (WCA) [con’t]

Outlines the rights and responsibilities in relation to workplace safety and health

Employees

Someone who provides services to an employer in exchange for compensation, and is generally subject to the direction and control of the employer in terms of their work

Employees (con’t)

The relationship between an employer and an employee is ongoing, wherein the work or engagement is expected to persist over a period of time, not a one-time or short-term arrangement

Unions

A group contract where a group of employees has a bargaining agent (union) negotiate a better employment contract

Independent contractor

A person who is engaged by another party to perform specific tasks or services on a contractual basis

e.g. Freelancers, tradespeople, fitness instructors

Independent contractor (con’t)

Are not considered to be controlled by the employer and therefore, are not entitled to the same rights and benefits as employees

Independent contractor (III)

Tend to have more flexibility and control over their work, and they are responsible for their own taxes, insurance, and other business-related expenses

Dependent contractors

Individuals who are economically dependent on a particular organization for their livelihood, even though they may not be considered employees in the strict legal sense; are a middle ground between employees and independent contractors 

Dependent contractors (con’t)

Has a significant economic dependency on a single organization, but, like independent contractors, they retain some degree of independence and control over their work

Employee vs independent contractor

• Vicarious liability

• Liability for wrongful dismissal

• CPP, El, Income Tax

• Applicability of employment standards law, minimum wage, vacation pay, parental leave

• Contractors: Tax advantages

• Sometimes courts now recognize
  "dependent contractors" - contractors who based on their dependence are entitled to wrongful dismissal damages.

The legal test for worker classification

• How much control there is over the individual (e.g. hours, wages, duties)

• Ownership of tools needed for a job

• Chance of a profit/risk of loss

• Amount of Integration someone and their duties have in a business

Control

The degree of control exercised by the employer over the worker. I

If the employer has significant control over how, when, and where the work is performed, it suggests an employment relationship

e.g. If a worker is required to follow specific instructions, work set hours, and report to a supervisor

Ownership of tools

Examines who provides the tools, equipment, or materials necessary for the work. If the employer supplies these resources, it leans toward an employment relationship

Chance of Profit/Risk of Loss

Considers whether the worker has an opportunity for profit or bears the risk of financial loss based on their performance

Integration

Evaluates the level of integration of the worker’s services into the employer’s business

If the worker’s services are integral to the employer’s operations, it suggests an employment relationship

What can employment contracts be formed through?

Employment contracts can be formed through verbal agreements or through a combination of written and verbal terms

Benefits of an employment contract

For employers, the written contract allows them to clearly define the terms of employment, including job duties, work hours, compensation, benefits, and other important provisions such as rights and entitlements 

Benefits of an employment contract (con’t)

Employers can also use employment contracts to protect their business interests by including provisions such as probation, non-disclosure agreements, non-compete/non-solicit clauses, or ownership of intellectual property rights clauses

What’s needed to make an employment contract enforceable?

1. Offer

2. Acceptance

3. Consideration

4. Intention to create legal relations

5. Capacity

6. Legality

Sources of contractual terms

1. Statutory law

2. Common law

3. Collection agreements (e.g. Unions)

4. Individual contracts

Express terms

Terms explicitly agreed upon by the employer and employee; are typically set out in writing

e.g. working hours, job duties, benefits, termination procedures, etc

Ancillary terms

Terms set out in company policies or handbooks

e.g. Code of conduct, disciplinary procedures, leave policies, confidentiality agreements, etc

Ancillary terms (con’t)

They can have legal enforceability if they are communicated to the employee and included in the contract

e.g. If an employment policy prohibits discrimination or harassment, this policy would be enforceable if the employee is aware of the policy and the policy is properly incorporated

Implied terms

Terms not explicitly stated but are assumed to be part of the employment relationship; are typically required because of statutes passed by governments requiring them to be included, or they are implied because of the common law

e.g. Duty of an employer to provide a safe working environment, the duty of an employee to perform their job competently, and the duty of both parties to act in good faith during the employment relationship

Probationary clauses 

A period of time during which an employee’s job performance is evaluated to determine if they are suitable for long-term employment with the company

Probationary clauses (con’t)

Provides employers with a degree of flexibility in managing their workforce, as they can terminate an employee if they are not meeting the employer’s expectations during the probationary period

What must be done to place an employee in a probationary period?

There must be a probation clause in the contract

Legal test to enforce a probationary clause

1. whether the employee was made aware of the basis for the employer’s assessment of suitability before or at the commencement of, employment

2. whether the employer acted fairly and with reasonable diligence in assessing suitability

3. whether the employee was given a reasonable opportunity to demonstrate his or her suitability for the position

4. whether the employer’s decision was based on an honest, fair and reasonable assessment of the suitability of an employee, including not only job skills and performance but also character, judgment, compatibility and reliability.

Ownership of Intellectual Property Clauses

Employers can include “intellectual property clauses” or “IP clauses” in the contract to alter the presumption of ownership over the works created by the employee

Ownership of Intellectual Property Clauses (con’t)

An employer-required intellectual property clause will seek to establish that the employer is the ultimate owner of the intellectual property rights, even if the creation was done by the employee

Restrictive covenants

Legal clauses in an employment contract which impose certain limitations or restrictions on the employee’s activities even after leaving the organization

Restrictive covenants (con’t)

Are intended to protect the employer’s legitimate business interests, such as confidential information, trade secrets, customer relationships, or proprietary knowledge

Non-Disclosure Agreements and Confidentiality Clauses

Prohibits employees from later disclosing or using confidential or proprietary information they obtained during their employment

Non-Solicitation Clause

Prohibits employees from soliciting or poaching clients, customers, or other employees of their former employer for a certain period after termination

Non-Solicitation Clause (con’t)

Safeguards a company’s relationships and prevents unfair competition. 

e.g. it’s reasonable for a sales representative to agree that they will be restricted from contacting their former clients or attempting to recruit colleagues from their previous organization for a period of six months after leaving the company

Non-Competition Clause

Prevents employees from working for or starting a competing business within a specified geographic area and time frame after leaving their current employer.

Legal Test for Enforcing a Restrictive Covenant

1. Does the covenant protect a legitimate proprietary interest of the employer?

2. is the covenant reasonable between the parties in terms of:
   (a) temporal length;
   (b) spatial area covered;
   (c) nature of activities prohibited; and
   (d) overall fairness;

3. are the terms of the covenant are clear, certain and not vague; and

4. is the covenant reasonable in terms of the public interest.

Termination clause

Written contractual clauses that define the amount of notice or pay-in-lieu of notice that an employer must provide to an employee upon termination.

Termination clause (con’t)

Often used to limit severance obligations and provide certainty to both the employer and the employee about what is owed on termination

Legal Test for Enforcing a Termination Clause

1. Is the termination clause expressed in the contract?

2. Is the termination clause clear and unambiguous: and

3. Does the termination clause offend the relevant employment standard legislation? (musn’t provide less than the minimum required by the provincial/territorial employment standards legislation_

Just cause (Termination with cause)

Situations where an employer terminates an employee’s employment due to serious misconduct or a fundamental breach of the employment agreement

Just cause (Termination with cause) [con’t]

Are generally considered to be the most serious form of disciplinary action an employer can take, as it severs the employment without any reasonable notice or pay-in-lieu

Legal Test for Just Cause

• The Evidence Establishes the Misconduct – The employer must have evidence that the employee engaged in the alleged form of misconduct. It is not sufficient to use a cause for the suspicion of wrongdoing. Rather, the employer must have evidence that proves, on balance, the employee committed the misconduct. To satisfy this burden, employers should conduct a thorough and good-faith investigation into the allegations of misconduct.

• The Misconduct Warranted Summary Dismissal – The employer must demonstrate that the employee’s misconduct was of such a serious nature that it warranted immediate termination without any notice or severance pay. This requirement is often referred to as “summary dismissal” or “summary termination.” It means that the misconduct was severe enough to breach the employment contract fundamentally or to undermine the employment relationship to the point where continued employment is no longer feasible.

Dishonesty 

Must be of such a nature that it fundamentally undermines the employment relationship, breaches the trust between the employer and employee, or impacts the employee’s ability to fulfill their duties effectively.

e.g. An employee is caught stealing from their employer or falsifying their time sheets

Insubordination

An employee’s willful refusal to comply with a reasonable and lawful instruction given by their employer

Legal Test for Insubordination

1. the order must be either clear and specific or must be a breach of policies and procedures well known by the employee;

2. the order must be within the scope of the employee’s job duties;

3. the order must be reasonable and lawful;

4. the disobedience must be both deliberate and intentional rather than resulting from an honest mistake as to whether the order was still in effect or under the reasonable belief that he was not contravening orders;

Legal Test for Insubordination (con’t)

5. The order must involve some matter of importance;
   unless the act of disobedience is particularly serious it has to be repeated, rather than be an isolated act of disobedience, in order to constitute cause;

6. it must be shown that as a result of the disobedience the relationship was so damaged that it could not be carried on;

7. it must be shown that the employee understood or should have understood that he ran the risk of being terminated for disregarding the order.

8. if there is a reasonable explanation for the disobedience, it will not be cause for discharge; and

9. There will be more latitude shown to long-service employees.

Incompetence

An employer must be able to demonstrate that the employee is unable to perform the essential duties of their job to an acceptable standard, despite being provided with adequate training, supervision, and support

Breach of company policy

Policies like workplace code of conduct’s, conflict of interest policies, workplace harassment policies, confidentiality policies, or a general employee handbook

Legal Test for Breach of Company Policy as Just Cause

1. The rules must be distributed;

2. The rules must be known to the employees;

3. The rules must be consistently enforced by the company;

4. The employees must be warned that they will be terminated if a rule is breached.

5. The rules must be reasonable;

6. The implications of breaking the rules in question are sufficiently serious to justify termination; and

7. whether a reasonable excuse exists.

Off-duty misconduct

When an employee engages in conduct during their personal time that affects their employer’s interests, reputation, or the employment relationship itself

Off-duty misconduct (con’t)

• Criminal convictions

• Significant social media misconduct

• Conflict of interest

Legal Test for Off-Duty Misconduct

1. The conduct of the griever harms the Company’s reputation or product

2. that the griever’s behaviour renders the employee unable to perform his duties satisfactorily

3. The employee’s behaviour is to refusal, reluctance or inability of the other employees to work with him

4. The griever has been guilty of a serious breach of the Criminal Code and thus rendering his conduct injurious to the general reputation of the Company and its employees

5. places difficulty in the way of the Company properly carrying out its function

Condonation

The act of forgiving or overlooking an employee’s wrongdoing; can occur if an employer chooses not to take disciplinary action against an employee for a particular offence or misconduct

Condonation (con’t)

An employer decides to terminate the employee and uses undisciplined lateness as the basis for cause. The employee may argue that the termination is wrongful because the employer “condoned” the employee’s habitual late arrival

Terminations Without Cause

• Lay-offs

• Dismissals

• Constructive dismissal

Lay-offs

Occur when an employer needs to reduce its workforce due to reasons such as financial difficulties, restructuring, or technological advancements

Dismissals

The termination of an employee’s contract by the employer; could be on a for cause basis or may be on a without cause basis

Constructive dismissal

Occurs when an employee resigns from their position due to the employer’s behaviour or actions that fundamentally breach the terms of the employment contract; it is legally treated as a termination by the employer’s conduct

Implied Term of Reasonable Notice

An implied term that states employers are required to provide the employee with reasonable notice or pay-in-lieu of that notice period for without-cause dismissals

Determining the Notice Period under common law

Is often more flexible and takes into account various factors beyond just the employee’s length of service; establishes a rough starting point of one month of notice for every year of service.

Determining the Notice Period under common law (con’t)

Its essence is to establish an amount of time that would be required for the employee to secure alternate employment

The basis for calculating reasonable notice in Canadian employment law

• Length of Employment – the court takes into account the length of time the employee has been with the company. Generally, the longer the employee’s service, the longer the reasonable notice period should be.

• Age of the Employee – the court considers the employee’s age at the time of dismissal. Older employees may require a longer notice period to secure comparable employment due to their potentially reduced employability.

• Character of the Employment – the nature of the employee’s position is taken into account. Higher-level positions with specialized skills or responsibilities may require a longer notice period to find comparable employment.

• Availability of Similar Employment – the court considers the availability of other job opportunities for the employee in their particular industry or geographic area. If there are limited job prospects, a longer notice period may be warranted.

Determining the Notice Period under provincial employment standards

The Employment Standards Legislation specifies a minimum notice period based on the employee’s length of service; the starting point is one week per year of service

Determining the Notice Period under provincial employment standards for group terminations

• at least 8 weeks if 50 to 100 employees will be affected;

• at least 12 weeks if 101 to 300 employees will be affected; or

• at least 16 weeks if 301 or more employees will be affected.

The purpose of implied Term of Reasonable Notice 

To give the employee a reasonable amount of time to find another job, and to allow them to make necessary arrangements for the loss of their income

What happens if an employer fails to provide the required statutory notice?

An employee may pursue a complaint to the appropriate employment standards organization

What happens if an employer fails to provide the required common law notice period?

The process for enforcing a claim for common law notice is done through a lawsuit; dismissed employees generally have a two-year limitation period starting from the date of termination to pursue their action for reasonable notice damages

Mitigation

The steps that an employee must take to minimize the damages that they have suffered as a result of an employer’s wrongful dismissal

e.g. looking for new employment or taking on temporary work in order to reduce the amount of lost income

Why should employees take steps to mitigate their damages?

The amount of damages that an employee can recover in their action is limited by the amount of effort they put into mitigating their losses in many cases